Am I a financial genius?

The Thinker by Rodin

My recent post I’m betting on a recession didn’t get a lot of reads. There was no reason it should because I was just some nobody opining that a recession was imminent who decided to make a six-figure decision to lessen the impact if it happened.

We won’t know officially if we’re in a recession for about six months, but based on four days of major stock market declines and increasing numbers coronavirus cases, it’s looking like it will arrive sooner rather than later. In fact, it may be here already, we just can’t measure it yet.

Anyhow, yes, on February 14, I moved $106,144 in my retirement account from stocks to bonds. Before it was 60% stocks, 40% bonds. After it was 40% stocks, 60% bonds. My timing was just about perfect, as markets crested about a week later.

Mind you that all this didn’t make me any money. I am still invested 40% in stocks and those took a hit. We lost money overall. But if I hadn’t, we would have lost $89,439. Instead we lost $19,249, as of the close of markets today.

Perhaps I could get lucky twice. Just maybe when stock prices reach their nadir, I’ll move back to 60% stocks, 40% bonds and reap the rewards some years later. But who knows? Growth has been mediocre across the world for years. The main reason stocks were going up at all is because of the cheap credit the Federal Reserve made available. This caused a lot of stock buybacks, which due to supply and demand pushed up stock prices to artificial highs. Perhaps we’ll never go back to peak market again.

To answer my question: no, I’m not a financial genius. No one can time the market. What I did was likely very well timed but mostly luck. I shouldn’t count on luck twice in a row.

But I can watch the fundamentals of the overall economy, and periodically make decisions like this based on my analysis. If my assumptions are sound and I buy into categories of stocks, it could work again, this time on the way up.

With markets now officially entering correction territory due principally to coronavirus scares, a recession looks a whole lot more likely. It’s the supply chain disruption caused by the virus, not to mention its impact on the travel industry that is likely to take big hits that should make it official.

I did notice that someone recently read my Riding the recession’s wave post from January 2008, before stocks really tanked that fall. Back then I explained that a recession could be perversely good for those with steady incomes and significant savings. This definitely proved true for us. During a recession, prices come down, including inflated stock prices that can often be snatched at bargain prices, providing you hold onto them until markets recover. When money gets tight, you can get all sorts of deals. Already, home mortgage rates are dropping. That, with some decline in real estate prices, might make it a good time to buy a home.

If you are retired like we are, recessions make you appreciate the value of a pension, if you are fortunate enough to have them. This makes us recession immune. The portion of our income that comes from selling retirement assets though takes a hit while the recession lasts. You just have to hope that when markets recover your portfolio won’t be too severely impacted.

They say not to put all your eggs in one basket. By moving more of our assets to bonds, I can get a predictable rate of return, albeit half or less compared to what stocks have returned recently. To supplement our income, we sell some of these bonds periodically, husbanding the declining value of the stocks in the portfolio for a better day.

Meanwhile, while I hate the suffering a recession brings, I’m glad I bet on a recession. Let’s see if it actually arrives. We won’t know officially for about six months, but if we see the unemployment rate creep up, that will be a sign. Recent high stock prices have been signaling a false economy, but that appears to be changing.

Leave a Reply

Your email address will not be published.