Advertising Disclosure
  1. Home
  2. Community
  3. Miscellaneous
  4. Pulled The Trigger

Pulled The Trigger

Bozo
  |     |   1,375 posts since 2011

Yes, friends and neighbors. I finally pushed the "sell" button. The stock market was getting a little crazy, so I took a bit off the top (my gains for 2017 thus far). Plopped those gains into VBTLX.

My international fund (VTIAX) was up over 22% YTD, just weird

My wife was too funny. She said "you won't make anything in bond funds".

I noted, with some accuracy, "I don't harvest a profit in a correction, or a bear market." It is ever so much easier to take profits in a rising market.

As a contrarian investor, I do drive my wife nuts.

  Post a comment
4


Kaight
  |     |   1,192 posts since 2011
Prudent in my view:

https://www.bloomberg.com/news/articles/2017-09-28/investors-expect-stock-market-correction-and-fear-for-retirement

https://www.cnbc.com/2017/09/29/david-stockman-tax-reform-plan-is-pipe-dream-stocks-to-plunge-40-70-percent.html

Mind you I have no clue whatsoever where the stock market is headed . . . or interest rates for that matter. Various types of investments have two distinct rates of return, to wit:

*the nominal rate
*the risk-free rate

Said another way, returns on all investment types must be adjusted for risk. Thus, for example, with a CD the nominal rate of return is equal to the risk-free rate, setting aside tangential considerations beyond the scope of this post. Stocks today offer a far higher nominal rate of return than certificates of deposit. But the risk-adjusted rate for stock investments is another matter entirely, except:

Except for you, Bozo, and your having transformed those nominal returns into real returns when you sold some of your stocks. You will never go broke by taking a profit. Congratulations!!
Reply
5
me1004
  |     |   1,381 posts since 2010
Well, as usual, everything is unknowable and uncertain.

It certainly seems one of the more major things pushing stocks is the expectations about a significant -- or even as Trump wants, a "really huge" -- tax cut coming up. The market is always speculative, it is priced at what is expected at least six months forward, not at what things are like now. And however much a cut it ends up at, the widespread consensus is that there will be a significant tax cut, Democrats will be voting for a tax cut of some sort.

Still, at some point, stocks will be or already are priced even beyond what a significant tax cut would justify. But at just what price is that, how big with the tax cut be, how will it be structured?

Another part of the equation is what the Fed will do with interest rates. Right now, the speculation is that the Fed will raise rates again in December and three times next year. But that is based on all else equal, in particular the makeup of the Fed. And in reality, Trump is about to completely remake the Fed in his image, and the latest indications sound like he will be replacing Yellen, and there are a few other vacancies coming up too, so he will be able to swing the Fed to his will very soon.

Trump wants rates to remain low. A big tax cut in the face of full employment, very low Fed rate, a major increase in military spending, maybe a nuke war with North Korea, to hell with any common economic sense. This, of course, would spell economic crash and runaway inflation -- not good for investments in much of anything, only thing to reliably hold principal, but not value, would be in FDIC insured savings.

Bonds? Among the worst choices in the face of rising interest rates. But then, will there be any more increases beyond December if Trump remakes the Fed? If not, just hope the disastrous economy that ensues -- see paragraph above -- doesn't bankrupt the bond issuer.
Reply
2
Bozo
  |     |   1,375 posts since 2011
me1004, I agree that VBTLX, as a stand alone investment, will suffer in a rising-rate environment. If you want to take a little off the top at Vanguard, your options are somewhat limited. You can go VBTLX, VMMXX (which pays just north of nothing these days), or transfer out and buy a tasty CD. I think you see where I'm going. That 1st United 3% 3-year. All things considered, not really a difficult decision.

VBTLX fares poorly when compared to a 3%, 3-year CD. While VMMXX (Vanguard's money market fund) should stair-step up, I doubt we'll see anything approaching 3% in the next three years.

So, (a) open an after-tax 3% 3-year add-on with wife, and (b) initiate a custodian-to-custodian transfer of VBTLX to an IRA CD of same rate and term.

I'm looking forward to the drive to Pleasanton next Monday.
Reply
3
me1004
  |     |   1,381 posts since 2010
I understand. I don't know what decision will be right -- but I do have a 100% record on making such moves as this at the right time, I have been 100% wrong. Every last time it has been this obvious and I have made a move as you are doing, I have l lost a bundle. The big unknown about bonds now is what Trump will do to the Fed, and thus whether rates will continue up next year.

I actually thought we were going to be in this situation a year and a half or two ago when I expected the Fed to finally be boosting rates, but they did not, and then in the past year did so only excruciatingly slowly. So I already got out of bonds, and put that into value stocks, which generally hold up much better in a bad market. In fact, I put some into the Vanguard Capital Value fund, which had been doing very impressively, but as soon as I did, it plummeted, and it has been my worst performer, and the stock market boomed with the Fed so slow about raising rates. And we savers suffered for that slowness, just about 10 years into low rates now -- the lost decade. :(
Reply
3
Bozo
  |     |   1,375 posts since 2011
me1004, Bozo's rule. Never let green fade to red. It's an old stock picker's saying. Right up there with "you'll never go broke by taking profits too soon."
Reply
2
Bozo
  |     |   1,375 posts since 2011
Mind you, I took half off the table back in 2006, and built a CD ladder with the proceeds. Then, well, we know what happened in 2008.
Reply
3
me1004
  |     |   1,381 posts since 2010
I moved this to bottom -- but can't delete this, sorry.
Reply
2
Kaight
  |     |   1,192 posts since 2011
The Economist has opined:

https://www.economist.com/news/leaders/21730019-ultra-loose-monetary-policy-coming-end-it-best-tread-carefully-asset-prices-are
Reply
4
Bozo
  |     |   1,375 posts since 2011
Kaight, The Economist? That lefty news rag which arrives in our mailbox each Saturday? When The Economist starts to get nervous and jerky about Mr. Market, one gets gladder and gladder to have been in front of the stampede. I've seen the end of bull markets; they never end well.

Lopping off profits, in my humble opinion, is radically different than a wholesale shift in asset allocation.
Reply
3
Bozo
  |     |   1,375 posts since 2011
Kaight , re yours of 10/5, the recent cover of the Economist (print edition for 10/7 - 10/13) is just too precious. If you don't subscribe, see if you can find it. The cover is supposedly a bull with weird horns with all sorts of assets flowing therefrom. On closer look, the animal looks like a cross between a goat and a sheep. Which might be apt. Goats eat anything; sheeples, well, that's a standing joke.
Reply
1
Kaight
  |     |   1,192 posts since 2011
Just want to reiterate I've no clue where the stock market is headed. As an early retiree I never believed I had the option of playing in the stock market casino. Instead I took my cue from former Presidential candidate Ross Perot, who remains alive today. Mr. Perot invested heavily in municipal bonds, as did I for many years.

But more important, Perot taught the importance of having wealth adequate to make stock market investing unnecessary. Such market eschewing retirees require sufficient monetary cushion to endure the (mostly) lower returns of bond and CD investments . . . except when they're not, of course. I don't gamble, either. I've never visited Las Vegas and I have no travel plans currently . . . especially not currently. Instead have long been content to forego the possible dopamine hit from stock market and Vegas gambling in return for not having to work.
Reply
4
Bozo
  |     |   1,375 posts since 2011
Kaight, your prose is too funny. Anyone who reaches down into his or her grammar file and finds the verb "eschew", well, I give it two thumbs up. Also love the "dopamine hit". Keep writing, we're biting, it's exciting, no fighting.

Speaking of Presidential candidates, I would have hoped Mitt Romney would now be in his second term. Boy howdy, did I get that bet wrong.
Reply
2
me1004
  |     |   1,381 posts since 2010
Good rule, Bozo,  never let green fade to red -- except that could be undermined by what you do with the profits you just took, whether you will keep them or they magically disappear in whatever investment you put them in. :) And timing; that will always undermine you. Anytime you pull out, and later realize you timed that very wrong, it can mean you missed the huge runup -- the reason some say to stay for the long run.

In fact, while many investors are now fearing a significant correction, the overall consensus seems to be that you should merely lower your expectations of how much stocks will go up, lower that to 7-7.5% per year for the next couple-few years. Up, not down. AND, consider, while so many voices are fearing a correction, they are pumping money into stocks and pushing them up -- they do not seem to be putting their money where their mouth is.

Bozo, you suggested you are a contrarian. Well, consider this one alternative view, where some market veterans are actually seeing signs of an imminent "melt up" of the stock market, fueled by excessive credit and a timid Fed (and especially timid if Trump has his way):

http://www.marketwatch.com/story/why-stocks-may-be-on-verge-of-a-melt-up-2017-10-04?siteid=yhoof2&yptr=yahoo

So, is the market at a high or at a low?! Again, timing, timing -- it will get you every time.
Reply
1
Bozo
  |     |   1,375 posts since 2011
me1004, taking my gains "year-to-date" off the table actually didn't move the needle all that much. I checked my snapshot at Vanguard, and my asset allocation went from 95/5 to 85/15.

Granted, I have a few IRA CDs. I hope to have one more in the near future (that tasty 1st United 3%, 3-year). As I noted, when I lop it off, it stays lopped. It's now my money, not pixels on a screen. It's never market-timing if you have the proverbial "lock box".

I would agree that folks who try to time the market usually are disappointed by the results. On the other hand, folks who harvest gains and plop said gains into tasty CDs, are seldom disappointed. Market timers need to be right twice. Market harvesters are, by definition, always right.

As farmers say "Don't brag about the crop. Brag about the harvest". Yes, I grew up in Kansas
Reply
3
Bozo
  |     |   1,375 posts since 2011
me1004 well, that 1st United 3%, 3-year CD went "poof" quickly, did it not? It was supposed to be in effect until 10/31 but Halloween came early. Can't brag about the crop or the harvest, if you can't plant the seeds.
Reply
2
me1004
  |     |   1,381 posts since 2010
Today, Saturday, is the last day for that offer -- wish I had cash available and lived in that area.

Yes, if you put the money into CDs, you won't lose anything, as you might in bonds, although of course if there is a big runup, you will miss out on that.

Might be better to look at how much you have in the market, and consider your long term asset allocation of that. But definitely consider your assets outside Vanguard too -- bank and other. For example, you have Vanguard showing you at 85/15 now. But if you have just as much in CDs, then your allocation is really close to 50-50. If you really had all your assets at 85 stocks/15 bonds -- you would be crazy. :) But if looking at what you think should be the long term allocation of that, you might think 60 bank/40 market, and so cash out as you are doing but to CDs.

But again, in advance, which all of this always is, no one really knows, even the top professionals, so everyone has to make the best choice they can -- and hope. Gee, the fact that no one really know,not even the pros, is why Vanguard has make a big push into index funds, give up on even Vanguard's pros trying to predict, just settle for the index average. Vanguard says the index funds do just as well, but with little trading generate little annual taxable payouts.

So, nobody is right or wrong in what they decide now -- until about six months from now and we find out what really happened. :)
Reply
4
Bozo
  |     |   1,375 posts since 2011
me1004, re your post of 10/7, if you tote up our entire portfolio (excluding real estate), our asset allocation is entirely age-appropriate, and a very dull-and-boring 40% equities/ 60% fixed income. The fixed income itself is quite boring, as it is 50% IRA CDs, 30% bond funds and 20% after-tax cash.

I suspect the reason I "took some off the table" is behavioral psychology. The recent Nobel prize-winner (I forget his name), along with Kahnemann (sp?), pioneered the concept of behavioral economics. Economists always thought we humans acted in our best interests; behavioral economists proved we don't.

Enter the contrarian. When you feel the animal instincts, the "momentum" urge, it's time to sell. For those who watch CNBC, the "tell" (using a poker term) is when the folks start crowing about "all-time highs". Take your profits. Don't necessarily "cash in your chips", just take a bit off the top. Plop the proceeds as far AWAY from the asset sold as possible. In my case, just recently, it was from equities to VBTLX. Don't look back.
Reply
2
Bozo
  |     |   1,375 posts since 2011
Might I say, this drives my wife totally bonkers. Going back to 2008 - 2009, she wanted to bail on the market. I was buying. Just this month, when I culled our equities, she thought me nuts. It's hard to explain a contrarian philosophy when it comes to investing. A lot of it is just intuition.

When you sell at a profit and plop the proceeds into a bond fund or savings account, you only have to be right "once".
Reply
3
Bozo
  |     |   1,375 posts since 2011
OK, OK, purists will note bond funds are not the safest depository in a rising-rate environment. I agree. That said, they may easily be transitioned to a CD ladder.
Reply
1
Bozo
  |     |   1,375 posts since 2011
Further to my post, the "lead" on Yahoo Finance this morning: "S+P, Nasdaq at all time highs". I've seen this movie before. It's time for popcorn.

I mean, seriously? I've seen momentum markets a few times in my life. This one is stunning. And I don't mean that in a favorable way. Remember the traders' adage: never let green fade to red. It is ever so much easier to sell when the other fool is buying.
Reply
1
Bozo
  |     |   1,375 posts since 2011
Perhaps I'm paranoid, but I shifted another $20,000 from VTSAX to VBTLX last Friday. This "melt-up" has been going on for far too long. "Captains Courageous" is one thing; "Captains Outrageous" is another. When equities are on a roll, as they have been for many years, it's hard to call "no mas" (no more). Just taking a bit off the top, bit by bit. Bond funds have their weak spots; in a rising-rate environment, bond funds will lose value. But, and this is a serious but, they will seldom lose as much as equities in a tanking market. One can also transition bond funds to CDs. As I do, periodically.
Reply
3
Bozo
  |     |   1,375 posts since 2011
Well, it took a day or two, but my gains are now "booked".
Reply
2
Bozo
  |     |   1,375 posts since 2011
I went back and checked last Friday, and my gains in my Vanguard account were close to $80,000 YTD. I proceeded to whack off another $20,000 into VBTLX. I am not real confident in this market. If Mr. Market goes up, fine. I still have a substantial position. If it tanks, I will know I harvested my gains while the getting was good.
Reply
2
Kaight
  |     |   1,192 posts since 2011
Do individual bonds if you like (choose very carefully). I did that for many years, made a LOT of money and never lost a dime. Do certificates of deposit if you prefer, or do them or in addition to bonds. That's what so many of us do today and, with Ken's help, we have had good outcomes.

But be attentive to this caution: do not do bond funds. Steer clear, especially now. Bond funds are a pestilence. You have been warned.
Reply
1
Bozo
  |     |   1,375 posts since 2011
Kaight, I've never been a fan of bond funds in a rising-rate environment. In a rising-rate environment, they suffer as a stand-alone investment. However, they have a function. For example, many 401Ks do not offer better fixed-income alternatives. If you want to balance your 401K with low-cost index funds, VBTLX might be as good as it gets. VBTLX is also good as a "holding tank" while you're searching for a tasty CD. It can also be a reservoir for your RMD.

I suspect "pestilence" was an over-reaction. Bond funds have risk, but locusts descending on the crops?
Reply
1
Bozo
  |     |   1,375 posts since 2011
Moving right along, many folks don't realize they own a balanced indexed bond fund when they buy VBIAX. VBIAX is 60/40. Guess what that "40" is?
Reply
1
Bozo
  |     |   1,375 posts since 2011
NAVs on bond funds were great from the early 80s to just recently. As yields plummeted, NAVs rose. The irony is, many SWR calculations were based on those rising NAVS. As I have mentioned in other threads, going forward, it is well to assume the "terrible twos" have arrived. Two percent growth, two percent dividends, two percent inflation, two percent interest and bond fund rates. To my knowledge, no recent SWR study has taken these parameters into account.
Reply
4
Kaight
  |     |   1,192 posts since 2011
"Pestilence" actually overrates my view of bond funds. Course, OTOH, for anyone looking to lose money they are the perfect ticket to doom.
Reply
1
Bozo
  |     |   1,375 posts since 2011
Kaight, your "end-of-the-world" view of bond funds might be a bit of an over-reaction. As I noted, as stand-alone investments, bond funds have issues. That said, if you have a long-enough horizon and a low-ER bond index fund, you should be OK. Were I to pick my poison, well, I pick laddered CDs. Problem being, many (most/all?) 401Ks don't offer CDs as an option in fixed-income. Stable value funds (which used to be an option) were eliminated from my wife's 401K.
Reply
1
Bozo
  |     |   1,375 posts since 2011
Moving right along, I've never seen fixed-income in my asset allocation as a money-maker. It's ballast, the weight to keep the ship aright. If all else goes to heck in a hand-basket, my fixed income keeps me afloat.
Reply
2
Bozo
  |     |   1,375 posts since 2011
Shedding another 20 shares of VHT in my Schwab account. Seriously, I have no faith in this market. If folks want to keep buying, I'll keep selling. It's all pixels on a screen until you push "sell".
Reply
2
Kaight
  |     |   1,192 posts since 2011
Nope. No over reaction. Bond funds suck. Trust me, they really do! They are very dangerous investments.
Reply
1
Bozo
  |     |   1,375 posts since 2011
Kaight, why are you so down on bond funds? Granted. high-yield bond funds which invade principal to pay dividends are sketchy. But your garden-variety intermediate-term bond fund (think VBTLX) is hardly "dangerous". Granted, when rates go up, the NAV will go down. That's a given. But, over time (the duration of the fund), the fund will buy new bonds at higher yields.

All things considered, bond funds are much less risky than equity funds. Equities can tank by 50% in the blink of an eye (in geologic terms). I don't think I've ever seen VBTLX plunge in such a fashion. Think back to 2008 - 2009.

I would agree that watching one's NAV in a bond fund decrease by more than the monthly dividend is disheartening. But "dangerous" is a stretch.
Reply
1


The financial institution, product, and APY (Annual Percentage Yield) data displayed on this website is gathered from various sources and may not reflect all of the offers available in your region. Although we strive to provide the most accurate data possible, we cannot guarantee its accuracy. The content displayed is for general information purposes only; always verify account details and availability with the financial institution before opening an account. Contact [email protected] to report inaccurate info or to request offers be included in this website. We are not affiliated with the financial institutions included in this website.