Here are my thoughts on stocks post a big rebound. The S&P 500 fell by 32% from peak to trough in March 2020. Today, the S&P 500 is at a record-high. Here were my thoughts about stocks during the most uncertain time period of the pandemic. Ultimately, I was able to call the bottom of the stock market well in my post: How To Predict A Stock Market Bottom Like Nostradamus
Thoughts On Stocks Post A Big Rebound
Starting on May 1, 2020, my main focus has been to get as smart and as financially prepared about real estate as possible.
In May, I have:
- Gotten preapproved for a mortgage to give myself more firepower to take advantage of any deals.
- Analyzed all the closing costs for buying a home with cash and with using a mortgage so I can make a truer offer.
- Gone through the process of understanding whether using a real estate attorney is worth it or not to cover my bases.
I believe the easy money in stocks has already been made after a 25%+ rebound. Therefore, I've moved on to focusing on new opportunities in real estate. I'm always trying to think ahead, not behind.
After publishing my real estate attorney post, I got this comment from a reader:
Hi Sam,
I really like your blog and appreciate your clear thinking, concise writing, and wealth of knowledge. However, I'm a bit disappointed that since March 18 you haven‘t been covering the stock market and I am missing your help on interpreting the irrational developments there.
The question of “Do I need a real estate attorney?” pales in comparison to “How on earth can the stock market rally in face of the greatest recession since 1929?” I would really appreciate your wisdom here.
Thanks Sam!
– Tom
My first thought was how selfish I was to write mostly about real estate in May. Given I own Financial Samurai, I should write more about what other people want, not only about what I want.
My second thought was how I failed to properly communicate my thoughts on the stock market during this time of crisis. After publishing How To Predict A Stock Market Bottom Like Nostradamus on March 18, Tom thinks I've been radio silent.
A good teacher is only as good as the student who needs the most help in his or her classroom. I believe in leaving no one behind during this time period. Therefore, I have let down Tom and others who feel the same way.
To make things right, let me share my crystal clear thoughts on the stock market after a huge rebound.
My Thoughts On Stocks Since Predicting A Bottom
Let us first go through all my posts and podcasts on the stock market since I published my stock market prediction post on March 18.
1) On April 21, I produced the podcast episode, What The Doomer Bears Got Wrong, discussing why the stock market has rebounded so strongly and why it may continue to rebound.
2) On May 1, I published the post, Freedom Is Way More Important Than Money. The post not only talks about the importance of freedom, it also discusses how I de-risked and sold the stocks I bought in March. I also talk about how I've taken some profits on longer-term holdings like Tesla, which has had a ferocious comeback.
3) On May 6, I produced the podcast episode, Why The Paychecks Protection Program Could Cause The Stock Market To Sell Off, to warn investors that the PPP is losing steam and could trigger another correction. A lot of business owners are not going to apply to the PPP or use the PPP money as intended because there is a growing fear the loans will not be forgiven.
4) Finally, since March 18, I have published five newsletters talking about my views on the stock market as the newsletters are more news-oriented and real-time.
At the time of this publication, I have sold 100% of all stocks that I bought in March as well as some long-term tech stock holdings. As a result, stocks are somewhere around 18% – 20% of my net worth (similar level before the pandemic) versus around 25% during the height of the pandemic when I was actively buying.
My Thoughts On Stocks Going Forward
I am not chasing the stock market with my taxable portfolio money. I believe the market is now overly expecting a faster economic recovery than what will really happen. I’m hoarding cash and waiting for better investment opportunities.
The shelter-in-place rules are dragging on in parts of the country longer than anticipated, e.g. Los Angeles with its 2+-month extension. I was very hopeful that most of California would open up in June, but that's looking doubtful as politicians go from locking down to flatten the curve to locking down until we find a cure.
I believe due to the generous government stimulus programs, fewer people will be inclined to go back to work sooner, thereby further delaying economic growth. If you can make almost as much working or more by not working, it's only rational to max out your enhanced unemployment benefits. In addition, a large percentage of the jobs eliminated will not come back for years, if ever.
I believe valuations are too high because analyst estimates have not properly taken into consideration a much slower opening of the economy. The S&P 500 trades at roughly 22X forward earnings, which is the most expensive valuation since the early 2000s.
However, valuations are likely to continue going up if the S&P 500 stays at this level because analyst earnings estimates will continue to go down. I’m not willing to pay top tier valuations when there is so much uncertainty, especially after a massive rebound.
Overall, my combined investment portfolios are now flat (+/- 1%) for the year due to my heavy position in tech stocks like Amazon, Netflix, Google, and Tesla and my overweight in bonds.
If I miss out on further gains because the S&P 500 reaches a new record high this year, so be it. Awesome! Go economy! My plan is to continue focusing on capital preservation and be happy with single-digit returns. I will be an aggressive seller if the S&P 500 breaks 3,000 again.
As for my 401(k), Rollover IRA, and SEP IRA, I continue to contribute the maximum to each of them in roughly a 70/30 equity/bonds split. These are long-term portfolios that won't be touched for at least another 17 years. Yes, it still hurts to lose money in these funds.
Both my children's 529 plans have been superfunded, so there's not much more I can do there. The funds are in target-date funds that are based on my children's potential matriculation dates.
My taxable investment portfolios are more important to me and more defensively positioned than my tax-advantageous retirement portfolios. They have to be in order to generate enough steady passive income to provide for two unemployed parents with two young children. They are also the main source for being able to buy another property.
For your taxable investment portfolio, try and shoot for 2X – 3X more than your pre-tax/tax-advantageous portfolio. Below is a guideline to follow if you want to achieve financial independence before 50. The higher amounts past 50 are more for those just starting off their financial independence journey.
Sadly, there is no Financial Samurai crystal ball. There is only me putting my thoughts out there in as logical a manner as possible. People can then look back years from now and make fun of my thoughts or praise them.
It doesn't matter to me because there's no profitable paywall on Financial Samurai nor am I managing other people's money. The feeling of being able to do whatever I want is one of the biggest benefits of being free. I'm focused on managing my family's money and not screwing things up.
Lessons Learned For All Of You
Thanks to reader Tom, he has forced me to review what I have done and not done for him. And what I realized from this review post are the following:
1) Visibility matters. No matter how much you produce, it doesn't matter if you don't properly highlight your work. As the saying goes, “The squeaky wheel gets the grease.” It takes a long time for me to think, write, edit, publish, and record these posts and podcasts. I'm wasting my efforts by not properly marketing my efforts.
Therefore, I encourage all of you to spend more time marketing your work if all you've been doing is producing. A 50/50 split in marketing and producing is something worth trying, whether you are a writer, entrepreneur, or a traditional worker. Do not believe in a pure meritocracy. Your good work will not always get noticed on its own.
To sign up for my posts via e-mail click here. To sign up for my newsletter click here. Sign up for my podcasts on iTunes, Spotify, and Google Play.
2) You could probably try harder. Even though I think I'm working hard to help the Financial Samurai community navigate through this difficult period, based on Tom's feedback, I need to try harder.
Instead of waking up at 5 am to write posts before my family gets up, I need to wake up at 4 am to write even more. The secret to getting ahead isn't being the smartest person in the room. The secret to success is having the perseverance and grit to outlast and outwork your peers.
The next time you think you're working hard, find someone like Tom to tell you the truth so you can test yourself even further.
3) Accept working for free. With soon to be over 40 million people unemployed thanks to extended lockdowns, the world is expecting more of us to do things for free. At the very least, expect the demands of your time to increase as your pay decreases.
I have written for free on Financial Samurai since July 2009 because it brings me joy to help and entertain others. Yes, it sometimes bums me out when readers demand more of my time when I feel I've given enough, but I need to accept reality.
As more people focus on taking first instead of giving first, you have the golden opportunity to do the opposite. If you give first for a long enough period of time, I'm positive great things will happen.
Besides, how awesome is it to get everything for free? Free college tuition, free legal help, free healthcare, free financial help, free house cleaning, free transportation, free massages, free housing, etc. Moving to the world of free sounds pretty good so long as we don't have to pay for it.
4) People will only appreciate what you've done for them lately. It's not good enough to only give away your time and effort for free. You must also continuously provide value. As Tom's comment proves, even if I did help allay his fears when the stock market was melting down or help him mobilize excess capital for a profit, the goodwill doesn't last very long.
People will either forget what you've done for them or they will simply take you for granted. You could have saved someone from drowning one year, but if you have done nothing for him the following year, you might as well be dead to him. If you want to get ahead, you've got to always think of new ways in which you can add value.
Feel that pressure! Only a very few people will care about your well-being. Folks are too busy caring about their own situation to have time for yours.
5) Take some personal responsibility. Although we live in a world where everything is free or is expected to be free, it is still incumbent upon you to learn about these free opportunities. Some people will just be too busy to guide you to Google to find an answer to your problem. Some people will just completely ignore you for being lazy. The more you can make an effort, the farther you'll get.
6) Acknowledge feedback and make changes if necessary. Be careful with tunnel vision. You might get to your destination quicker, but at what cost? If you find yourself getting older and more set in your ways, being open to feedback is critical for improvement. If you are receiving no feedback, nobody cares. Thank you Tom for motivating me to write this post.
7) Make sure you still enjoy what you're doing. You can't always enjoy what you're doing, but the good days better outnumber the bad days by at least 2:1. Otherwise, you should consider a different hobby or line of work. As soon as Financial Samurai starts feeling like a burden, I will sell the site and move onto something else. Thankfully, I love the perpetual good challenge.
Just Keep On Going
Sooner or later, the stock market will reach new highs. When it does, I hope all of us will profit in some way or another. You shouldn't expect me to tell you exactly what to do with your money because I don't know your goals, your financial situation, or your risk tolerance. Besides, I'm not your financial advisor. All I know is that you better enjoy the process.
The only thing I do is put real money to work based on my beliefs. Otherwise, there's no point in thinking and writing so much. This is real life folks. I am determined to make the best financial decisions possible for my family.
As for everything else, it's up to you to keep on grinding it out or not. Life is tough. The more you do, the more people will expect you to do. Embrace the challenge! If you don't want to do anything, don't. In the end, everything is rational. Time for me to work on another newsletter.
Let's go!
Related posts:
Your Wealth Is Mostly Due To Luck: Be Grateful!
Which Is A Better Investment: Real Estate Or Stocks?
Readers, what are your thoughts on the stock market at this level? How are you adapting to working for free? What are some other lessons you've learned after receiving feedback from the Toms of the world?
Thanks Sam, really appreciate all the work you do. One thing that I always struggle with is the decision to pull the trigger and sell stocks at a profit because I hate the tax hit associated with it. I think it’s a combination of my innate frugality, mixed with greed, plus FOMO on potential gains because the relentless upward march of the markets over the last 10 years has conditioned me into unrealistic expectations.
The idea of selling a profitable stock and paying, let’s say 5% of the overall sale amount in taxes and then realizing it will take 2 years to make that 5% back if I invest in bonds, or pay down the mortgage kind of feels like swimming in quicksand. I guess that is where knowing my risk tolerance, scripting out a clear plan, and following it will help take out some of the irrational emotion.
This is off-topic, but I find it hilarious that I’m unable to determine whether Sam is being blunt or sarcastic in his posts.
I started reading FS since 2018 and it always seemed like his writing style was just to be as straight forward as possible, but now I can’t tell if he’s mixing in tons of sarcasm with bluntness. Lol. LOVE IT!
Anyway, keep up the great work Sam. I pointed my coworkers to your blog (the S&P 500 prediction) when they were telling me that they were thinking about switching to 100% cash back in March. They decided to stay in the market thanks to your post. Thank goodness for that.
Hi Jeff, only since 2018? FS has been around since 2009!
Glad my post helped some of your coworkers not lose their mind in March. You’ve seriously built up some huge credits to draw from in the future from them. Take advantage.
The funny thing about life is that there are always different points of view. And a lot of times, people have these points of view without considering the other side. Further, lots of folks say one thing, but do another.
For example, I love how all these rich and powerful politicians talk about supporting our public schools, but they either attend a private school or have their children attend private school. Not all of us can afford to spend $70,000+ to attend Boston University like AOC.
But people don’t care. We tend to just see what we want to see.
Hey Sam,
I hope you and your family is keeping safe.
I hopefully you will respond. What do you suggest I do. I am 45 and currently have $153k in 401k, 63k that i pay with in the stock market, and $305k in the cash and a home worth $450k (paid off). I have two kids (10 and 4). I make about 90k a year.
As you can see from the cash position, I don’t really like losing money. If you woke up tomorrow and found yourself in this position what would you do?
Await your response.
Hey, I tried to sign up for the newsletter and it won’t let me- says there is a problem with my email- says I need a different email. Actually, I had this problem on another investing site too. Not really sure what the deal is- only thing I can think of is that there is a Bulgarian word in it?
Hi Sam, your website is definitely very informative and I like your point of view on a number of topics but in the post above you say a person at 60 should have $7.5M saved in their taxable account. How realistic that? I am almost 60 and barely have over $1M. Wow! that makes me feel like there is no chance of ever retiring. Don’t know if the others who read your website are more privileged.
Hi Jack, thanks. The chart is more pertinent for those starting out on their journey and letting 40 years of savings and growth compound.
You’re almost at the finish line. With $1 million, hopefully no debt, and social security, you’re going to be fine!
Sam, your posts are always valuable and interesting, because you write about what you find compelling. “Tom” sounds like an entitled ingrate. I’m only grateful that he didn’t demand you write about “Tiger King” or some other nonsense.
Before “Tom” or anyone makes a demand for your future content, I would like…no, I DEMAND!…that they provide examples of when they implemented the wisdom of Financial Samurai, and the results. Otherwise, they are just another ‘askhole’ wanting something-for-nothing.
I can barely process the amount of wit in this post, lol. I appreciate your work, Sam! Especially the podcast. I’ve followed your thoughts throughout the COVID situation and found it to be insightful. When you sell FS is when I will probably quit the site because you are the special sauce.
Personally, I am full tilt into equities (except for 5~6 months of expenses in cash) even though I think we could see another dip as infections rise when things inevitably reopen. As long as cash is yielding less than inflation, it’s not where I want to be. I was saving for a downpayment for a condo in Seattle and commute to work in another town. However, due to COVID, public transportation (ferry) has been slashed and I would not be able to get to work on time unless I drive for about 90 mins each way. I don’t want to buy around where I work, so now I am in no mans land. My work allows teleworking, but I have been deemed essential on site personnel.
So, even though equities are at nosebleed valuations, RE is not an option for me, and I don’t want to be in bonds either due to low yields. Even at 22 P/E, that is still an implied 4.54% yield assuming no earnings growth. With the 10-year at 0.64, I will take it. It’s the only girl at the dance that I can go with.
Somehow, even though I watch the stock market every day and read this column, I missed investing in late March other than my regularly scheduled investments. On March 6, I bought $5000 stock in my 8 year old daughter’s 529, thinking it was at the bottom (I had contributed it in Dec 2019 as cash since I was nervous market was too high). I bought a few shares of Facbook, which did well, and AT&T which have not. Overall, I just didn’t go and buy, and missed out on some of these gains. On the other hand, at least I didnt sell, even though i had thought to before COVID-19.
Hey Sam,
Keep up the great work and please don’t get burned out. Having two smaller kids and then focusing all of your efforts to write and educate us, can (and probably does) take a huge toll. Really enjoy your posts, whether you are addressing real estate, the stock market or Rolex Milgauss watches. Please continue to educate and inform us.
Jim
I’m in agreement with what you said. I’m loving this site and am now retired – felt my husband and I could afford to take the plunge 3 years ago at age 58 and we haven’t looked back. We get strength and affirmation that we are doing the right things after reading your blog and articles. We even pass them down to our 20-something aged kids!
I’m truly blown away. Thanks so much Sam, not only for replying to my initial comment but even writing a dedicated post and that within 24 hours of my comment. I do want to apologize as it seems you have taken my comment harsher than it was intended. All I meant to express is how important Financial Samurai is in my collection of sources I read about financial topics and I was missing your views on the developments on the stock market in the most interesting and crazy times in more than 10 years. Admittedly, I didn’t realize you had been podcasting about it though, therefore mea culpa.
Please keep up the great work, you are a true lighthouse in the ocean of noise!
Best,
Tom
No worries Tom! Thanks for motivating me to write this piece to help you and others wondering about this topic.
I’m in constant search of motivation during quarantine.
Sam, you mention about selling FS sometime. I not familiar with setting up a site and blogging. But I read a while ago of others able to monetize this endeavor with advertisers and such and eventually making their blogging a very lucrative source of income. Has this not worked for you?
Joe
Tom, I was curious about Sam’s thoughts on stocks too but too shy to ask since he does write a lot for us already. I’ve been able to get snippets on his market view via the newsletter and podcast but it wasn’t in depth enough for me to really understand what is going on. Googling can only do so much because it really depends on the source of the information. However, Sam, in my eyes, has credibility. I can completely understand your wanting to see his viewpoint.
Sam, agree with post except the generous stimulus program not helping the economy. If I’m getting paid and have more free time in my hand; I’d be inclined to spend more. In fact a lot of people are supposedly getting paid more than what they were when working.
Ideally personal finance writers like you and me would wish everyone would save more during these times. Guess we have to watch the data for more clues.
I’m worried about you removing yet another hour of sleep from your already minimal sleep schedule. Please reconsider your 4 am start time.
Don’t worry about me Kathy. I’ll be fine. If I can hack the 4 am start time, I’ll go back to sleeping in until 5 am.
But I was waking up at 4 am regularly earlier this year to try and get more things done when my daughter first arrived. There’s really no other way.
Thanks Sam for doing SO much and writing so much. Your insights are very much appreciated!! Writing takes so much more energy and time than people realize unless they are writers themselves. Thank you for being so consistent for so many years in producing really informative and entertaining content. I love how I always learn something from your articles, appreciate all the insights you share from your own experience, and also enjoy your sense of humor.
I’m riding out the stock market storms in my portfolios, which are all long-term focused, and have paused on all new contributions for now. I plan to reassess deploying cash towards the end of June/July depending on the status of lockdowns, unemployment, business closures and dissolved businesses.
Thank you Sam & Tom!! Keep hustling!!
I’m 39 and have $500k pre-tax, $300k in a Roth IRA, and $400k in taxable. Given that I have enough in taxable to execute a Roth conversion ladder strategy in early retirement, how should I think about this In totality with respect to your ratio suggestion.
Excellent thoughts on what people should expect in the months ahead if they are still “working.” People frequently expect work-life to be fair and not cut-throat…it is neither.
I expect biz owners to focus only on their best producers once the PPP loans are “forgiven” and the consumer is driving the monthly balance sheet.
Hey Sam! While most only focus on the negatives, just wanted to acknowledge that you are doing a great job cranking out great content! I love how your mind defaults to working harder as shown in #2 above. Keep it up – you inspire me.
Always look forward to your posts. I didn’t know there was a subscribe button for posts, only thought there was a newsletter. You just gained another subscriber by marketing your work!
That being said, I don’t think the way you described that you’re working for free is accurate. Maybe it’s semantics but you produce content that, luckily for us readers, we can access for free (which I genuinely appreciate). However, FS gets paid by ads on the website and based on your posts about the estimated passive income it’s doing pretty well in that department.
Please keep up th great work whether it’s real estate, stock, or paying for a doula to keep your families sanity, it’s all “financial” related which isn’t the purpose of this great site.
Do you think bonds can still hedge stocks in the almost zero or slightly negative interest rate environment? That’s my most concern going forward. The 60/40 portfolio has been doing really well for the past ten years. But now the interest rate is so low and I concern that the bond has too limited space to go up to hedge stocks if stocks market crashes again.
Have you done any research on those countries already in negative interest rate such as Japan and Germany? Can their treasury bond efficiently hedge their stock market?
Umm I think you totally missed the point of this article. You’re asking Sam a ton of questions and expect him to do all that research and give you all those answers? I recommend re-reading this post. Then give your financial advisor a call.
It’s a question for all serious investors. I am just asking the question. No need to criticize the right to ask a question.
In Japan, very few individual investors buy JGBs. In fact, a lot of their primary dealers have nothing to do as the BOJ sucks everything up.
Links are not allowed, so google “How BOJ Crushed Trading in Japan’s $10 Trillion Bond Market”
Great post, Sam! Thanks for sharing your thoughts on the stock market. To be honest, I was missing your stock market content too. I didn’t realize you had been podcasting about it though. I will have to check that out! Also, I really like your first 2 lessons learned. Very insightful. I could benefit from balancing my marketing and production efforts. I spent the last few weeks producing content at a higher than normal rate. I wrote 5 posts last week. But I think some of those posts get missed by readers when I publish back to back like that. I am planning to move to towards a posting schedule. Your 2nd point reminded my of ‘The Last Dance’ documentary. It’s that same mentality that Jordan seemingly put in to outwork his peers. Very motivational. I can’t wait for the final 2 episodes. Enjoy your weekend.
Nice job hustling! One positive thing about posting daily is that you don’t have to manage as many comments. In other words, use your time to produce more instead of maintain more.
Can’t wait to lace up my AJ6s for the final two Last Dance episodes tonight.
There really is no replacement for hard work.
I see why Tom wrankled you a bit, and I agree, people always want more. I love your writings, and it is free to ME. I wouldn’t exactly say you work for free though, you are a business owner and your own employee (I’m assuming that FS provides continues to provide some type of income, I highly doubt you would invest so much energy into if it didn’t). Only you can decide if the juice is worth the squeeze.
I know some sites transition to a minimal fee style of setup, or some pay-to-have premium content, I supposes to filter out some complete freeloaders. Maybe that is something to consider? You would have to do the full analysis of course, but I personally would pay a coffee a month to hear your ramblings LOL. Regardless, thanks, and keep it up!
His point is so many people come to the site for free content and expect Sam to answer a ton of questions without considering how much work he’s already doing and how busy he is. It takes a LOT of time to respond to questions. I don’t think many people realize that or how much time it takes to write an article. I think Sam enjoys the interactions on the site but when readers use words like “I’m disappointed” and then ask for more is really poor form.
It really is poor form. Sam does me a great service, and I am very grateful.