Lessons learnt during a market crash

[korrupt_1]

So, it's crash now.

This is my first experience of having open trades during a crash. (I missed the Aug 07 one by a week).

I was wondering, what lessons have people/traders have learnt over the past few crashes? What was the key to suriving it? What tips can experienced ex-market-crash traders provide to us noobs to crashes?

Watching my investment's value decline is painful so I guess one way is to unplug the system and ignore it for a few days, hoping when I come back i a week (or a months), all better... easier said than done I guess

 

[Nyden]

Yes. What lessons (expensive ones) can I claim as tax deductions here?

 

[adobee]

You can only offset a capital loss against a capital gain that is correct it think ?? I am going to have to sell a property to cover todays losses..

 

[Nyden]

You can only offset a capital loss against a capital gain that is correct it think ?? I am going to have to sell a property to cover todays losses..

Unfortunately, yes. Unless trading is your profession.

There's no rush though adobee, capital losses don't expire, you can use them in 4 years if you want.

 

[korrupt_1]

does yoga help? i keep seeing yoga adds everwhere.

 

[Flying Fish]

Unfortunately, yes. Unless trading is your profession.

There's no rush though adobee, capital losses don't expire, you can use them in 4 years if you want.

Great four years !!

 

[wintermute]

well I haven't been in a crash before, may 2006 correction is the worst I have endured prior to this. What did I do, and what did I learn?

I waited it out.

I found that my spec stocks were hit hardest and also tended to take the longest to recover their lost ground. Some stocks get hit for six and then stay down.

Feb 2007 I sensed an imminent correction and sold off some stuff prior, bought in the midst of it and then got scared and sold the stuff I bought on a bounce, Should have kept it, as that would have made me quite a bit of money, however that was a very quick "claytons" correction.

I was saying in Feb last year that I thought that we wouldn't see a crash until 2008 but I didn't sell up before this one came along, as I didn't think that we had seen an exhaustion peak, the signs have been here for the last three months that the market was retreating, but I didn't pay too much attention (have been preocupied with other things). I guess its a case of don't take your eye off the ball!!!

Today my share portfolio went from -19% to -29% and who knows how much lower it will go..... I'm not too worried, and if I had the spare cash, I'd probably be picking up some bargains, as most of my stocks I feel are already undervalued, so large drops just makes them more so.... such is the lot of a contrarian investor!!

Tony.

 

[wintermute]

on the four years, I think that was for example, as opposed to you have to use them before that time.

One caveat though with respect to carrying forward capital losses... If you have a low income year with capital gains, you have to use the capital losses to offset the capital gains even if you would not have paid any tax on those gains!!! It really sucks. How do I know?? Because I took 18 months off, had very little income, and had to use up about 5K worth of prior losses against a 5K gain even though my total income for the year was only just above the tax free threshold.

Tony.

 

[Nyden]

on the four years, I think that was for example, as opposed to you have to use them before that time.

One caveat though with respect to carrying forward capital losses... If you have a low income year with capital gains, you have to use the capital losses to offset the capital gains even if you would not have paid any tax on those gains!!! It really sucks. How do I know?? Because I took 18 months off, had very little income, and had to use up about 5K worth of prior losses against a 5K gain even though my total income for the year was only just above the tax free threshold.

Tony.

Yes, you can keep your losses indefinitely. Offset them against profits made on a property, or anything else.

 

[Judd]

Yes, you can keep your losses indefinitely. Offset them against profits made on a property, or anything else.

True but I also think that the "cash value" of the capital loss is being slowly eroded by inflation. Rule of 72 applies.

 

[Nyden]

True but I also think that the "cash value" of the capital loss is being slowly eroded by inflation. Rule of 72 applies.

Yes, but one would hope you wouldn't wait 10 years to use 'em :

 

[Buffettology]

This stop loss concept on value stocks is something that within 24 hours, appears a far better concept! ha ha.

All a learning curve, but Im sure this will just be a blip in the long-run scheme of things.

Here is something for you guys if you feel bad:

A mate of mine works for one of the big banks, just the other day, a woman gave him a $1.2 million cheque to invest for her. They invested it into a spec stock (WTF?) and its now worth $850,000.

Imagine being that woman?

I have lost a bit over 10k so far, from a portfolio invested of around 100k, so Im far out of her kind of league!

 

[TheRage]

While I don't find your story difficult to believe, I do have trouble believing that if she invested that much on the advice of what I can only tell to be a Financial Planner at a bank that he would be foolish enough to invest so much of her money in one stock. However if this only represents one hundreth of her portfolio size, ie Net worth 100million, then that is a different kettle of fish.

 

[jersey10]

just shows you should always have an automatic stop loss. mine is set at 2% of my trading capital. i use TA and always have a stop loss. The max i will ever lose is 2% of my trading capital

 

[Temjin]

just shows you should always have an automatic stop loss. mine is set at 2% of my trading capital. i use TA and always have a stop loss. The max i will ever lose is 2% of my trading capital

Remember that this only occur if your stops are not gapped out. This may work almost perfectly in markets such as the FOREX, but not for equity.

 

[jersey10]

Temjin,

i am relatively new to trading. can u explain what u mean by gapped out and why it won't be as effective for equities?

 

[korrupt_1]

gapped out means you were closed at a lower priced that you wanted because either there was noone wanting to settle the trade at your stop loss price or the market was closed and it opened lower.

eg.... You have stop loss of $3.80. XYZ closed for the day at $4.00. Overnight, market turned bad. The next trading day XYZ opens for trading at $3.50. You we're gapped out. ie you were $0.30 below your stop loss value.

 

[jersey10]

thanks for the explanation korrupt, it is always good to learn the lingo

 

[Buffettology]

While I don't find your story difficult to believe, I do have trouble believing that if she invested that much on the advice of what I can only tell to be a Financial Planner at a bank that he would be foolish enough to invest so much of her money in one stock. However if this only represents one hundreth of her portfolio size, ie Net worth 100million, then that is a different kettle of fish.

True.

It was just a Financial Planner. No idea what % of her portfolio it was. Either way, it would still hurt!

He said a LOT of the banks investments are being HAMMERED (they bought a few spec stocks in large blocks). Said the mood in the place is agony at the moment!

 

[Wysiwyg]

So, it's crash now.

I was wondering, what lessons have people/traders have learnt over the past few crashes? What was the key to suriving it? What tips can experienced ex-market-crash traders provide to us noobs to crashes?

I`m not a boob and i`m not an experienced ex-market-crash-trader but i do feel i can say .... sever emotion, minimise losses (some call this fear) maximise profits (some call this greed)

It`s your life, you make the decisions.


p.s. want detail ?? ... spend time in the kitchen.