Business
When the Market Crashes, There is Only One Place to Hide
Here’s the short, simple reality to understand: in powerful down markets, every asset class gets clobbered.
“This is Wall Street, Dr. Burry. If you offer us free money, we are going to take it.”
-Smug, Know-Nothing Goldman Sachs Chicky in The Big Short
My firm didn’t operate too differently from the above statement, frankly. but there was that one time we said no…
In 2007 or 2008 – I don’t recall exactly – a mutual fund client asked us to create a defensive portfolio they could launch as a new product.
Sounds simple enough, right? Except, they weren’t looking for a portfolio loaded with utilities, healthcare and consumer staples.
What they wanted was a portfolio of stocks that would rise when the market was falling (it already was falling, but Wall Street is just as good at closing the barn door after the animals have left as are elected officials).
I suspected this would be tough to create. Once we ran our studies, indeed we realized this was an impossible request and for the first time ever, we declined the portfolio request.
Here’s the short, simple reality to understand: in powerful down markets, every asset class gets clobbered. *
Put in a more fancy-pants sounding, Wall Streety way: during crashes, correlation skyrockets. In this case, it was effectively impossible to create a portfolio of stocks that would rise in a crashing market; all stocks crater in that environment.
Correlation is measured on a scale of -1 to 1. A reading of 1 defines perfect correlation, -1 is perfect inverse correlation and 0 means no correlation at all.
A reading of 1 is easy to understand but think of the others this way. The correlation of wearing surgical masks and the spread of covid almost certainly resides near zero. Jen Psaki’s relationship with the truth? Probably a -.9 or so.
As an aside, both high and low correlations have value. For instance, we had a good friend in college who we came to realize had a sense of direction that had to be very close to a full negative 1. If he were in the car and thought we should turn left, the rest of us knew with total certainty to go right.
With correlation, readings at or near 1 and -.1 are rare in anything that actually requires study, so measurements above .4 already start to imply strong correlation.
When we looked at the historical track record we found that in severe downturns, all asset classes fell with the market at correlations above .5. It was eerie.
What about foreign stocks? Um, no… that’s actually a double whammy of bad news. Not only do their markets get hammered at least as hard as ours, currency declines magnify those losses. We can all appropriately hate what our leaders are doing to destroy the U.S. Dollar, but in a world of fiat currencies it is ours the world runs to as the safe haven. Most foreign currencies decline in value as a result.
Cryptos? Who the hell knows, but why would they be spared if gold isn’t?
Wait, what about gold? Yeah, it will probably act like a safe haven in a down market but in this case that probably means it will just decline less than stocks overall. For instance, while the Dow literally got cut in half from October, 2007 to February, 2009, gold’s peak-to-trough decline in 2008 was fully 25%.
By being down “only” 25%, did gold perform better than the market? Yes, but correlation of the direction of the movement skyrocketed even in this safe-haven asset class.
Quick disclaimer: I currently own gold and silver and will be holding these positions. But I hold them in the proper size and I am also expecting them to initially decline when the market really tanks.
Important note: if you’re holding gold and silver mining companies – which, after all, are just stocks – you can expect them to get hammered just as hard as all the stocks around them. The relative outperformance of bullion itself won’t save them; again, just go look at 2008.
Okay, so what the heck should someone do right now?
Well, I don’t like giving “right now” investment advice so I’ll say what I have been saying all year to close friends and family: if you’re fully invested, raise at least some cash in your portfolio. I’ve been advising a minimum of 20% but that figure will vary depending on your personality.
As I’ve been telling them, think of it this way: if I’m wrong and the market keeps ramping higher on the back of all this stimulus – and that indeed is the only reason the market has continued its 2021 surge, btw – and you’re still 80% invested, you’ll still be making a lot of money and you’ll feel okay about it. Sure, you’ll mutter that I was early with this advice – I have been all year and still could be depending on central bank responses to this decline – but you won’t resent me for the input.
If you stay fully invested, however, and the market tanks by 40%, you’ll feel ill. Having some cash on the sidelines provides for a rainy day, keeps something available with which to buy stocks near future lows and, most importantly, will do wonders for both your decision making and your psyche.
When people get stuck for cash – margin calls, mortgage payments, whatever the need may be – they make all sorts of bad decisions. They’ll sell whatever they have to and often, it’s psychologically easier to sell their “winners” along the way than it is the stocks that have been crushed the most. What many people end up with at bottoms is a portfolio full of the crappiest individual names.
‘Oh great,’ you may be thinking, ‘you’re telling us this on a day when the market is already down 500 points. Thanks a lot.’
True. Actually, I’ve had this post 80% drafted for the last 10 days or so, it just felt like that this might be the jarring market day in which readers would take it seriously. Let me explain by doing a little mind reset with you:
You may have a 401k that had risen, say, from $200k to $500k over the last three years (until 2 weeks ago). Awesome! But unsustainable.
After the market weakness of the last couple weeks, maybe its value has declined to $450k. If you’re the type that thinks my advice makes sense, but you don’t want to sell any stocks or mutual funds because they just fell from $500k, your mindset is all wrong. Sorry to be so blunt but it’s true.
Here’s what you actually have on your hands: a 401k that has risen from $200k to $450k over the last three years. Still awesome, also unsustainable.
If you think you’re the one genius who can nail market tops perfectly and you’re now certain that the market will soon regain its recent highs, re-read my last sentence and get your head on straight.
That said, at this moment I do have to admit that I don’t know if this is the start of the big correction. On the one hand, a few too many people for my taste are looking for that crash. On the other, how insanely optimistic did the market have to be that only now it is noticing the slow-moving Evergrande disaster in China that has been known for a year and plainly visible for nearly a month?
Regardless, the point is this: if this is the start of the big correction – or even a true bear market – then this is only the beginning.
We’re at such stratospheric valuation heights – the highest in history, generally – that the next big correction will take stocks down 30, 40 or even 50%.
So yes, it’s still okay to be raising at least some cash today. Even today.
Tighten up stop losses. Raise cash right now from zero to 5% if your end goal is 20%. Redirect future 401k deposits to the money market fund rather than the high-growth stock funds you’ve been riding.
In short: take action. Don’t be paralyzed and again keep in mind this simple reality: in powerful down markets, nothing gets spared. The only place to hide is in cash.
This post has me re-awakened. More soon…
FDG
*Historically, there has been one other place to hide in down markets: high grade, U.S. bonds. That will likely still turn out to be the case – indeed, bonds are rallying today – but what’s the point? The rates offered by today’s bonds are so meaningless as to be roughly equivalent with cash so my preference at this moment in time is for cash.
We'd love to hear your thoughts about this article. Please take a minute to share them in the comment section by clicking here. Or carry the conversation over on your favorite social network by clicking one of the share buttons below.
Join the conversation!
We have no tolerance for comments containing violence, racism, profanity, vulgarity, doxing, or discourteous behavior. Thank you for partnering with us to maintain fruitful conversation.
Business
Work-Life Balance in Your Life
It the ability to experience a sense of control and to stay productive and competitive at work while maintaining a happy, healthy home-life
Work-life balance (WLB) is the ability to experience a sense of control and to stay productive and competitive at work while maintaining a happy, healthy home-life with sufficient leisure. WLB, also referred to by some as work-life harmony, work-life shift, work-life blend, work-life effectiveness, or work-life integration, requires focus and awareness despite seemingly endless tasks and activities competing for our time and attention.
Work-life balance entails having what I call “breathing space” for yourself each day, feeling a sense of accomplishment while not being consumed by work, and having an enjoyable domestic life without short-changing career obligations. WLB is rooted in whatever fulfillment means to you within the course of a day and a week, and however many years you have left in your life.
Supporting Disciplines
Several disciplines support work-life balance though, individually, none are synonymous with work-life balance:
1) Self Management
Sufficiently managing one’s self can be challenging, particularly in getting proper sleep, exercise, and nutrition. Self-management is the recognition that effectively using the spaces in our lives is vital, and that life, time, and available resources are finite. It means becoming captain of our own ship; no one is coming to steer for us.
2) Time Management
Effective time management involves making optimal use of your day and the supporting resources that can be summoned – you can only keep pace when your resources match your challenges. Time management is enhanced through appropriate goals and discerning what is both important and urgent, versus important OR urgent. It entails understanding what you do best and when, and assembling the appropriate tools to accomplish specific tasks.
3) Stress Management
By nature, societies tend to become more complex over time. In the face of increasing complexity, stress on the individual is inevitable. More people, noise, and distractions, independent of one’s individual circumstances, require each of us to become more adept at maintaining tranquility and being able to work ourselves out of pressure-filled situations. Most forms of multi-tasking ultimately increase our stress, while focusing on one thing at a time helps decrease stress.
4) Change Management
In our fast-paced world, change is virtually the only constant. Continually adopting new methods, adapting old, and re-adapting all methods is vital to a successful career and a happy home life. Effective change management involves offering periodic and concerted efforts so that the volume and rate of change at work and at home does not overwhelm or defeat you.
5) Technology Management
Effectively managing technology requires ensuring that technology serves you, rather than abuses you. Technology has always been with us, since the first walking stick, spear, flint, and wheel. Today, the rate of technological change is accelerating, brought on by vendors seeking expanding market share. Often you have no choice but to keep up with the technological Joneses, but rule technology, don’t let it rule you.
6) Leisure Management
The most overlooked of the work-life balance supporting disciplines, leisure management acknowledges 1) the importance of rest and relaxation, 2) that “time off” is a vital component of the human experience, and 3) that one can’t indefinitely short-change leisure without repercussions. Curiously, too much of the same leisure activity, however enjoyable, can lead to monotony. Thus, effective leisure management requires varying one’s activities.
Entirely Achievable
Achieving work-life balance does not require radical changes in what you do. It is about developing fresh perspectives and sensible, actionable solutions that are appropriate for you. It is fully engaging in life with what you have, right where you are, smack dab in the ever-changing dynamics of your existence.
– – – – –
Business
Work-life Balance: The Enduring Quest
Organizations today recognize the importance of supporting employees’ well-being while maintaining productivity
Thank goodness that organizations today increasingly recognize the importance of supporting employees’ well-being while maintaining productivity. As such, the corporate quest for work-life balance, harmony, and integration has gained great prominence.
Key Aspects
Here are 12 key aspects of this pursuit gleaned from a variety of programs:
1. Offer Flexible Work Arrangements: Offering flexible work schedules, remote work options, and part-time opportunities allows employees to better balance their professional and personal lives.
2. Have Clear Policies: Establishing clear policies and guidelines regarding work hours, overtime, and expectations helps employees manage their time effectively.
3. Support Mental Health: Providing access to mental health resources, counseling, and stress management programs can address employees’ emotional well-being.
4. Give Leave: Offering generous paid time off, including vacation, sick leave, and parental leave, allows employees to address personal and family needs without fear of repercussions.
5. Prevent Burnout: Encouraging employees to disconnect from work-related technology after hours helps prevent burnout and supports work-life separation.
6. Support Workload Management: Ensuring that employees have manageable workloads and realistic deadlines prevents excessive stress and long working hours.
7. Provide Wellness Programs: Implementing wellness initiatives, such as fitness facilities, nutrition programs, and health screenings, promotes a healthier work-life balance.
8. Enable Employee Assistance Programs: Such programs provide confidential counseling and support services for employees facing personal challenges.
9. Promote a Culture of Balance: Company culture plays a significant role in work-life balance. Leaders should model a balanced lifestyle, and the organization should celebrate accomplishments beyond work.
10. Maintain Continuous Communication: Engaging in open dialogues with employees about their needs and concerns regarding work-life balance fosters a supportive and responsive corporate culture.
11. Empower Workers with Training and Education: Providing training on time management, stress reduction, and resilience equips employees with the skills to better balance their lives.
12. Leverage Remote Work Policies: Crafting clear remote work policies and expectations ensures that remote employees have a structured work-life balance.
Bringing in the Hired Gun
As the world’s only holder of the title, “The Work-Life Balance Expert®,” as issued by the USPTO, I am often summoned by organizations to enhance work-life balance for their troops. In all, I’ve delivered programs and spoken to 960 groups. Below depicts an encounter with a company who shall remain nameless for reasons of confidentiality. See if this squares up with your experience in your organization.
The following responses were derived as a result of my sending a questionnaire to the conference meeting planner where I was to be their keynote speaker. I requested the names of 10 people who would be in the audience. I called each of them to discuss their current challenges. Here are their actual replies to three of my questions:
1) If you could magically resolve a work-life balance issue, what would it be?
* Have more breathing room between high-level projects.
* Accomplish more during the workday and leave mentally free.
* Hire more staff!
* Take vacations and time off with no big pile ups when returning.
* Be allowed to take some Fridays off and catch up on much needed appointments.
* Reduce the number of pop-up requests and questions flying at me all day long so that I could ACTUALLY do what I need to do each day.
* Be approved to work from home or adjust my hours. My personal time isn’t respected.
2) What do you seek to derive from attending a session such as mine?
* Manage my time more effectively.
* Gain tools to embrace life while living it
* Develop stronger skills.
* Make work-life balance a reality in our company’s work-first culture.
* Acquire strategies, tips, or ideas to re-think my approach.
* Learn to change my focus, to be more productive, balanced, and focused.
* Be able to balance the few things that I do control during my day.
* Discover tips for keeping my staff in balance.
* Gain a realistic expectation of what we can achieve or experience.
* Develop a more positive outlook for the group.
3) Are there any observations you could offer?
* Work-life balance is a huge topic organization-wide. We are high performers who want to do a good job. We compromise our personal lives to meet work demands. We have to keep pace with the leaders and teams we support. If we don’t, we’ll be deemed unresponsive.
* A frenetic pace seems to be inherent in this company. Our team does a good job of emphasizing work-life balance; the problem lies with the surrounding divisions that thrive on working all the time, for no good reason. Yes, we are in a global space, working in different time zones, but some of these people are beyond the pale.
* What I love about this organization are the people. They are dedicated to the cause and truly want to deliver reliable, affordable, dynamic, and versatile solutions to our customers. However, our frenetic pace isn’t necessary. Not every project is the most vital. Not every problem is an emergency. Not every request has to be filled now.
* If in charge, I’d implement a more efficient, logical pace organization-wide. If we all took a breath and reevaluated how we work, in a more focused environment, we might find that we could produce better results with less stress.
Resonates Strongly
As you can see, the topic of work-life balance resonates strongly among today’s career professionals. Going forward, may more organization recognize and acknowledge the critical role that employee wellness and work-life balance has on the organization’s overall effectiveness.
– – – – –
America No More…
Biden wants to tie Israel’s hands
Prepare for the Worst: Domestic Sabotage and Violence on the Horizon
America’s Unjust Justice System
With Representatives Like Kelly Daughtry, We Can Take Back America
Why East Coast Workers are Blurry Eyed on Monday Morning
The Rise of Mark Robinson and the Benefit to North Carolina
