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POLL: Market Correction – Are You Buying, Selling, or Holding?

With the current market correction and extreme market volatility, i’m curious as to what the readers are doing with their money.   The market has a way of bringing out the true risk profiles of investors.  If this correction is making you queasy, then it is likely that your equity exposure may be a bit too high and it may be time to rethink the percentage of bonds within your portfolio.

As I have a relatively long time frame until retirement and signifcant percentage held in cash, I see the current correction as an opportunity to add to new and existing positions. Thus far, I have added to the indexed RESP portfolio, and added to an existing position within my leveraged smith manoeuvre portfolio. I hope to buy more as valuations become more attractive.

If you have a moment, please participate in the poll below (click here if you cannot see the poll):
 

Are you buying, selling, or holding in this market correction?

View Results

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FT About the author: FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 35 comments… add one }
  • The Investment Blogger August 8, 2011, 11:22 am

    Not many new bargains emerged as a result of the recent decline. In general looks like stocks (or the ones I’m interested in anyways) have retreated to prices a few months back. Only sector I see that has deep value are junior miners, but same story, prices not that much better than it was a few months back.

    No advantage in buying at today’s prices versus buying at prices a few months ago. The discount to intrinsic value on most still too small for my liking. I’d like to see deeper discounts before making any broad purchasing.

  • Jordan August 8, 2011, 11:31 am

    @Frugal: To answer your question from the other comment thread: AGF.B, TA, CM, BMO, HSE, and RY are all starting to look more attractive than they have in a while.

  • Echo August 8, 2011, 11:52 am

    I’m with The Investment Blogger, not a lot of bargains are standing out for me right now compared with the entry points that I got in at back in ’09. I’ll wait this out for a while and maybe add to my portfolio in the Fall.

  • DanP August 8, 2011, 12:00 pm

    While i agree these arent’ the same buying as opportunites as 09, i can’t imagine those types of opportunities happening anytime soon. Personally i’m keeping a very close eye on american financials(bank of american being down 10% today so far). However i dont believe the sell off is quite down today. With such a bad day today, i’m not ready to get in. I will be keeping a very close eye on things and wish i had more cash on the sidelines to buy more.

  • Brandon August 8, 2011, 12:16 pm

    You should do a post-dip stock pick challenge update … Everyone will be in the negatives :)

  • North4st August 8, 2011, 12:33 pm

    The financial industry keeps its “buy and hold” mantra. Watching the TSX, back around July 18 the 200 day moving average (simple) crossed the 65 day MA (exponential) signalling a sell to preserve capital. I’ll be a buyer of good quality stocks again when this reverses. See Sam Stovall: https://encrypted.google.com/url?sa=t&source=web&cd=1&sqi=2&ved=0CBgQFjAA&url=http%3A%2F%2Fwww.spindices.com%2Fassets%2Ffiles%2Fsectors%2Fpdf%2FSectorWatch-MovingAverages.pdf&rct=j&q=Sam%20Stovall%20moving%20average&ei=pfo_TvyAIu7SiALtuPXDBg&usg=AFQjCNE0D9G7G55_TapaIO8gIX1y506NJA&sig2=_lZ1-TCfVX8HawQvpx9UiA&cad=rja

  • Fernando Margueirat August 8, 2011, 12:40 pm

    There’s an option missing: “Staying out”. I’ve been out of this market for six months, looking for a good price since I believed it was overpriced. Much closer to entering now, but not yet.

  • Amit August 8, 2011, 12:54 pm

    I am holding. I own dividend achiever stocks that have a good history of paying dividends that keep increasing every year. My only reason to sell is when a dividend is cut. Some of my stocks raised their dividends so there’s no need to sell.

    I will buy more when the market declines further. None of the fundamentals have changed, and 70% of the market had already priced this S&P downgrade much before the downgrade was announced. 40% of the market has already priced another downgrade, and most of the good stocks are reporting good earnings. There’s no reason to panic (yet).

  • Leigh August 8, 2011, 1:13 pm

    I am holding. I am sticking to my plan, which for the rest of the year is just my automated, monthly 401(k) contributions. I’ve been mostly ignoring the market noise, but it is good to understand what it is going on. Events like this are helping me to realize that I am more heavily weighted in US stocks than I would like to be and I will be slowly moving towards a 50/50 US/International stock split with my future contributions, starting next year.

  • Tom August 8, 2011, 1:22 pm

    I sold out 75% of my market holdings (index ETFs) and reinvested half on the ultrashort (2x short) side back in June. For a while I was starting to second-guess myself, but I’m happy to report I’m only down a fraction of what the S&P is down over the past week. So I guess that means I’m holding, and will continue to do so until the underlying indicators turn up – I think one of the major things a lot of folks in the market are having trouble seeing is that although the debt issue is a big catalyst, the underlying issue is weak economic growth, and that’s the wheat that needs to be looked at here, rather than get too preoccupied with the debt chaff.. The downgrade doesn’t change anything – just freaks people out – what was before still is now!

  • krantcents August 8, 2011, 1:24 pm

    I still am contributing to my 403B, IRA and Roth IRA. On Friday, my contribution bought into the market. I am holding with the rest of my portfolio because i a okaay with my asset allocation.

  • Stephen Winters August 8, 2011, 2:16 pm

    I am holding my current positions and not panic selling.
    Actually starting to scale into new long term holds as well as adding to current positions. HSE, THI, RY, AAPL, AMZN, VZ (nice dividend here), CPG
    Scale in slowly. Technical analysis is just childs play here now. Most key levels broken. Besides you can’t triumph news. Just buy and hold. “Bear” in mind…we can still drop a lot more here…so I will be easing in to new positions.
    Happy trading :)

  • Freedom 40 August 8, 2011, 2:44 pm

    Some buying, mostly holding. Picked up MFC and GE.

  • Michael James August 8, 2011, 7:03 pm

    I’m holding. I’m concerned about advising people to up their bond holdings if they feel queasy. This is sensible enough if they stick with the higher bond percentage, but if they decide to lower it again after stock prices run up and stocks look “safe” again, then this is just a formula for buy high, sell low.

  • Brian Poncelet, CFP August 8, 2011, 8:25 pm

    Hi FT,

    Nobody knows what is going to happen to the markets.

    Assuming one wants less risk, pay less taxes,and have more money in retirement (plus guaranteed) the back to back insured annuity is something to consider, see https://www.milliondollarjourney.com/how-annuities-work.htm

    The problem for most people is to get the right type of insurance (not term) when one is healthy and cheaper when one is young. Making money in the market is great but what if the returns after inflation and taxes does not work out as well as one hoped…Nice to have a back up plan in advance. This is not for everyone, having good cash flow is the first step.

    cheers,

    Brian

  • The Wealthy Canadian August 8, 2011, 8:40 pm

    I fall within the 45% range of the voter camp as I am buying positions, but I’m not backing the truck up to the edge.

    I recently topped up on CM in my non-registered account as it approached the 5% yield mark and today I bought some WMT for my wife’s RRSP at roughly a 3% yield.

    Nice post.

  • Ed Rempel August 9, 2011, 11:25 am

    We are definitely buying. If everyone denies they are selling, then why are the markets going down?

    We think that investors are far too pessimistic.They make the mistake of thinking we are investing in the economy. Companies are in great shape. Balance sheets are the strongest they have been in more than 30 years. Corporate profits are at all-time highs. The markets are rarely this cheap, especially when interest rates are also low.

    The markets were quite cheap, even before the last week. The US can easily pay its debts. Europe will definitely continue to back its weaker partners. Eventually, investors will realize how very strong the fundamentals of the stock market companies are.

    Ed

  • Ron August 9, 2011, 12:24 pm

    Ed,

    Well of course they are pessimistic, they’ve been burned to hell 2x now. I was lucky to be 100% in bonds. Sold 1/2 yesterday and will start to nibble away at CDN resource funds in the coming days and weeks.

    Ron

  • Dave August 9, 2011, 12:46 pm

    I buy funds monthly, at the start of the last crash (late 08), I up’ed my contributions,
    got a few cheaper units. I’ve stayed at that monthly level so this time I’m just holding, working a few debts instead, other wise I’d be buying.
    There’s always next time!!

  • Jean August 9, 2011, 9:18 pm

    I am holding, and if my position goes lower than my original buy in, then I am going to repurchase some more stocks to improve my position even more for the long run. I am a long run investor and don’t really worry too much about the market volatility. Though it is a perfect timing for the experts to make some real money, then again, theres the risk of losing big time money as well.

    -Jean

  • Nathan August 9, 2011, 10:52 pm

    Definitely buying. There’s a ton of great stocks that got crushed for no reason. Heck, BRK was trading as cheaply (on a value basis) as it was during the worst of the financial crisis and many more are similarly valued. If you’re not buying, the question is if not now, then when? Have you looked at the P/E of the DOW recently (forward or trailing?)

  • Joe S. August 10, 2011, 12:00 am

    It’s not a fire sale, but stock prices are the best they’ve been all year, so I’m doubling up on the DCA type buying. Who knows what is going to happen, so I think I’ll just pick away at a few purchases over the next week. I’m mostly just adding to positions I already have, but are now discounted 10-15% compared to just a few months ago.

  • Broker August 10, 2011, 3:13 am

    I’m holding cash and short term bonds at the moment, my technical trade signals triggered a sell for me and my clients July 15th.

  • SST August 10, 2011, 3:51 am

    Anyone into the precious metals?

    @ Ed Rempel: “The US can easily pay its debts.” You might be the single person on the planet who believes this to be so. Certainly math does not believe it.

  • Brian Poncelet, CFP August 10, 2011, 1:05 pm

    Ed,

    The markets may go lower or higher who knows? The problem I see is as one gets older say late 50’s or older… they may not have the time to recover their losses in the markets. When you factor inflation & taxes real returns could be very low.

    From a historical point of view the US/Europe have never had this much debt.
    In Canada the savings, last time I looked was negative, and we have lots of debt. Real Estate is high which maybe the next shoe to drop.

    People need a plan B (less reliant on market returns as they get older). For some of their holdings.

    regards,

    Brian

  • StevestonDad August 10, 2011, 11:20 pm

    Ed,
    Explain how the U.S. can easily repay its debts? By printing money? Where’s the growth going to come from?

  • Joe S. August 11, 2011, 10:52 pm

    The US can pay its debts by raising its taxes, which are amongst the lowest amongst developed countries. You have to differentiate between ability to pay, and willingness to pay. They are politically not willing, but if a strong mandate ever came around, it could be done (higher income taxes, national sales tax plus spending freeze would make debt a thing of the past within 10 years).

  • SST August 13, 2011, 6:04 pm

    @ Joe S. — “The US can pay its debts by raising its taxes…higher income taxes, national sales tax plus spending freeze would make debt a thing of the past within 10 years.”

    Ummm….you do know it is mathematically impossible for the US to pay off its debt, and infinitely more impossible to do so within ten years, no matter what they do, right?

    They raise taxes, they sink.
    They cut spending, they sink.

    They are sunk.
    Unfortunately, Canada is hanging on to a drowner.

  • Mario August 14, 2011, 1:15 am

    “Ummm….you do know it is mathematically impossible for the US to pay off its debt”

    1) You are completely wrong and you know nothing about basic economic theory. The US can create as many US dollars as it wants. It can, if it wanted, repay all it’s debt tomorrow morning, with about 10 minutes of work.

    2) Yes, repaying all debt in one shot would obviously create inflation if they just created dollars to repay the outstanding debt.

    3) The US would never do this, and in fact has absolutely no reason to ever do it, as the debts that it has should not ever be repaid. The US knows this and the creditors know this as well. The creditors, like China, would never want the US to repay the debt. It would make no sense. What would China do with trillions of electronic credits? They would rather have them in bonds, equally worthless, but at least they pay some interest.

    4) The huge US debt is not an important issue. In it’s most simple form, the US issues electronic credits (US dollars) to other countries (China) and in return, China ships over boatloads of valuable finished goods. The people in China are busy and have jobs and a mortgage and all that other “stuff”, while the people in the US get to buy junk for a low price, simply by creating electronic credits on a computer and wire transferring them to China (like 2 seconds of work….)

    This is fundamentally how the system works. It is an economic law, indisputable. You can argue about other things, like what happens if the system is abused, or if people do not act rationally, but not about the mechanics of the modern monetary system.

  • SST August 14, 2011, 2:07 pm

    @ Mario: “The US can create as many US dollars as it wants. It can, if it wanted, repay all it’s debt tomorrow morning, with about 10 minutes of work.”

    Yup, it sure can. That’s a fact.
    Then what happens? Oh, that’s right — the US$ becomes utterly WORTHLESS (well, the last 5 cents of remaining worth vanishes). Then what? You think an AA+ downgrade caused havoc?

    Thing is, what you just admittedly described was indeed “economic THEORY” — not reality. Why argue over a debt ceiling? Why not just make it $100 trillion? Or erase it all together? Why bother collecting taxes when you can just print, print, print!?! People would have much more money to spend “stimulating” the economy and creating growth and jobs. That’s a theory too, right?

    But, cest la vie! No matter what any of us argue to believe, we can all sit back and watch the fireworks!

    Hope your precious metal holdings are well stocked. :)

  • Ed Rempel August 15, 2011, 12:17 am

    Hi SST,

    Nearly all professional investors know the US can easily pay it’s debts if it wants to. Why do you think everyone was flocking to US treasuries this week? They are still the safest investment on the planet.

    Several of our fund managers have said that just putting in a GST at 5-7% would already put the US into a surplus – even taking into account that the GST would slow the economy a bit. They also have low gasoline tax, low cigarette taxes, many states have no income tax, etc.

    The entire debt ceiling and S&P downgrade are political issues – not financial issues. The issue has to do with their willingness to raise taxes or do what they need, not their ability.

    Canada was in a similar position 20 years ago. We had large deficits and the S&P downgraded us to AA. Then we replaced the manufacturers’ tax with the GST on a much broader tax base, cut some costs and moved back into annual surpluses. It took us less than 10 years to get our AAA rating back.

    The US could do the same much quicker, if they have the political willingness to do it.

    I’m not sure why so much news claims a debt to GDP ratio of 80% is so bad. England had a ratio of 150% from 1800-1950 with no financial problems.

    It is even a weird ratio that us accountants would not really use. It compares a liability to income. It is like having a mortgage that is 80% of your salary – not really a problem and a comparison banks would not make.

    A proper comparison would be GDP to debt PAYMENTS. Of course, that would not make news, since the debt PAYMENTS for the US have been LOWER for the last 3 years because interest rates are so low.

    If you look at this entirely as a political issue, it becomes clearer what it happening.

    Precious metals might continue to go up, but they are 100% speculative and do not trade on fundamentals. There is no fundamental that would stop gold from going to $10,000 or to stop if from dropping to $200 and staying there for 100 years. They are highly risky at these prices.

    Ed

  • DMS August 15, 2011, 3:05 am

    Ed,
    If you think treasuries are the safest investment on the planet, I’ve got some swamp land in Florida I’ll sell you!!

    You are right in saying the U.S. could reduce their debt within 10 years IF they raise taxes and significantly cut spending based on reported official debt of $14 Trillion. What you overlook though are their unfunded liabilities such as medicare and social security. These put the real debt at closer to $80 Trillion conservatively!! Bit harder to pay down.

    Add to this an aging population, lack of a major manufacturing base and an education system on the decline, layer upon layer of political red tape and the prospects of real growth look pretty grim.

    Some other observations for the US economy in 2015 simply assuming current conditions persist:

    Federal spending will be $3.3 trillion per year, and with federal revenue of $2.3 trillion (this number will be reduced as it also assumes $731 billion in payroll tax, a number which will likely be indefinitely reduced) the result is a budget deficit of $983.7 billion.
    Annual Medicare/Medicaid expenses will be just over $1 trillion
    US population: 326.8 million
    US workforce 131.3 million (and declining)
    Officially unemployed: 19.4 million
    Actual unemployed: 22.3 million
    State/Federal employees: 17.9 million
    People on SSN and other retirees: 72.6 million
    And the most critical data:

    Food stamp recipients: 89.7 million
    Foreclosures: 2 million
    Social Security Liability: $19 trillion
    Medicare Liability: $99 trillion
    Total US Unfunded Liabilities: $144 trillion
    Gross Debt to GDP: 143%
    Should one of the bolded predictions hit, the travails of Greek and Irish bondholders will be nothing compared to what those unlucky enough to be in possession of US debt in 2015 will have to go through.

    Canada certainly did fight back and clean up it’s financial house to restore our AAA rating. But that was a far different world than the present day one we’re living in. The Eighties brought about a commodities boom, along with the majority of the population working and far from retirement(Baby boomers)
    We were positioned well and had the political will to benefit.

    You raise a great point stating “if the U.S. have the political will” to do the right, yet unpopular things like raising taxes.
    So far, we’ve seen the incompetence coming out of Washington and more of a desire to play politics than do the right thing.

    There’s no question as you said that the U.S. will always repay their debts. They have a printing press after all! Heir Havenstein had one too and chose to use it. We saw what happened there! But the money creditors receive in payment will be significantly debased and worth far less than they were initially.

    Mr. Bernanke has shown us that he’s equally as clueless and has been wrong every step of the way throughout his career. He told us that the subprime crisis would be contained. He also told us that there was no housing bubble overall, that certain areas were “frothy”.
    QE2 had no real effect other than a short term boost that quickly fizzled and about another Trillion dollars added to the national debt (including reinvested) QE3 is coming soon. I’d even bet money on it.

    The difference once again between England’s past debts and the U.S. Debt situation is apples and oranges. China is the industrial superpower of the world and is poised to become more of a domestic rather than export based economy. The U.S. Would need years and Trillions of dollars of capital to rebuild its manufacturing base and retrain enough skilled workers to fill the jobs.

    Gold is money. Fiat currencies are nothing more than a theory. Every fiat currency in the history of the world has eventually failed. Gold, though ancient and somewhat useless other than as a store of wealth has and continues to be the instrument of wealth preservation.

    My advice in closing is that people steer well clear of U.S. Stocks, bonds and dollars. Asia and Europe, despite their own problems,have far better prospects.
    While gold has risen very sharply, I’d suggest buying more on any big dips. The average investor still doesn’t own physical gold for the most part and it’s still far from being in a long term bubble.

  • SST August 16, 2011, 12:06 am

    @DMS: I’ll let your post argue for me, as mine would have been closer to a rant. Thank-you.

    Above all, the math speaks louder than anyone. And it doesn’t lie.

  • DMS August 16, 2011, 12:55 am

    @SST You’re welcome! Many so called investment experts follow the sound bites in the news and the advice of the general investment community. That’s why most of these sheeple underperform and rarely outperform each other.
    Mediocre fund managers/financial planners have to rely on commissions and trailer fees to pay their mortgage. They get their cut regardless of how the markets perform. There’s a reason they’re not multi millionaires. They’re about as skilled intellectually as used car salesmen.

  • SST August 16, 2011, 3:06 am

    @ Ed: “A proper comparison would be GDP to debt PAYMENTS.”

    GDP: $13.2 trillion
    Debt Payments (interest only): $413 billion

    Total Debt: $14.5 trillion
    Total Tax Receipts: $2.1 trillion

    There is your “proper” comparison.

    It’d be like me making $50,000 a year, running up my credit cards to $345,000 and paying $10,000 a year to service just the interest.

    Sure, I might have no problem with the interest payments, the problem is that the principle debt still exists…and still rising.

    The US can raise taxes all it wants but this will sink them.

    Debt service is 20% of net income — taxes — which is 16% of gross.
    If they DOUBLE the taxes, they could apply $413 billion to principle reduction. That would only take approx. 25-30 years (?) with all things held static (I’m sure I’ll be corrected on this figure, and would be interested in knowing just what the time frame would be).

    But they wouldn’t be static, not by a long shot.
    What would happen if taxes were doubled?
    Two things right off the bat: 1) people would stop spending, and 2) people would stop working — both would effectively drop the GDP and the tax base substantially. Oops.

    I’ll steer clear of the US for quite some time…until things get REALLY cheap!

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