Thesis: "Current secular bear market is an opportunity."

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Re: Thesis: "Current secular bear market is an opportunity."

Postby yukon50 » Mon Jul 15, 2013 8:10 pm

HomerJ wrote:There's a rough generational pattern if you look back... but I don't know if that means anything going forward...

1913-1929 Bull market
1929-1946 Bear market
1946-1966 Bull market
1966-1982 Bear market
1982-2000 Bull market
2000-???? Bear market

All cycles lasting about 16-20 years. Generational.

I think they can only be determined looking back... The two big bull markets in the recent past (1946-1966) and (1982-2000) saw the market increase 700% (DOW went from 140 to 1000) and 1000%. (DOW went from 1000 to 10,000).

That's how I'd define a secular bull market... A huge run-up over multiple years.

From 2000-2013, we're nowhere near those numbers... We'd have to see DOW hit 70,000 or so to rise 700% above it's 2000 high water mark.

Those numbers seem insane don't they? But that's what people experienced in real bull markets in the past... 700%, 1000% gains over 20 years. We may never see those numbers again... But I'd expect the next big bull market to at least triple or quadruple the stock market.

Right now, we're still getting the last excesses from the 1982-2000 bull out of our system... We may see another crash, or stocks may start trending sideways again for a while... At some point, it's possible another big bull market may take off, and all the money we've invested over the last 13 years will really be worth something then...

But maybe not. History doesn't HAVE to repeat itself.


+1

It's amazing to me how so many 401k investors don't understand market history. Seems to me the average person says, "The stock market is same level as 2000, therefore stocks are a bad investment now...."
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Re: Thesis: "Current secular bear market is an opportunity."

Postby avalpert » Mon Jul 15, 2013 8:21 pm

yukon50 wrote:
HomerJ wrote:There's a rough generational pattern if you look back... but I don't know if that means anything going forward...

1913-1929 Bull market
1929-1946 Bear market
1946-1966 Bull market
1966-1982 Bear market
1982-2000 Bull market
2000-???? Bear market

All cycles lasting about 16-20 years. Generational.

I think they can only be determined looking back... The two big bull markets in the recent past (1946-1966) and (1982-2000) saw the market increase 700% (DOW went from 140 to 1000) and 1000%. (DOW went from 1000 to 10,000).

That's how I'd define a secular bull market... A huge run-up over multiple years.

From 2000-2013, we're nowhere near those numbers... We'd have to see DOW hit 70,000 or so to rise 700% above it's 2000 high water mark.

Those numbers seem insane don't they? But that's what people experienced in real bull markets in the past... 700%, 1000% gains over 20 years. We may never see those numbers again... But I'd expect the next big bull market to at least triple or quadruple the stock market.

Right now, we're still getting the last excesses from the 1982-2000 bull out of our system... We may see another crash, or stocks may start trending sideways again for a while... At some point, it's possible another big bull market may take off, and all the money we've invested over the last 13 years will really be worth something then...

But maybe not. History doesn't HAVE to repeat itself.


+1

It's amazing to me how so many 401k investors don't understand market history. Seems to me the average person says, "The stock market is same level as 2000, therefore stocks are a bad investment now...."


Ah, so 150% increase in the past 4 years can't possible be indicate that we are in a new secular bull market...

It's amazing to me how so many investors make up a narrative to try to explain market history and somehow think that is the same as understanding it.
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Re: Thesis: "Current secular bear market is an opportunity."

Postby HomerJ » Mon Jul 15, 2013 10:26 pm

avalpert wrote:
yukon50 wrote:
HomerJ wrote:There's a rough generational pattern if you look back... but I don't know if that means anything going forward...

1913-1929 Bull market
1929-1946 Bear market
1946-1966 Bull market
1966-1982 Bear market
1982-2000 Bull market
2000-???? Bear market

All cycles lasting about 16-20 years. Generational.

I think they can only be determined looking back... The two big bull markets in the recent past (1946-1966) and (1982-2000) saw the market increase 700% (DOW went from 140 to 1000) and 1000%. (DOW went from 1000 to 10,000).

That's how I'd define a secular bull market... A huge run-up over multiple years.

From 2000-2013, we're nowhere near those numbers... We'd have to see DOW hit 70,000 or so to rise 700% above it's 2000 high water mark.

Those numbers seem insane don't they? But that's what people experienced in real bull markets in the past... 700%, 1000% gains over 20 years. We may never see those numbers again... But I'd expect the next big bull market to at least triple or quadruple the stock market.

Right now, we're still getting the last excesses from the 1982-2000 bull out of our system... We may see another crash, or stocks may start trending sideways again for a while... At some point, it's possible another big bull market may take off, and all the money we've invested over the last 13 years will really be worth something then...

But maybe not. History doesn't HAVE to repeat itself.


+1

It's amazing to me how so many 401k investors don't understand market history. Seems to me the average person says, "The stock market is same level as 2000, therefore stocks are a bad investment now...."


Ah, so 150% increase in the past 4 years can't possible be indicate that we are in a new secular bull market...

It's amazing to me how so many investors make up a narrative to try to explain market history and somehow think that is the same as understanding it.


150% is small potatoes compared to bull markets in the past... and the first 100% of was just erasing the crash... We're really only up 50% after 13 years....

Compare that to being up 300% or 500% after 13 years like people were in the early 60s or early 90s.. THOSE were bull markets.

But 2009 certainly could have been the start of the new bull market... And I sure don't claim to understand market history.
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Re: Thesis: "Current secular bear market is an opportunity."

Postby avalpert » Mon Jul 15, 2013 10:42 pm

HomerJ wrote:
avalpert wrote:
Ah, so 150% increase in the past 4 years can't possible be indicate that we are in a new secular bull market...

It's amazing to me how so many investors make up a narrative to try to explain market history and somehow think that is the same as understanding it.


150% is small potatoes compared to bull markets in the past... and the first 100% of was just erasing the crash... We're really only up 50% after 13 years....

Compare that to being up 300% or 500% after 13 years like people were in the early 60s or early 90s.. THOSE were bull markets.

But 2009 certainly could have been the start of the new bull market... And I sure don't claim to understand market history.


It beats the S&P 500 performance in the first four years of what you label as the last secular bull market. Heck is took the S&P 500 over 9 years to have that level of price increase after October 1, 1987 - why isn't that a 9 year secular bear market dividing two shorter bull runs?

Acknowledging that you at least accept we may be in a new 'secular bull market', how many people do you think at this point in the mid-80's were also insisting they were still in the midst of the previous 'secular bear' market and were they right or wrong?
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Re: Thesis: "Current secular bear market is an opportunity."

Postby HomerJ » Tue Jul 16, 2013 8:31 am

avalpert wrote:It beats the S&P 500 performance in the first four years of what you label as the last secular bull market. Heck is took the S&P 500 over 9 years to have that level of price increase after October 1, 1987 - why isn't that a 9 year secular bear market dividing two shorter bull runs?

Acknowledging that you at least accept we may be in a new 'secular bull market', how many people do you think at this point in the mid-80's were also insisting they were still in the midst of the previous 'secular bear' market and were they right or wrong?


Remember, I said in my earlier post that I don't think we can tell if we're in secular bear or secular bull market until it's nearly over. But the other big bull markets were BIG... 150% from the bottom of a crash is not enough...

I agree with you 100% that many many people in the mid-80s were waiting for a pull-back, and had no idea that a new long-lasting bull had started.

We may indeed have started a new bull market in 2009. We won't know until it's almost over.
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Re: Thesis: "Current secular bear market is an opportunity."

Postby thx1138 » Tue Jul 16, 2013 8:42 am

I have now added "secular" to my list of words that activate the BS detector. I have an aversion to trendy buzzwords as their use tends to be inversely correlated to the thoughtfulness of the speaker. It will sit alongside "sea change" and other talking head prognosticator words that contain no information or discernible value beyond an attempt to dodge analysis and critical thinking by the application of fancy sounding vocabulary.

I'd also suggest people look at smoothed plots of random variables and note all the "secular" trends that seem to exist in them. Become familiar with what a random walk actually looks like and you will understand the utter pointlessness in declaring "bull" or "bear" markets and the even more ridiculous concept of adding a moniker of "secular" to the same.
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Re: Thesis: "Current secular bear market is an opportunity."

Postby Chan_va » Tue Jul 16, 2013 9:07 am

Read this latest Wade Pfau paper and see if that changes your mind - http://papers.ssrn.com/sol3/papers.cfm? ... id=2286146

His conclusion is that is this one of the worst times in history to be investing in terms of expected returns.
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Re: Thesis: "Current secular bear market is an opportunity."

Postby HomerJ » Tue Jul 16, 2013 10:08 am

Chan_va wrote:Read this latest Wade Pfau paper and see if that changes your mind - http://papers.ssrn.com/sol3/papers.cfm? ... id=2286146

His conclusion is that is this one of the worst times in history to be investing in terms of expected returns.


I'm getting real tired of Wade Pfau... Maybe he's right, but maybe he's wrong... I sure wouldn't base my financial decisions on yet another economic PhD trying to predict the future.

In that pdf..

In a recent review of the evidence on interest rate mean reversion using 200 years of data across four countries including the U.S. (van den End, 2011), there appears to be little evidence that bonds consistently revert back to their historical average in any predictable manner. In other words, interest rates can be higher or lower than the average for long periods of time and it is impossible to predict when they will return to the mean.


Then, after saying it's impossible to predict interest rates, he makes a prediction (well, he HAS to in order to create a model)...

The long-term bond yield is assumed to be 5.0% within this model (i.e., this is the yield that it converge towards throughout the simulation).


Basically he assumes bond rates are going to remain extremely low for THIRTY years... His model shows bond rates going from 2% to 5% over 30 years... This is my biggest problem with his model. All his math and months of work lie firmly on top of a basic interest rate prediction that he himself admits is impossible to predict.

But even if you accept his premise, take a little heart in knowing that he's also assuming a 50 bps management fee... And that's something you CAN control... So if he says 2.8% is a safe withdrawal rate, you can probably get away with 3.2% by using 10 bps fee Vanguard funds.
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Re: Thesis: "Current secular bear market is an opportunity."

Postby Oilburner » Tue Jul 16, 2013 11:19 am

I too believe in secular bull and bear markets and think young investors in equities have a promising road ahead. At 52 I feel
i missed out. Only did I start decent-sized contributions to tax deferred retirement plans after we entered the current secular bear market.
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Re: Thesis: "Current secular bear market is an opportunity."

Postby AppelSienSapFrietjes » Tue Jul 16, 2013 11:27 am

Chan_va wrote:Read this latest Wade Pfau paper and see if that changes your mind - http://papers.ssrn.com/sol3/papers.cfm? ... id=2286146

His conclusion is that is this one of the worst times in history to be investing in terms of expected returns.


(offtopic)

In my opinion, these kind of papers are very interesting on one side and very frustrating on the other side.

He creates a model/framework, which is nice. You can agree, you can disagree, that's great. It makes sense, it is well documented and is therefore a basis for further discussions. Cool!

On the other side, I hate it when these kind of papers make assumptions and then spend so much effort and conclusions based on these assumptions. They rather spend their timing creating an web application in which you can plug in the numbers (and the assumptions), to see the different effects of the model which has been created.

But that's not how academics work, mostly. Papers, papers and papers.
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Re: Thesis: "Current secular bear market is an opportunity."

Postby zaboomafoozarg » Tue Jul 16, 2013 11:36 am

What if we are in a sacred bear market?
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Re: Thesis: "Current secular bear market is an opportunity."

Postby Chan_va » Tue Jul 16, 2013 12:38 pm

HomerJ wrote:I'm getting real tired of Wade Pfau... Maybe he's right, but maybe he's wrong... I sure wouldn't base my financial decisions on yet another economic PhD trying to predict the future.


I disagree. Every decision we make is based on some model - implicit or explicit.

You can argue with some of the finer points in Wade's model, but the following 3 points are not arguable

1. Portfolio performance in the 1st 10 years of retirement has an outsize impact on success
2. 10 year expected bond returns are very highly positively correlated to current bond yield
3. 10 year expected stock returns are somewhat negatively correlated to current P/E.

With currently bond yields at historic lows, and stock P/E above historic averages - you can do the math.

That being said, he is not recommending any drastic change in investing behavior. Just that you probably need to save more if close to retirement, and spend less than 4% if just starting out in the decumulating phase.
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Re: Thesis: "Current secular bear market is an opportunity."

Postby Phineas J. Whoopee » Thu Jul 18, 2013 5:37 pm

Oilburner wrote:I too believe in secular bull and bear markets and think young investors in equities have a promising road ahead. At 52 I feel
i missed out. Only did I start decent-sized contributions to tax deferred retirement plans after we entered the current secular bear market.

Setting aside whether it is possible to identify "secular" markets until well after they've ended, assuming what you've said is true it's good for your ending net worth. All your investments have been at low prices. You should only want a "secular" bull market to start at or about your retirement date. See Sequence of Returns Risk.
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Re: Thesis: "Current secular bear market is an opportunity."

Postby hollowcave2 » Fri Jul 19, 2013 1:12 pm

I hope the theory about secular bear and bull markets is true because if it is, we may be on the cusp of a new secular bull. It's too hard to tell yet. We seem to be making new highs and recovering well but it could also languish here. A secular bear need not end at the lows. It can end at the highs and languish before the bull starts. But I hope the bull is ready because that makes it easier for me and other Bogleheads to stay the course. We made it through the rough times so I'm ready for some good times.
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