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Sentiment Changes Quickly (January 11, 2016)

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And just like that, the stock market is off to its worst start… EVER… When 2015 ended, things didn’t appear “great”, but sentiment was more or less still pretty bullish (as far as I could tell).

As I observe all the carnage that has already taken place in just the last 6 trading sessions, I’m reminded how quickly the tide can turn in the investment space!

Human psychology is always interesting to observe… It’s almost like we can go from “beyond bullish” to “exceedingly bearish” at the flick of a switch…

This morning, I participated in a good number of text conversations with other friends/investors, and even though it was through mere words, I could feel the air getting sucked out of the room…

The fear was widespread.

The mood was somber.

No one had a clue what to do next…

As an investor who remembers the financial crisis of 2008 most vividly, I can’t help but try and recall (compare) the feelings, emotions, and thoughts I had during those most tumultuous times…

Does this feel similar?

No.

Not yet… Although I think a lot of people are starting to wake up and realize that not everything is all “sunshine and lollipops”, the most recent market sell-off in the past week or so is still nowhere close to resembling the same type of despair that I remember observing back in 2008.

And please don’t mistaken, by no means am I trying to predict that what we are witnessing now will escalate to that same type of magnitude… But I think market shocks are always a good “gut check” for investors.

If you strongly believe in your thesis and gameplan, keep right on investing…

But at this particular stage of the game, there’s no way you’re gonna convince me to “buy the dip”… Not happening…

There’s a reason I sold out of all my stock positions in 2015 and converted it to cash (and gold mining shares)… In the current market landscape, I still very much believe that the risk vs. reward curve is skewed heavily towards the risk side.

I believe in the bull… but I also fear the bear.

Like I’ve said before, I could be totally wrong, and the markets could recover and go on to rally by 20% this year… When I made my decision to liquidate out, I accepted the consequences of potentially leaving some gains on the table…

I’m totally cool with that…

In times like these, though, I will gladly confess that I do feel reassured to be cash strong…

So, I’m gonna stick to that gameplan more than perhaps ever before…

Hoard cash.

  • I’ve got my cash flowing real estate (passive income trade).
  • I’ve got my gold mining shares (greed trade).
  • Now I want a lot more cash (sleep well at night trade).

It’s boring, I know…

Right now, I do wish I had less exposure to base metals (particularly copper), though… My mistake for jumping in too early.

 

I feel like this deflation in commodities is just getting started…

 

Live and learn.

 

Good luck to all!

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{ 19 comments… add one }
  • No Nonsense LandlordNo Gravatar January 11, 2016, 4:51 pm

    This market is no where near 2008. The economy is sound, although there is a tremendous deflationary pressure. Look for the Fed to slow the economy, and stock prices going down due to lack of top line growth. There is no pricing power anywhere in the world.

    For the most part, people that want jobs are working. Homes are being paid for. Banks are not failing. Consumers have a larger discretionary budget as gas prices and home heating is cheaper.

    It makes my 5.5% $188K mortgage I paid off look like a great bet last year.

  • SeanNo Gravatar January 11, 2016, 6:13 pm

    Wherever you park money is going to be volatile. Eventually the gold trade will take off as people start appreciating the insanity of western country debt obligations. If you take the premise that the most people are always wrong the most likely outcome is stock market decline 20-40% prior to massive move upward. More carnage in commodities and gold until V shaped turn in next 12-18 months. Stronger dollar than people can possibly imagine given fractured euro and emerging market debt valued in dollars.
    I think there will be more opportunity to add in to gold miners come March April.
    I cont to cost average in to blue chip non mining companies in to weakness due to my strong belief that money needs to eventually go somewhere other than cash and eventually will move in to stock and gold as the bond bubble bursts. Capital flows will be fascinating over next several years.

  • Financial SamuraiNo Gravatar January 11, 2016, 9:26 pm

    The real estate market is next to fall. Do you still think it was good to increase your debt load to raise cash?

    Btw, when will you be leaving your job? Don’t forget to negotiate a severance!

    • FI FighterNo Gravatar January 12, 2016, 12:25 pm

      Sam,

      Absolutely, I have no regrets with pulling out the cash. Cash is king in a deflation, which has already happened with commodities.

      My rentals are cash flow positive, so the added debt isn’t something that I struggle with.

      But I feel 1000x more peace of mind having cash on hand.

      Take care!

    • RandyNo Gravatar January 12, 2016, 5:35 pm

      Love your blog. I have been following your process. I do see that Sam believes the next fall is Real Estate. Do you agree?

  • Midwestern LandlordNo Gravatar January 12, 2016, 7:00 am

    All these games of trying to figure out what the market is doing is one of the reasons why my comfort level is to invest in rentals that cash flow versus the stock market. I just don’t like the idea of investments that I have no direct control over.

    A lot of people make money at it, just not for me.

    • mikeNo Gravatar January 12, 2016, 11:51 am

      you do have direct control > buy or sell. easy

      • Midwestern LandlordNo Gravatar January 12, 2016, 12:19 pm

        Mike,

        It sounds like it is working well for you. Have you retired yet?

        • mikeNo Gravatar January 12, 2016, 1:58 pm

          Truthfully, I am on the cusp except I want a much more comfortable retirement with zero restrictions so I am still making hay while the suns out.

          for your reference:

          http://postimg.org/image/4pgwkmy3f/

          Hopefully you got on the money train with Jay and myself. 35% gains in 1 month. Some people were flat ALL year or lost money in 2015.

          • Midwestern LandlordNo Gravatar January 12, 2016, 2:08 pm

            Good to hear that you are close. I have seen very few examples of people that did it through stocks alone (early FI style).

            • MikeNo Gravatar January 12, 2016, 2:46 pm

              I have 5 properties and 8 with a partner. Who said anything about stocks alone?

          • Midwestern LandlordNo Gravatar January 12, 2016, 2:55 pm

            For comment below:

            Nice to hear you are a fellow landlord as well. Now I know why you are on the cusp of retirement / financial independence.

    • FI FighterNo Gravatar January 12, 2016, 12:20 pm

      Midwestern Landlord,

      I hear you, and I prefer rental properties myself (much more control). Unfortunately, I’m unable to buy any worthwhile cash flow rentals locally at this time.

      So, I’m instead buying into a sector that is in liquidation… But all around me, my peers and friends all have a ton of money tied into the broader market and indexes… So, call it contagion if you will… I can’t escape the sentiment, and it’s gone from bull to bear just like that…

      If the markets keep heading lower, it will start to feel like 2008 all over again.

      It’s still early stages, but I’m taking all this as a hint to load up on cash now.

      Take care!

      • Midwestern LandlordNo Gravatar January 12, 2016, 12:46 pm

        Jay,

        I think you are making a sound judgement play with your stock portfolio, just getting caught up in a tough market right now. Much better to have funds in an asset sector that has been beaten down for some time now because those assets just don’t have a lot more to go down so you are protected to some degree. Longer term you could make a lot of money.

        I just got burned real bad in past years with poor choices in the market. It has really soured me on it.

        You own a fair amount of real estate already so you are golden either way.

  • joeNo Gravatar January 12, 2016, 11:31 am

    yikes.. the stock market is only up 50% in the last 5 years I am running for the hills..

    • FI FighterNo Gravatar January 12, 2016, 12:06 pm

      Joe,

      Good for you! You’re doing much better than me…

      Are you happy yet?

  • mikeNo Gravatar January 12, 2016, 11:51 am

    lets hear an update on how your gold plays have done YTD 2016 with all the rush to safe haven (once the stock market started vomiting it’s gains). I saw miners had some positive reaction/activity but I haven’t really followed. Did the gains dissipate? Are you in the black now?

    just curious.

    • FI FighterNo Gravatar January 12, 2016, 12:05 pm

      Mike,

      I updated at end of year, but since you asked, the holdings are not doing good at all.

      The last two days have been painful and the portfolio is down about -$40,000, so all time-lows right now 🙁

      I guess most surprising to me is the fact that the spot price of gold/silver haven’t moved much, but the mining shares have been getting hammered…

      Holding EXK and EGO gave me two black eyes this week. Oh yeah, and BTG, a punch in the gut on top of that.

      So, yeah, it’s pretty rough… I’m not worried but this is kind of a reality check for anyone else considering this space… It’s volatile and not suitable for everyone.

      Cheers!

  • NoahNo Gravatar January 12, 2016, 12:47 pm

    Remind me: are you no longer with your day job? What do you do all day?!

    These are great investment/real estate updates. Would be good to hear how you are.

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