are-you-prepared-for-a-market-drop

[fb101]

Here's an interesting article, argument for some upcoming market risk.
sounds reasonable, but WHEN?:?:
All I want to know is what day and time.
(I know, stupid Question)

Why is that interesting to us?
Market drop = margin call = pm drop = buying opportunity.

http://www.ino.com/blog/2013/03/are-you ... rket-drop/

[barrytrot]

I didn't read the article but I can say they could have written it any time over the past 3 years with the exact same validity even though the market has generally risen in the meantime.

If you stayed on the sidelines during that whole 3 years you would probably have jumped in after the drop at roughly where it was before, maybe higher than it was. Meanwhile your flimsy dollars are getting eaten away at.

The key is to not be on margin yourself

I've done pretty decently in stocks over the past number of years EXCEPT when I've gone on margin. Then I've been pounded, even when I was totally correct in the mid term Margin is not friendly to short term shifts


So invest for the long term and you don't have to sit out (much) but if you are on margin even in an "up market" you may lose

[DTEJD1997]

Hey all:

Hmmm....the "holy grail", to be hedged against a market decline...

This is VERY EASY TO DO. The only problem is that it will cost, sometimes very dearly...Buying options or futures on market indexes can cost you a LOT of money, especially if you are hedged for a long period of time...

of course, the trick is to be hedged with as little a cost as possible.

I would suggest one possible way to hedge against small & moderate market declines is to be invested in "nano-cap" companies. They have a VERY LOW beta co-efficient. Some of them are even zero OR even slightly negative. Unfortunately, it requires a tremendous amount of work to find suitable candidates. Nano-caps are also usually not liquid, even under the best circumstances.
I have found certain limited circumstances where you can buy these small companies at such compelling valuation levels, the stock market gyrations do not matter....For example, what does it matter if you are buying a relatively healthy business at 4X P/E ratio or less?

Another way to hedge against market decline is to sell "covered calls" on positions that you have large gains in. I bought into a casino company recently at prices about 3.7/share. This stock is VERY volatile. It has little debt, has a low P/E ratio, and pays a very generous dividend...After a few months it has risen about 14%. If it rises another 14%, I am considering selling some covered calls at a STRIKE of $5/share, going out 4-6 months. I will do this if I can get a premium of about $.75/share. This might be stretching it a bit, but is certainly doable...

So, if I can do this, my cost basis declines to about $2.95/share - $.12/share in dividends....Upside is limited to $5/share. But even if it gets called away, I'm still up about 66% on my position in less than a year.

Can it decline to less than $3/share? Perhaps, but I doubt it unless there is a tremendous decline in the company's business OR a market collapse.

If my position DOES NOT get called away, I'll try and re-write the position and collect premiums as long as I can...

Any comments?

[barrytrot]

I didn't know that options were possible on nano-cap companies?

[DTEJD1997]

barrytrot:

Not all of my investments are in nano-cap companies...just a high percentage of them.

The company I am referencing has a market cap of about $160MM, so it is definitely "small cap" to most investors.

To me, this is a mega-cap stock! haha

[Recyclersteve]

Interesting that here we sit, over 4 1/2 years after the original post without a truly significant market drop. I'm not counting the super quick 1,089 pts. that the Dow lost in 5 minutes on 8/24/15. We got that back pretty quickly.

[68Camaro]

Hard for the market to drop when the Fed is stimulating it. Eventually that has to stop. That's when you want to time it. Several years ago when we were at 18000 I predicted Dow 25000 before it tanked. I update that post from time to time. Timing it however is a crapshoot. And 25000 isn't a literal number. It could be 24500, or 30000. But its coming. What goes up goes down. And there isn't anything supporting this market except money printing.

[johnbrickner]

One thing I am not hearing is stock tips from cab drivers, barbers, doormen, etc. Is it possible our society has gotten to the point where the little guy is no longer participating as a whole? Truly, the only place I hear about PMs, stocks, cryptocurrencies and other such stuff is here. I'm guessing not enough free cash flow for the average Joe.

Otherwise, well prepared. Likely more so than at any other time in my life.

[shinnosuke]

Posted 26Oct2017

Interesting that here we sit, over 4 1/2 years after the original post without a truly significant market drop.

Let's check in on this thread after another 4 years have elapsed...
The Dow was 26,200 in Oct 2017. Today it is 35,700.
The S&P 500 was 2,569. Today it is 4,687.
The Nasdaq was 6,810. Today it is 15,687.

I'm looking for the day when US paper fiat receives more derision than the 100 trillion notes from Zimbabwe.

[Tourney64]

If Biden eliminates 401k’s I would expect a very large market drop as it would el8minate many small investors.

[Recyclersteve]

If Biden eliminates 401k’s I would expect a very large market drop as it would el8minate many small investors.

Please explain what you mean by “eliminate”. If you are talking about everyone being forced to sell everything in their
401-(k)’s and pay taxes on the realized gains, that would truly be a very extreme situation! That one thing alone would almost certainly cost the entire Democratic party in the 2024 election.

It would be especially painful for those who were planning on taking small portions of the account each year in retirement and therefore be in a lower tax bracket each year.

[coppernickel]

When will the market drop? My guess is early 2022.

I could give a long explanation, but the question was, "when?"