One of the building blocks for how I live my life is to try to prevent or solve my own problems. Self-sufficiency, at least trying, is way up on my list. This starts with isolating potential problems and thinking about how to address them. In the recent posts here about the psychology of taking portfolio income, I realize in myself that might be hard for me to do if/when the time comes. At some point we show signs of age as we maybe get a little weaker and possibly frail. The ways to mitigate that, IMO, is to lift weights and eat animal protein. The outcome with this example is not knowable but attempting to do what you can with the inputs, the things you can control, is what this is about.
So here we are in some sort of stock market puke down. First I will say, you've been through more of these than you can remember. That applies to me too, I don't remember them all because they are all the same. They go down, they scare people for being "different," then stop going down maybe for no reason at all and then starts to go back up eventually making a new high. The only variable is how long that all takes. No amount of worrying changes the sequence so in that light worrying seems unnecessary.
That doesn't mean there's no action to take but unfortunately the time for much of the portfolio action probably should have been several months ago as opposed to now, in reaction to this current event. I want to be crystal clear that I am claiming no insight here. On this front I take from John Hussman who talks about certain risks being elevated. I think he draws the wrong conclusions about what to do, going much further than I ever would, when risks are elevated but the idea of making tweaks (my preference) to hedge, protect, de-volatilitize (I made that up), reduce correlation, look less like the stock market is how I prefer to do it and I started doing this early, maybe too early sure but knowing when the market will face the consequences of elevated risks is unknowable.
Part of what is going on is the perceived failure of the 60/40 portfolio because longer term treasuries, a big part of an indexed 60/40, kind of look like the NASDAQ, at least the declines are very similar in percentage terms. Hat tip Bespoke for pointing that out.
We've used this example for years now but low, low bond yields meant that prices were very high. At some point buying high becomes a bad idea. Is this finally the big one? I have no idea but I do know that this is what the risk has been, knowing that I can't reliably guess when the turn would have come, I just avoided it, getting yield from other sources. It's not these other sources are not down but they look nothing like TLT or IEF.
I've written dozens of posts on the various equity market hedges I use in client accounts and when I put them on which again was long before this event happened for signs of obvious worry, my concern about inflation really increased last September and the FOMC's hand in asset prices seemed very heavy as a couple of examples. That tells you nothing about when these things would matter but the risks were clearly elevated and so I made some tweaks. Generally I am pleased with how things are performing but it is important to accept that on the way up you are too hedged and on the way down you are not hedged enough.
From here, we'll see whether I decide to hedge further one way or another or start to re-equitize but most of the hedging was in place before the problem started.
If you've done nothing along these lines and trying to figure out a game plan, I don't really have much to offer beyond the above that this will end at some point and the market will go back up. Maybe on the next go around it will make sense to get out in front of the next one of these when that next cycle shows forms of excess or elevated risks.
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