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Mish Mailbag: How Can My “Sidelines Dad” Get in the Market Safely?

Reader Larry wants to know what advice I can give to his dad, sitting on the sidelines since 2009, waiting for the DOW to hit 6,000 which never happened.

by Mish

Image from Why sitting on the sidelines in life — and investing — can be a big mistake.

Sitting on the sidelines in life is indeed a mistake.

But ask those who chased real estate in 2007 or dotcom companies in 2000 about investment mistakes.

Better yet ask Japanese Nikkei investors still hoping to get back to even after three decades. Contrary to near-universal disbelief, that can happen here.

How long is your time horizon?

Larry writes:

Hi Mish,
Please do a story on how older people like my dad 68 can re-enter the stock market to balance out his portfolio at the next 40% bottom. He has had a war chest of $5 million to put in equities in 2009. He picked 6000 on the Dow as a starting point which proved greedy. At 6700 it got close but he thought it would be a dead cat bounce. He did not understand how QE would cause zero interest rates and allow companies to refi their debt and show more profits.
So far he has been willing to be patient and not chase yield. He is surprised how long the low-interest rate environment has lasted. He did not think he would have another opportunity but now he thinks he might. He also has money set aside to buy more real estate but the low caps and retail and office weakness have kept that in his pocket too. He missed the apartment rent increase play.
What would you have told people like him to do in 2009 and what would you tell them to do when the market gets whittled down slowly vs 1929, 2000, 2009? I Hate to see him do the wrong thing at his age.
Probably a lot of your readers are like him conservative to a fault.

Happiness = Wealth

For starters, it seems like your dad has $5 million. How bad can that be?

Maybe your dad could now be sitting on $25 million.

Had he thrown $100,000 at Bitcoin at the right time he might have a billion dollars. Ignoring Bitcoin, would he be any happier with $25 million than $5 million?

I know what I would have advised in 2009 because I know what I did. I bought when the S&P hit 666. My mistake was hedging after a double and getting out almost totally near $1500 except for some gold and miners that got clobbered. Ouch!

But the miners recovered nicely, and I am in some biotech plays that I like a lot. I am heavily in one private placement medical play that is doing exceptionally well but is still in a lockup period.

Like your dad, I have enough to live comfortably in retirement.

I have never been happier. I won’t even retire, I like what I am doing and I am having fun.

Understanding QE

I failed to understand what QE would do. Many of us did.

Many others believe they are geniuses because they accurately predicted what would happen.

In reality, the result may have been random. Things will not play out the same way the next time.

Opportunities Abound

There are always opportunities. They were giving gold miners away in late 2015 and early 2016. Pull up a chart of Newmont (NEM). In late 2015 one could have purchased NEM at $15. It tripled but fell back a bit. How bad is that?

Some junior miners are up 1000% in the same timeframe. Gold sentiment was a total washout in early 2015. No one wanted miners.

My message is to buy value when no one wants it. That’s easier said than done.

I bought a basket of miners in 2013. Opps. I unloaded some winners and losers in that basket and I believe I am marginally ahead (have not even looked at that account for a while, I don’t care). But nearly everything I added after that is way ahead, and I have some huge winners.

Get In Safely?

The only way to get in safely is to get in on total washouts and hold until you have a profit. Even then you time horizon better match.

But what constitutes a total washout? Stocks can go to zero. Enron and Global Crossing come to mind. Amazon fell to $6. It’s now over $1000.

Buy Amazon here? No thanks. But I would have said that at $250 if not before.

Back to Dad

It’s not clear that your dad needs to be doing anything. What does he want? What does he need? How long does he expect to live?

It’s not possible to fully answer your initial question not knowing the above.

My only fear would be your dad start chasing things after this massive rally. Recessions do happen. So do profit warning declines. In my estimation, it would take a 50% decline in the markets just for stocks to get back to normal valuations.

It is far easier to make up for lost opportunities than realized losses! More opportunities will come, but no one flashes a light.

Staying on the sidelines with a bit of gold and miners seems like a reasonably prudent action at this point even though I personally am overweight miners.

Final Thoughts

Some people really do not belong in this market at all. Perhaps your dad is one of them. What’s his timeline? What’s yours?

Mike “Mish” Shedlock.

9 Responses

  • Scag_man

    Dec 14, 2017

    Well said Mish. I'm younger than this dad, and with a much smaller war chest, mostly in cash. But, I sleep well at night without worrying about when the bottom falls out. If/when the market drops by half, I'll probably start sneaking back in. Meanwhile, I buy some gold and silver now and then. Life is good. It's even better if you're sitting on $5 million that is not at risk.

  • PERPLEXED

    Jan 5, 2018

    Dad would like to know how you picked S&P 666 to reenter or start investing again in 2009 ( not far from his Dow 6000). Since it is hard to pick the bottom were you just lucky ?? Come to find out he has $10m cash siting on the side lines not 5m and 6m in real estate. He also has $1m in the Vanguard total Stock market fund and a quit a bit of silver. He buys used cars so you can see his mentality. He hates any one telling him what to do and does not trust any one. He thinks one is not rich until you have at least $25m. I guess that was/is his goal. He likes what the Sitka guy said about you a lot. He wants to know if you do investment advise advise out side of Sitka and if so how much you charge to do it?

  • stillCJ

    Feb 15, 2018

    " how you picked S&P 666"? Easy: it's the devil's number!

  • Sechel

    Mar 9, 2018

    the first risk of investing is not to loose it all. it sounds like your father has more than enough to fund his retirement and future obligations. when that's the case preservation of capital and not future returns should be the primary focus. its for us schlubs that don't have enough saved for retirement that we need to take on risk otherwise we have no chance of reaching our goal. I think your dad is doing just fine without you

  • Sechel

    Mar 9, 2018

    Personally the closer I get to my retirement goal, the less I keep invested in the stock market. The old rule was 100 - your age. So a 25 year old would be 75% invested and a 75 year old would be 25% invested

  • Henna1

    Sep 22, 2018

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    Oct 4, 2018

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  • Deter_Naturalist

    Oct 5, 2018

    It is impossible to overstate the cognitive errors induced by hindsight. Yes, in general one should be bold when others are fearful and vice-versa. It is an entirely different thing to put that into action, because it dictates that when everyone else is abandoning ship, you should take its wheel. (1) Few people have the mental steel to do it. (2) You might be on the Titanic. To posit that "QE had [ X ] effect" is pure hindsight. The Fed in the 1930's tried to restart the credit creation cycle several times, and it had no effect. If the value of $250 (or $500, or $1,250) TRILLION in debt accelerates its decline (AKA interest rates keep rising, or accelerate higher), will a massive bond-buying binge on the part of the central bank stop the stampede toward the exits? Are you sure? A complete, utter collapse in a market requires two things: (1) A period of "investor optimism" broad and deep enough to generate embedded rationalizations (e.g., QE drives markets higher.) (2) Recent experience teaching people that markets always come roaring back. These are the basis for eschewing capitulation, which is THE essential ingredient of a market bottom. Looking at things today, if stocks fell 50%, what would typical people do? THEY'D DOUBLE DOWN. If stocks fell another 50%, what would they do? THEY'D DOUBLE DOWN AGAIN. After all, the foregoing 75% decline would only take prices back to where they were just 10 years ago. If investors saw the lows of 2009 again, what would they do? Mortgage the house and invest on full margin on the long side. That's not capitulation. This isn't a forecast, it's a warning.

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