TSX Crash

[DanielCarrera]

I don't believe in forecasting and tea-leaf reading, but I hope this guy is right because I am going to be a buyer of stocks in the future. A market crash is good for buyers.

[mw]

Not all market crashes are created equal.

Are you prepared for years of grinding down, false rallies, failing companies, decreasing dividends, and negative or poor returns? That's one style of crash and burn. Not all down turns are of the 1998 nature -- fast down and then bounce only to never look back.

[DanielCarrera]

Not all market crashes are created equal.

Are you prepared for years of grinding down, false rallies, failing companies, decreasing dividends, and negative or poor returns? That's one style of crash and burn. Not all down turns are of the 1998 nature -- fast down and then bounce only to never look back.

As long as it's no more than 15 years I'm happy. I will be a net buyer of stocks for much more than 15 years, so having a very short-lived crash would not help me all that much. If I was later into my investment career, I might wish for a short crash, but at this stage in my life I don't have the capital to benefit as much as I'd like from a short crash.

[mw]

Good for you - a long term outlook is important. What I mean by that is different than the popular wisdom. I don't believe in "invest for the long term", what I believe in is "invest in oneself for the long term", meaning spend the time to gain investment knowledge and put that knowledge to work as best suits your own abilities and temperament.

As dour as I can be on equity markets, and on various actors within, I still believe there are great profits to be made from exploiting financial markets.

When the market is performing poorly for long periods of time it will try most people's patience and tend to drive them away from equity or other financial investment. We see the "fad" factor playout in market cycles. When the equity market fell out of favour it was a great time to be buying while people drove up housing prices to bubble highs and played party poker. Fad to fad. Repeat.

Someone that sticks to financial markets and gets in tune with its moods can do well, over a lifetime. Fortunately when the market is in a funk, one doesn't have to spend tons of time monitoring the market to be able to pick up on its major changes.

[Sensei]

Hi,

Your fund choices look as good as any and fairly conservative as they are. Also good is the low MER. Are you in fact doing any basic risk minimizing stuff like dollar cost averaging and rebalancing when your percentages get too out of whack? Also, what is your investment horizon? If it's 10 or more years, a crash would not be a problem, no? The couch potato portfolio is the correct strategy.

If you really can't sleep at night, just chuck the whole works into a high interest savings account.

Cheers

[George$]

I would like some advice on how I should re-invest my RRSP $ assuming that a stock market crash will occur. Currently most of it is in equities.

Why?
Don't get into market timing. The odds are against you winning.

If you are more than 15 years away from retirement let the crash happen, IF it really does crash, then ride out the recovery. That is the nature of long term investing.

However if your close to needing the money for retirement or a house purchase and cannot risk the volatility - of course go into less volatile and lower return assets.

BUT whatever you do minimize your frictional costs..

My sunday morning two cents ..

[queerasmoi]

If the market does crash, just make sure to obey your rebalancing strategy.

It looks like you have a 40-20-20-20 portfolio within a few percents. Suppose the markets crash and your portfolio becomes 51-15-14-20 in bonds-Cdn-US-Global. Then you will want to sell off that extra 11 in bonds and put it into Cdn & US equities. There's no guarantee you're at the bottom of the crash, but you have still "bought low" in relative terms.

(edit) or, of course, you could also calculate how much money you'd have to add to equities to bring your bonds back down to 40%. And if you can afford to set that aside, do it

[parvus]

The 'RULES' are 'different' in the Global Economy.

Do not be surprised to learn that there ain't NO free lunch. However, the opportunities are better and bigger than ever before...It's ALL about MONEY...MEGA-Money.

Hmm. Makes it harder to put in the minimum and pull out the maximum, doncha think? You moving to SK, by any chance, my esteemed @>--;-- ... to pick up those sawbucks everyone keeps not paying attention to?

[Operabob]

If the market crashes buy.

OB

[blackball]

If the market crashes buy.

OB

I second OB's suggestion

[mw]

I third it!

But the key question is... when.

What will the next, whenever it happens, broad market correction in Canada look like? Some argue its already here but hidden.

Will it be a fast dash to a bounce-able bottom, a la 1998? Or an inexorable grind down that last years?

Its an important question, if one wants to maximize the profit potential from such an event.

If the Canadian broad market index follows US and world markets, its unlikely that the first major low to come around will be anywhere near the last major low.

The US markets have been in a bear market now since last summer. I define bear market as a series of lower swing lows and lower swing highs on a large time frame chart such as the weekly or monthly chart. The Dow is off almost 17% from its highs, and if it doesn't hold the 2008 lows (very near by) is likely to decline in to the summer 2006 lows before halting and even that may not be *the* bottom. (Such a decline will being Dow to near 10800 / a 25% decline).

Will the TSX follow? I can't answer that, although I can guess at what would cause it: a) surprising surplus supplies (unlikely) or b) over regulation in commodity markets causing a price crash.

<some amount of hyperbole on>

If the case of B, the TSX will plummet with the price of oil violently but probably relatively briefly as it is quickly discovered that suddenly millions of barrels per day of supply become uneconomic and are turned off. If the situation persists, exploration, particularly costly exploration, will cease almost on a dime. Paradoxically in the end the energy sector after being ravaged prices will rise in parabolic fashion as supply will become vastly tighter and modern society will be is condemned to return to the campfire for winter heating.

<hyperbole off>

[Operabob]

But the key question is... when.

My feeling is the greatest damage will likely be in the first 2 days.

If you're long term and not a frequent trader I'd be looking to buy then.

It's not market timing just playing percentages.

OB

[mw]

When I think of the market I rightly or wrongly or because of long habit think of the U.S.

This talk of decoupling - premature, in my opinion. After all the same issues are prevalent in the U.K. (housing, credit, inflation) and generally true across Europe (credit, inflation and housing in some areas). Economic slowdown in the two largest economic zones is not going to be resolved quickly.

What is probably different, this time, is that if it is exacerbated by persistent high oil prices which continue even higher due to real supply issues, much of the Canadian economy will be savaged as well, even if the TSX doesn't show it.

Will high prices cure high prices? Eventually but if they are so high as to stall certain economic activity, there'll be nothing to celebrate. Again it will all depend on why prices are high. At this point I still believe that supply and demand are the major factors, not speculation. Speculation is merely a side-effect from investors realizing there is a long term, not short term, problem.

And if peak oil is already here, and we start seeing actual declines in world wide output - as we should at that time - there'll be no lack of high prices only less and less economic activity as a something of a semi-permanent feature of the world until we sort out alternatives. That's the danger of not acting quickly enough to have alternatives in place.

And that's why the 'when' of this possible, some say likely, event is so critical.

I hope its not soon; I hope then we also learn from this episode of very quick oil price gains and start working seriously on alternatives, finally. But if prices do back off I am not hopeful we will take the right steps given the nature of humans and our present day politics.

[queerasmoi]

Its an important question, if one wants to maximize the profit potential from such an event.

Except that this is a passive indexing strategy, so it should be more about minimizing stress while still doing reasonably well

[brucecohen]

Every pension jurisdiction now has a "small plan" rule. This rule permits the unlock of a LIRA/LRIF/LIF whose value is below the prescribed level and transfer of that money to a regular RRSP or RRIF. Prescribed levels vary but are typically 20% or 40% of the YMPE measure of average national wage. Some jurisdictions set an age requirement that offers this only to those at least 55 or 65.

The bottom line is that if you have a small L-plan that got hammered in the crash, see if the value is low enough to do an unlock and roll. The current YMPE is $44,900 so 20% would be $8,980 and 40% would be $17,960. On Jan 1 the YMPE will rise to $46,300.

Here are website links for the various pension regulators across Canada.

[Shakespeare]

Well, the old TSX Crash thread is in the archives, so I guess it's time for a new one.

Off 400 points today.

[NormR]

I wonder how many traders will want to hold through the weekend ...

[petfiora]

sell and pay the tax on capital gains???
Can't afford that either.
hold and bite the bullet.

[Norbert Schlenker]

Yeehah!

I know that when I see a topic like this start at FWF that it's time to buy HXU. Long at -407.

Added: Flat at -330.

Going out to play.

[NormR]

Ah, Norbert picking up dimes in front of the steamroller again.

[kcowan]

Norbert, I just noticed your new location. Does that imply that the argument holds water (back)?

[big easy]

On the face of it, this is a story about the debt/deficit woes of the US and Europe.

Since January the S&P500 is up 4%, EAFE up 2% and representing the fiscally immaculate, the TSX is down 4%.

What I find most perverse, is that the stock market that has recovered the most since the crash of 2009 (and almost crawled back to break even) was, wait for it, the S&P500. If we are so much better off with our superior banking and financial system and selling resources to the go-go emerging markets, then what gives?

Edited for grammar.

[AltaRed]

When our major trading partners catch a cold, we catch pneumonia.

The last time developed countries went into recession, there was a lot of hype that Canada could handle the downturn in manufactured goods because our commodity trade would hold up. That is a fallacy. Commodities are priced on the margin (price takers) and thus crash as hard as anything else when manufacturing anywhere falters.

Hence we get whacked both ways. I suspect that experience is fresh enough to remind investors we are the hind teat in the world economy.

[kcowan]

Thanks Altared. That is a dose of reality that I could use (but maybe not today)!

[JaydoubleU]

we are the hind teat in the world economy.