The Long Term Investor

A nice little BOUNCE so far. If we are LUCKY we might gain back 1% or so today. If we are NOT LUCKY.....the bounce will fade as the day wears on.

OH THE HUMANITY......of it all. I DO hope that all who read or post here .......DO......have rational and reasonable portfolios and that NO ONE was put in financial risk by the little drop yesterday through options, margin, or other leveraged trading.

It is kind of like fireworks.....SAFE and SANE......is a good thing. That does not mean boring or no risk holdings......but.....risk should be appropriate to investor experience, assets under investment, age, and holding time span.

 

We have lost about half of the BOUNCE now. The buyers came in at the open and now they are being replaced by sellers taking advantage of the little bump up. The TYPICAL mid morning DIP.....that we have seen many many times over the past few months.

DRAMA, DRAMA, DRAMA.

 

For those not EXHAUSTED by the China attention lately.....here is one LAST little article.

Putting China’s Evergrande Saga in Perspective
Weighing the potential of a large, heavily indebted Chinese property developer’s possible default.

https://www.fisherinvestments.com/en-us/marketminder/putting-chinas-evergrande-saga-in-perspective

(BOLD is my opinion OR what I consider important content)

"A holiday kept China’s markets closed on Monday, but that didn’t stop fears of a Chinese real estate developer potentially defaulting on its debt from roiling sentiment globally, driving US stocks to drop -1.7% on the day. Headlines shrieked that China Evergrande Group, with its roughly $300 billion in debt, faces default. Some argue this could be China’s “Lehman Moment,” triggering a financial crisis that would be a most unwelcome Chinese export. While a default is looking likely, in our view, there are many reasons to question the theory the outcome would be so bad: China has the means, motive and opportunity to prevent big fallout; markets are well aware of the situation; and we doubt it presents a material global risk.

Evergrande, China’s largest property developer, began life in 1996 as the Hengda Group, headquartered in Guangzhou. The company’s chief business is residential real estate development—it claims to have nearly 2,800 projects in 310 Chinese cities (chiefly, apartments).[ii] But it isn’t limited to this. The company also has businesses engaged in electric vehicle (EV) production, healthcare and a theme park, among others. All in all, Evergrande has roughly 200,000 employees, and many more Chinese investors are likely exposed to Evergrande through bonds and other debt investments called wealth management products (WMPs).

Over the past two decades, Evergrande has used its ample access to credit via WMPs, onshore and offshore bonds to finance a rapid expansion. It would pre-sell apartments to Chinese citizens, using the revenue to stay current on debt. One research outfit quoted by The Wall Street Journal estimated it currently has 1.4 million unfinished apartments presold, valued at roughly $200 billion.[iii] But in the last few years, China has been tightening regulation and credit for the property market, an effort to cool fast-rising prices. Officials have capped banks’ real estate lending—to both developers and mortgage borrowers—overhauled property auctions and even implemented price controls on home sales in select cities. Furthermore, last year Chinese regulators drew up a policy dubbed “three red lines” that restricted real estate developers’ leverage. No shock, then, that real estate investment has cooled dramatically after an early-year spike.

Last September, Evergrande started encountering issues servicing its debt, warning Chinese officials in a letter that it may miss interest payments due to investors in January 2021. However, before defaulting, the company reached an agreement with investors holding some $13 billion in debt to convert their holdings into equity. Since then, Evergrande has been trying to sell some of its stakes in underlying businesses like EV production to investors. It is also attempting to liquidate property rather swiftly. Yet debt service troubles remain. At this point, Evergrande is paying some suppliers and WMP holders in kind—with unfinished apartments.[iv] Construction has largely halted. It faces $84 million in interest payments this week and another $48 million on September 29, and default is looking increasingly likely.[v]

Still, there are many reasons to think a financial crisis won’t follow. For one, China could easily step in. The government, which has increasingly allowed corporate bond defaults (a long-term positive), doesn’t seem likely to actually bail out Evergrande, considering it is a highly leveraged company in an industry the government is attempting to rein in. But that doesn’t mean it couldn’t let the company fail and then make onshore investors, suppliers and workers whole (or somewhere near whole) thereafter. They have done it before, and we think they have many reasons to do it again. China’s single-party government places a high value on social stability to ensure it retains power. That is likely doubly true now, given the celebration of the country’s founding—China’s Golden Week—starts October 1. Allowing retail investors to take big losses on Evergrande securities—or property they pre-purchased—could foment instability. In some ways, it already has: People exposed to Evergrande are protesting nationwide. Some are workers, whom management “asked” to invest in the company (or lose their bonus).[vi] Others are would-be apartment owners.

Regardless of how that plays out, we think it is critical to note: None of this is sneaking up on markets. Issues involving Evergrande have made headlines for months now. Its bonds presently trade at 70% – 80% under par value—a level suggesting markets know default looks imminent.[vii] The stock? Hong Kong-listed shares of China Evergrande Group entered this week down -83% in 2021.[viii] With declines of that magnitude, it is difficult to argue the current scenario isn’t pre-priced into efficient markets, in our view. Absent surprise power, it is a bit hard to see how this would trigger a financial crisis.[ix]

Even if China’s government takes no action at all, we doubt the impact outside the country would be very big. Despite incremental reforms over the years, China’s markets are still walled off from the world to a very large extent. US and global banks don’t have material exposure to Evergrande. According to research from UBS, banks have limited exposure. Higher-risk property developers account for 4.5% of large banks’ outstanding loans and 6.3% of regional banks’. WMP exposure is unclear, as the market is opaque. But those broadly aren’t owned outside the country, restricting the global reach. The chief aspect of potential international exposure is $209 billion in offshore bonds, but again, those are already trading as if the company defaulted (a default doesn’t mean a bond has zero value), and that scope is too small to create big ripples globally.

The chief way a Chinese financial crisis could impact the world economy is if the country entered a recession and sapped demand. But a property market downturn doesn’t look sizable enough to us to generate that. Could it slow growth? Sure. Real estate, renting and leasing activities have accounted for more than 10% of Chinese GDP in 2019 (used to avoid lockdown skew).[x] But a recession? Less likely. When China’s property market hit the skids in 2015, China still grew nicely and generated a chunk of global demand.

Evergrande isn’t the first example of a troubled Chinese company stirring “too big to fail” fears. In 2017, it was HNA Group. In 2019, Baoshang Bank. Just a couple of months ago everyone was convinced bad-debt-investing group Huarong was set to send China reeling. These repeat issues are examples of the fact China still has a long way to go in its financial reforms and liberalizations. They could present headwinds to aspects of the Chinese economy. They could even roil sentiment globally long enough for stocks to reach correction territory (a correction is a short, sharp, sentiment-driven move of -10% to -20%). But they likely lack the power and reach to trigger a global bear market.

MY COMMENT

As a long term investor in AMERICAN companies.....I really dont care if China has economic problems. Are we even going to know if they have an economic problem? I doubt it......you cant trust any economic or financial numbers out of China. If they have issues....they will just FUDGE the numbers and cover it up.....as usual.

 

Well Evergrande has had their 15 minutes of fame......we are now going to PIVOT back to the FED. I doubt that the China news will last beyond the next day or two or at best this week. EVERYONE is aware of the dangers of investing in china and Chinese stocks at this point. This situation with Evergrande was a ONE DAY media event. I believe the ACTUAL impact on the average investor will be NOTHING......at least if you did not panic and sell locking in the losses yesterday.

 

As mentioned above....here is the short term view of today.

Stock market news live updates: Stocks aim to recoup Evergrande losses with eyes on Fed

https://finance.yahoo.com/news/stock-market-news-live-updates-september-21-2021-223819102.html

(BOLD is my opinion OR what I consider important content)

"Stocks gained in early Tuesday trading, a day after a bevy of concerns out of China and in Washington spurred a steep sell-off across risk assets.

Traders also turned their attention to the start of the Federal Reserve's latest two-day monetary policy-setting meeting, where the central bank is expected to give hints about curtailing its massive stimulus that's helped contain the worst economic effects of COVID-19.

On Monday, the Dow had close lower by more than 600 points, or about 1.8%, while the Nasdaq shed more than 2%. Fears of a financial contagion that could ensue if China's largest real estate developer China Evergrande defaults under its massive debt burden served as one major point of concern for investors at the start of the week, triggering a global equity rout that put the S&P 500 on track for its third straight weekly decline.

This built on worries from earlier this month as Wall Street pundits revised down economic and profit growth expectations for the remaining months of the year.

And this week, investors are facing additional uncertainty over debates in Washington to raise the U.S. debt ceiling to prevent a government shutdown and U.S. government defaults on federal payments, and avoid what Treasury Secretary Janet Yellen said would become "widespread economic catastrophe."

On Wednesday, the U.S. Federal Open Market Committee (FOMC) is set to deliver its latest monetary policy decision, which is expected to show the Federal Reserve is nearing the announcement of the timing of its plan to begin tapering its asset-purchase program that had helped support the economic recovery.

Still, a number of equity strategists offered a sanguine take despite the risks.

"Markets are clearly having some angst on the potential spillover effects from Evergrande, along with some nervousness over the September FOMC meeting. We’ve been in the camp that we’re overdue for a correction," Cliff Hodge, chief investment officer for Cornerstone Wealth, wrote in an email. Monday evening. "At the moment, we’re not worried about a market crash. The Fed and Evergrande are not new. The market has known about both of these for a couple weeks in the case of Evergrande and a couple of months now for the Fed."

"Sentiment is overly bearish, and institutions are well-hedged going into these events," he added. "Markets don’t crash when everyone expects it. They crash when everyone is crowded and levered long."

Others struck a similar tone.

"I think what people are missing if you're leaning into this with a sell button is the fact that the economy is still expanding. Yes, it's slowed down from the late spring, early summer peak, but we still have an economic expansion that's likely to take hold here," Jason Ware, Albion Financial Group chief investment officer, told Yahoo Finance Live Monday afternoon.

"We have an economy that's working, we have record earnings that we're going to hit this year, we have a Fed that's still very much in full accommodation mode — and by the way, at their meeting this week, they're probably going to be discussing what's happening in China [as] just another reason for them to not taper this month," he added. "And then finally, we have a fiscal authority that's still in full-on wanting to stimulate the economy with spending."

MY COMMENT

My view is in line with the positive quotes at the end of this little daily summary. We have not even scratched the surface of the re-opening which WILL take another 12-24 months for the economy and business to get back to normal.

There will be little bumps along the way....of course. BUT.....I would not want to miss being an investor over the next few years......and....I WILL not. I will continue to be fully invested for the long term as usual. What other alternative is there for money right now and into the future? NONE. My investing horizon....at this moment....is my LIFE EXPECTANCY.

 

Your post inspired me to look back and see how far this little dip took us back in time...Zukodany. The SP500 was at about the current levels back about July 21. SO.....the old stock market TIME MACHINE....has now taken us back by about TWO MONTHS.

 

I would not call you a......NEWB....Zukodany. Your start to investing during the pandemic and everything that has gone on since you started is EQUAL to being an investor for about 5-10 years.

YEAH....that recession and correction....was a tough one. My God.....it lasted for a WHOLE day. I am not too sure how much of this I can take going forward. I just checked my account and it is GREEN across the board. I hope we dont have another correction this afternoon.

 

I know tomB16......we have ALL been SPOILED by the past few years gains. It is going to be hard to learn to live with more average gains. Same with the INSANE rise in house values. I dont know how I am ever going to be able to handle my house NOT appreciating by 50% in ONE YEAR.

Imagine being a young person between ages 25 and 30 and owning a home and investing in stocks over the past 5 years. Your impression of the markets is ALL screwed up.

 

BACK in the green today. I had 8 positions UP for the day and 2 down. My losers were Honeywell and Amazon. I also beat the SP500 by 0.30%.....about the amount of ground I lost to the SP500 on the day of the BIG correction. That seems like a lifetime ago....but....I guess it was yesterday.

 

Kind of a FLUFF article....but it does raise a legitimate issue.

I Just Retired. How Would I Recover From a Market Downturn Now?
Preparing for a potential dip early in retirement is critical for protecting your nest egg.

https://money.usnews.com/money/blog...ow-would-i-recover-from-a-market-downturn-now

(BOLD is my opinion OR what I consider important content)

"The transition from earning and saving to living on a fixed income is a big change. In these uncharted waters, it's natural for retirees or pre-retirees to fear what a sudden market downturn can do to the nest egg they have spent decades building.

Cash management, a sound investment strategy and a solid income distribution plan, however, can help you feel more comfortable when the market swings in one direction or the other.

When you're planning for retirement, you're still earning an income that covers your life needs. At the same time, you're socking money away into savings using both taxable (joint, trust, or individual) and tax-advantaged (401(k), IRA, Roth, and/or Health Savings Account) investment accounts.

The big question: Do you know how much your life currently costs and how that will change in retirement?

The financial industry is rife with rules of thumb to guide pre-retirees in their estimation. Some experts estimate that your expenses after retirement will be about 80% of what they are during your working years. But will this necessarily be true for everyone? Probably not. Nailing down a more concrete number will be critical to withstanding market downturns. At the end of the day, how much your portfolio needs to provide, and for how long, are critical pieces of information that will inform your overall investment strategy.

Investment Strategy

For retirees, the current low-interest-rate environment with elevated inflation requires an investment strategy to supplement your income needs. However, this plan must be properly coordinated. Having too much cash exposes the value of the dollar to the erosive power of inflation, while not keeping enough puts the portfolio value at the risk of market volatility. There is a delicate balance that must be achieved.

There is always a possibility that the market will move up or down, but the key here is to allow the more volatile components of a portfolio the space to grow or to recover from a downturn. Understanding where and how income can be provided and replenished, even in a market downturn, will keep you from spending down too quickly.

Unfortunately, it's common for investors to give in to fear during market downturns or to fall prey to exuberance during market upswings. When things look ominous, investors prematurely sell their investments at rock-bottom prices; when the market is riding high, investors tend to want to go "all in." Both of these moves can negatively impact your portfolio returns and recovery potential.

One of the most valuable attributes of an advisor is helping clients stick to their long-term investment strategy when they feel the impulse to buy or sell at the wrong times. This is why clients without a financial advisor typically underperform the market. In fact, there are a number of studies confirming this. A study titled "Help in Defined Contribution Plans: 2006 through 2012," performed by Financial Engines and Aon Hewitt, revealed that 401(k) participants who got professional investment help earned higher median annual returns than those who did not. After examining the investing behavior of 723,000 workers at 14 U.S. employers, researchers found that on average, employees using professional help had median annual returns that were 3.32% higher (net of fees) than participants managing their own portfolios.

Income Distribution

Retirees will likely generate their income from multiple different accounts. The timing of these withdrawals will be imperative to the preservation and longevity of their wealth. Younger retirees, for example, can plan for more investment growth by delaying distribution from their IRA and living on other income sources in the meantime.

Of course, there are many factors that will inform this timeline, including the tax implications of withdrawals, required minimum distributions and resources available. Social Security, a spouse's income and other investment income can also be added to this list.

The way income is distributed will determine how much income the portfolio needs to generate and what kind of returns need to be expected to keep the retirees nest egg intact. Planning for distribution from various accounts may help retirees reduce the distribution need to supplement income. This type of cross-account planning can also help to manage and reduce taxes, which may give the portfolio time to recover.

Takeaway

Overall, it's imperative to remember that you can prepare for market volatility by controlling what is in your control: your behavior, investment diversification, tax exposure, and investment costs. Combined, these components can positively impact returns and the subsequent sustainability of your portfolio. Managing these factors can help to secure a few years of supplemental income within your portfolio, helping it to better weather a downturn in the market cycle.

Unfortunately, market downturns are inevitable. The market will fluctuate, so it's important that pre-retirees plan for the possibility of a downturn in their portfolios as they approach retirement age. Working with a qualified financial advisor can help you understand your options and make sense of the strategies available to you in difficult market conditions."

MY COMMENT

As a person that retired at age 49 and than lived on personal assets for the next 21 years....I have a very good understanding and appreciation of this issue. Especially considering that I lived through the BIG DOT COM collapse of the early 2000's a few years after I retired and than the 2008/2009 near economic collapse.

What I found was the key was....first.....I was very aware of my living budget before retirement....and operated on the assumption that it would not change after.....and....it did not change. Second...I am very disciplined with budget issues. BUT....the big issue.....that is KEY.......is putting away at the MINIMUM 3 years of living money in cash or CD's or some other cash vehicle. I started out keeping 5 years of "safe" money in CD's. As time went on I learned that 3 years would be sufficient.

As I would dip into that "safe" money for living....when the markets were at record levels during the time span...I would replenish or top off the "safe money supply. I AVOIDED having to sell anything to top off that money when the markets were DOWN. Other than the 3-5 years of "safe" money that I kept in CD's....I held the rest of my money in stocks and funds in the same format as my current portfolio model.

Of course part of the personal money that I counted as personal assets during the above time was my earnings from music and payments that I got from my business closure that lasted about 5-6 years. When I closed my business I also sold my business building and a lake cabin that we owned but no longer needed because we were moving to a different state. It definitely helped to NOT have a house payment since our house was free and clear.

Another KEY factor is long term planing......it is not a good idea to wait till you retire and suddenly decide to WING IT.

NOW.....our income is composed of lifetime income annuities and Social Security. This was a bit of a change from my long term retirement plan. When I was 10-20 years out from retirement my plan was to purchase 30 year Treasuries and use the interest as we are now using the lifetime income annuities. My plan was to lock in a rate of 5% to 6% for 30 years and still have the principle at the end of that time span. That remained my plan through retirement.

BUT....things dont always work out. As I got close to age 65 I could see that there was no way that 30 year Treasuries were going to have that sort of yield. So at age 65 I had to BITE THE BULLET and go with the alternate plan of purchasing the lifetime income annuities. The annuity payments were deferred for five years and started at age 70.

Of course.....with the annuities the principle is gone....but the payments are great and will last for life and the tax advantages of each annuity payment being a big chunk of return of capital makes my income taxes minimal now. We get more from the annuities than we would have under the plan to use the 30 year Treasuries......and....we are able to live our normal lifestyle and even save $10,000 to $20,000 each year which goes into the stock account.

I have friends that are real estate investors......apartment buildings..... and they are living nicely from their property income. There are many ways to provide for retirement......but.....it is important to have a plan. I am sure Oldmanram......must have a pretty good plan to live from his property income when retired.