On fleeing the stock market during the Second Great Depression

By | March 16, 2020

Cross-posted from:

Do you think as the economy spiraled into the toilet in 1929, people were telling investors with money in the stock market, “Just ride it out. You’ll be fine. The fundamentals of the economy are strong. Trying to time the market is a fool’s bet.”

That’s what people said when I started saying on Feb. 22 that there was going to be a big crash and that it wasn’t just going to be a “correction” and that people should take their money out of the market if they didn’t want to lose it.

Even as the market spiraled downward over the past several weeks, people kept insisting — as recently as TODAY — that everything was fine and we would recover and that trying to time the market is stupid because you might buy back in too late on the way back up.

What’s stupid is failing to recognize that weeks ago it was a plain as the nose on your face that the fundamentals of the economy were not strong and that we were in for a Great-Depression-level crash.

What’s stupid is not understanding that when the Dow goes down >40% in 24 days, it’s going to take a long, long time to recover from that, during which you’ll have plenty of time to buy back in, so you’ll end up better off even if you don’t buy in exactly at the bottom.

People who were telling me I was foolish could have admitted they got it wrong any time before today and sold their stocks and avoided nearly half of the drop. But nope, they didn’t want to “time the market.”

What’s stupid is not understanding the difference between trying to time the market during a dip that could recover in days or weeks, and getting out of the market at the beginning of a depression.

Because I’m not so stubborn and blinded by conventional “wisdom” that I’m incapable of recognizing scientific and economic reality, my retirement accounts are currently >28% larger than they would have been otherwise.

And when (if, actually — see below) I do buy back into the market, I’ll have that much more money to do it with, which will give me an even larger boost while everyone else’s money is just laboring to get back to where it was before the crash.

The other thing some people seem to be missing is that it is entirely possible — not likely, but certainly possible — that the last few weeks have been the beginning of a major, permanent realignment of our financial system.

If so, then that money you kept in stocks because you didn’t want to “time the market?” You might end up never seeing most of it again. This was absolutely on my mind when I pulled my retirement money out of stocks, BEFORE the dip started, because I saw the writing on the wall.

The same people who kept telling me not to time the market are proud of understanding the importance of social distancing, unlike idiots who spent the weekend partying and corrupt politicians and preachers telling people everything’s fine and they should live it up.

But with regards to what has happened to the stock market, those people made the same mental mistake as the idiots. It was clear from the data that we were almost certainly about to enter a depression. I’m not an economist or a financial whiz, and it was plain as day to me.

It was plain as day to me because I was able to look at the data and evaluate it objectively without allowing recent history to disproportionately influence my thinking. Too many people in this world are incapable of doing that.

“Shut up, you just made a lucky guess.” No, I didn’t. As I explained in my original thread linked above, I knew there was a chance that I was wrong, but the downside of being wrong was much worse than the downside of being right and not doing anything about it.

Also, I’ve had money invested in the stock market for 28 years and this is the first time I’ve pulled it out. That’s not getting lucky, that’s reading the signs and recognizing that things are different and worse now than they’ve been in nearly a century.

I’m not just telling you all this now to brag about the fact that I have more retirement money than you because I pulled my money out of the stock market a few weeks ago. There are two reasons why I’m still harping on this:

1) In my opinion, the market isn’t nearly done falling, and you can still avoid significant losses if you get out now. Disclaimer: I could be wrong, I’m not trained or licensed in finance, and you should do your own research and make your own decisions.

2) A “major, permanent realignment of our financial system” is exactly what our country needs to survive, thrive, uplift the worst-off among us. The more the market falls, the more likely that is. The more people pull their money out of stocks, the more the market will fall. The best thing you can do to fight inequality in this country in 2020 is to help drive down the Dow.

One final point: A week ago, my wife and I looked at how lucky we were to have pulled our money out when we did, and looked at all the people who are in desperate financial straits because of #COVID19, and decided that given our good luck, helping others was a moral imperative.

We’ve therefore redirected all of our retirement savings for the foreseeable future — and we’ve been saving the maximum to protect as much as possible from college tuitions — to giving money to people who need it. I wrote about it in this thread:

If you’ve had the luxury of watching your retirement savings shrink by more than 30% and saying, “No problem, I’m not due to retire for many years and the market will recover,” then you are almost certainly financially secure enough to help others right now. If so, please do it.

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3 thoughts on “On fleeing the stock market during the Second Great Depression

  1. Mathew

    Were you able to get back in, or are you still waiting?
    For those of us who haven’t sold yet, do you still think it’s a good idea to sit on the sidelines for a while?

    Reply
    1. jik Post author

      The crash we saw in March is not the one I was anticipating. In my opinion there is going to be another one, a big one. I haven’t bought back into the market yet and don’t plan to for a while. People who think we are on a steady recovery path are deluding themselves.

      I’m not the only person saying this. Ref: https://www.buzzfeednews.com/article/tomgara/economy-recession-coronavirus

      There is a legitimate question of whether the stock market, which at this point is clearly almost entirely detached from how healthy our economy really is, will continue to reflect that detachment, or whether the economic carnage will be so brutal that even the market will reflect it. I’m betting on the latter. You may make a different choice.

      Reply
  2. Mathew

    Were you able to get in, or are you still waiting?
    For those of us who haven’t sold yet, do you still think it’s a good idea to sit on the sidelines for a while?

    Reply

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