Katrina's Effect on S&P

ChromePony · #1 09-09-2005, 01:58 PM

OK, so I just put some poker money into the basic Vanguard S&P index and I'm quite content to enjoy the lowish risk/lowish rewards it typically offers in exchange for not having to worry about things.

Now, there has been a lot of talk lately about how the fallout and loss of jobs from Katrina will hurt our economy in the near future, I'm no expert (in fact I know very little), but these are the rumors I hear on these boards and on cable news and that sort of thing.

So my question is this...Would this be a good time to take this money out of S&P and put it in a foreign fund or something. I of course understand the point of riding out the ups and downs of the market and how over the long term things will tend to right themselves. But it seems that if we can predict that there will be even a small downturn it would be stupid to sit and watch my money depreciate, or at least not grow at the rate it could be.

Vanguard has lots of no load funds so its not much of a hassle to transfer to a new one. Thoughts and suggestions?

Peter666 · #2 09-11-2005, 08:23 AM

Put it in a mutual fund with good managers who have above average results.

The be all and end all of index funds is to get guaranteed average performance....if you do not touch the fund for a long time. But obviously this has not worked in your case,and doesn't for anyone I know as most are smart enough to realize that current events effect the markets in a positive or negative way, and it is possible to make more money by having it at the right place at the right time.

A good fund manager has more experience in this field and you should either give them your money or invest it yourself.

I do not like index funds precisely because of their failure to satisfy an investor's psychological needs, and the fact that their performance is merely average.

Uglyowl · #3 09-11-2005, 09:29 AM

Theoretically the market already should have priced in what it thinks is the slowdown as a result of Katrina.

1C5 · #4 09-11-2005, 10:03 AM

Yeah but most mutual funds have not even beat the market and it can be tough to pick one that will.

kagame · #5 09-13-2005, 01:14 AM

just buy motley fool and load up on all their stock picks

no way they dont beat the market

snappo · #6 09-13-2005, 05:21 AM

as op says there are and will be obvious economical ramifications from katrina. yet after katrina hit and did all that damage the market did not go down. in fact it has been going up since the hurricane hit. shouldn't this be interpreted as a sign of major underlying strength in the market? or is this interpration flawed?

Peter666 · #7 09-14-2005, 10:17 AM

My studies suggest that most mutual funds don't beat the market because people want less fluctuation and fund managers respond in kind. Most people cannot psychologically handle the fluctuations a higher return usually entails (they want bond like performance with the tax advantages of stocks).

However, if you do some research on morningstar, you can find some funds that are both less volatile and perform a little better than the market average after expenses.

Peter666 · #8 09-14-2005, 10:23 AM

Different sectors get hit in different ways. Knowing what the average effect of all sectors combined is on the market does not do the investor much good. We want more specific information that can tell us this is a good place to pull out of now, and this is a place we should be in now. That is how to get above average returns. The major indexes cannot tell us this.

I also heard that all the immediate effects of 9/11 on the stock market vanished by October.

Sniper · #9 09-14-2005, 03:45 PM

[ QUOTE ]
My studies suggest that most mutual funds don't beat the market because people want less fluctuation and fund managers respond in kind.

[/ QUOTE ]

These are some of the reasons mutual funds have mediocre performance. Also, these are many rules that constrain the actions of mutual funds.

The biggest problem that funds have is that they simply have too much money and that money must be almost fully invested at all times.

An individual investor that does their homework, can easily beat the possible % returns of a mutual fund manager.

Think of poker... a player can start the year with $250, play .50/1 limit and end the year with over $25,000 including rakeback and bonus... a 1000% return. However, there is no way that a player starting with a $1 million bankroll is going to achieve a 1000% return even playing 4K/8K.

Elaboration · #10 09-15-2005, 12:32 AM

[ QUOTE ]
shouldn't this be interpreted as a sign of major underlying strength in the market? or is this interpration flawed?

[/ QUOTE ]

The bump was probably due to the expected impact of recovery spending. The gov approved 50 bill last week and they say it'll probably top 200 bill. Thats just the government, without including the private sector.

Think about it from a business perspective. If you were a big builder, retailer, restaurant owner and you saw that one of the countries flagship cities needed to be rebuilt, wouldn't you be salivating at the opportunity?

Where it could be flawed is the potential expectation that the hurricane will curb the fed in raising interest rates. While they might give a free pass at the next meeting I think their long term goal probably stands from what I have read.