Stock Market Makes New High

[Rick Ferri]

The Wilshire 5000 Index, a proxy of the total US equity market, closed today at 15,878.72, breaking its all-time record high of 15,806.85 set on October 9, 2007. The index is up 131.52 percent or $10.8 trillion from the recent low of March 9, 2009. If the month ended on Friday it would have been the best January since the Wilshire 5000 gained 6.53 percent in January 1989.

The markets seem to been getting a little help from the Fed. Since September 12, 2012, the close before Bernanke revealed QE3, the Wilshire 5000 index is up 5.59 percent or $975 billion. Since August 26, 2010, the close before Bernanke revealed QE2, the Wilshire 5000 index is up 44.71 percent or $5.6 trillion.

The S&P 500 is still about 4.1 percent shy of its all-time closing high of 1,565.15 on October 9, 2007. The S&P 500 is a sampling of mainly large cap US equities.

Rick Ferri

[WolfpackFan]

Yeah? Well it better.

[livesoft]

News you can use.

[Rick Ferri]

News you can use.

How so?

Rick Ferri

[livesoft]

Oh, sorry, I left out some words:

"Please tell us some ...."

[Rick Ferri]

Well, the Red Wings are winning.

Rick Ferri

[sscritic]

Here is something you can use:

Buy! Buy! Buy!

If that doesn't do it for you, try this:

Sell! Sell! Sell!

[Toons]

Buy buy buy extended market declines, sell sell sell extended market rises(Is hamburger still on sale?)

[umfundi]

I'm still thinking of those who sold in advance of the fiscal cliff, and "only" lost a couple of percent over the last week of December and the first week of January.

Did they find a reason to be back in the market? By now they're looking at a lost opportunity of about 8%. In just less than a month.

Keith

PS: Maybe I should revive those zombie threads

[Mill]

I'm still thinking of those who sold in advance of the fiscal cliff, and "only" lost a couple of percent over the last week of December and the first week of January.

Did they find a reason to be back in the market? By now they're looking at a lost opportunity of about 8%. In just less than a month.

Keith

PS: Maybe I should revive those zombie threads

Yes, do it! It will be funny

[umfundi]

I'm still thinking of those who sold in advance of the fiscal cliff, and "only" lost a couple of percent over the last week of December and the first week of January.

Did they find a reason to be back in the market? By now they're looking at a lost opportunity of about 8%. In just less than a month.

Keith

PS: Maybe I should revive those zombie threads

Yes, do it! It will be funny

I did revive one. Actually, I don't think it's funny. It is a profound lesson learned.

We have threads that niggle over tenths of a percent per year in fund expense ratios, yet we now see how easy it is to lose an opportunity of 8% in less than a month.

Stay the course.

Keith

[Mill]

I'm still thinking of those who sold in advance of the fiscal cliff, and "only" lost a couple of percent over the last week of December and the first week of January.

Did they find a reason to be back in the market? By now they're looking at a lost opportunity of about 8%. In just less than a month.

Keith

PS: Maybe I should revive those zombie threads

Yes, do it! It will be funny

I did revive one. Actually, I don't think it's funny. It is a profound lesson learned.

We have threads that niggle over tenths of a percent per year in fund expense ratios, yet we now see how easy it is to lose an opportunity of 8% in less than a month.

Stay the course.

Keith

+1 Stay the course.

[Peter Foley]

Ricki Ferri wrote

livesoft wrote:News you can use.


How so?

Rick Ferri

How about "Don't fight the Fed." That's what I get when I read between the lines.

[Blue]

Bernanke Put

[midareff]

with TSM at 5.8 and bonds near 0 it might be time to call 2013 over and move on to next year.

[MnD]

I'm finally hearing less of "the financial crisis cut my (or your) 401-K in half" as though everyone went all in on October 2007 and sold at the bottom.
Still hearing the "stocks have returned nothing for well over a decade" as though everyone went 100% into stocks on March 24, 2000, waived rights to dividends and made no interim contributions.

[john94549]

Saying "the market is (fill in the blank) from its high in 2007" is another way of saying "five plus years of dead money, aside from dividends".

[baw703916]

Saying "the market is (fill in the blank) from its high in 2007" is another way of saying "five plus years of dead money, aside from dividends".

If one really wants to look at the glass as half empty, 2000 makes a better comparison.

[nisiprius]

One big danger is just forgetting that 2008-2009 occurred. During all the years I was investing, people kept talking dismissively about 1929, as in "thus and such can't happen (unless of course we get another 1929)", as if that were so far in the past and so unlikely as not to be worth considering. I had to consciously keep in mind that, of course, we could get one.

Another danger is in assuming that all stock market crashes will be like the last one, i.e. severe, but fully recovered within four years. This will lead to all sorts of dangerous generalizations--the "average length of a bear market is less than five years, so a 'buckets' strategy will immunize you against loss as long the cash bucket holds at least five years," etc.

[john94549]

Nisi, I am still of the (distinctly minority) crowd that will believe we are in a new secular bull when Mr. Market goes 10% over its all-time high and (more importantly) stays above that level for at least a year. That failing, March, 2009 to date is merely a cyclical bull within a greater secular bear market, which commenced in 2000. That said, secular bear markets are great periods to buy stocks.

[Rodc]

I'm still thinking of those who sold in advance of the fiscal cliff, and "only" lost a couple of percent over the last week of December and the first week of January.

Did they find a reason to be back in the market? By now they're looking at a lost opportunity of about 8%. In just less than a month.

Keith

PS: Maybe I should revive those zombie threads

Unless they are still out when the market drops 40% over the next 18 months, then get back in at the bottom.

I'm not predicting such a thing, just that such a thing is in the set of possible outcomes.

Personally, I just stay in and rebalance. But such things as the so-called fiscal cliff do from time to time cause me some minor level of concern.

[Imperabo]

It's another way of saying that only people who are down in stocks due to the Great Recession are those who didn't stay the course. I think that's worth reporting.

[Swampy]

Rick,

Given all the recent media attention and headlines proclaiming billions of dollars being pumped into equity funds, it just harkens that this is the preamble to a correction.

What would you recommend the average person who wants to invest new cash into an index fund portfolio do? What would work best?

1. Put the entire amount in and forget about it;
2. Dollar cost average over the course of the next 1-2 years (historically the first two years after a presidential election have been lackluster for the equities market).

Personally I would sleep better at night phasing in my investments over time rather than just taking the plunge. Am I wrong?

[baw703916]

Nisi, I am still of the (distinctly minority) crowd that will believe we are in a new secular bull when Mr. Market goes 10% over its all-time high and (more importantly) stays above that level for at least a year. That failing, March, 2009 to date is merely a cyclical bull within a greater secular bear market, which commenced in 2000.

I agree with your assessment. Furthermore, there seems to be a periodicity of roughly 35 years in secular bulls/secular bears, going back to the creation of the Fed in 1913. (back when we didn't have a central bank, boom/bust cycles tended to occur on a shorter time scale--during the 19th century, there tended to be a major financial panic about every 20 years). If I had to guess (insert caveat about cloudy crystal ball here) I would say that we are probably still a few years away from the next secular bull, and there could very well be another (cyclical) bear market (i.e. > 20% drop) before that occurs.

Brad

[Rick Ferri]

Rick, Given all the recent media attention and headlines proclaiming billions of dollars being pumped into equity funds, it just harkens that this is the preamble to a correction.

What would you recommend the average person who wants to invest new cash into an index fund portfolio do? What would work best?

1. Put the entire amount in and forget about it;
2. Dollar cost average over the course of the next 1-2 years (historically the first two years after a presidential election have been lackluster for the equities market).

I would put the entire amount into a balanced strategy and forget it. Trying to time these things just doesn't pay.

However, human nature as it is, if a person is more comfortable dollar-cost-averaging, then that's what they should do. There is one caveat to this advice. If the new cash came from an account that was already invested in equity, then an equal amount should go back into equity. For example, if you rolled a 401(k) into an IRA, and the account was 50% in stocks, then stay 50% in stocks.

Rick Ferri

[Swampy]

Thanks Rick.

All of it is new money from the sale of a previous home. Since none was in equities, I won't jump right into equities.

In my case, if something works 90% of the time (IE putting in the whole amount and forgetting about it for 5-10 years), I will be the outlier and invariably fall into the 10% of the time it doesn't work (IE when there is a 20% correction immediately after investing).

For me, psychologically, it's more palatable to take smaller consistent bites into ETF's and mutual funds, than to try and gulp the whole thing down in one big bite. I'm afraid of choking on it.

I realize DCA is not perfect (nothing is), however I can overcome my fear of putting new cash into the rising market by doing so incrementally.

I'm not looking for perfection, just progress.

[baw703916]

The TSP G Fund also reached a new high on Jan. 25.

[Sbashore]

The TSP G Fund also reached a new high on Jan. 25.

Would that be nominal or real ?

[mickeyd]

New High! zzzzzzz

New Low! zzzzzzzz

Stay the Course! zzzzzzz

[spanky123]

New High! zzzzzzz

New Low! zzzzzzzz

Stay the Course! zzzzzzz

ZZZZ .. How about market decline of 90%, all public pension payments ceased indefinitely or discontinued forever, imminent World War III, etc?

[baw703916]

The TSP G Fund also reached a new high on Jan. 25.

Would that be nominal or real ?

Nominal--but I'm pretty sure that the W5000 is only at an all-time high in a nominal sense as well.

[umfundi]

I know I should pay attention to my own tag line, but I am reminded of January 1998.

Keith

[mickeyd]

New High! zzzzzzz

New Low! zzzzzzzz

Stay the Course! zzzzzzz

ZZZZ .. How about market decline of 90%, all public pension payments ceased indefinitely or discontinued forever, imminent World War III, etc?

Are you forgetting that STC includes rebalancing?

[Bacchus01]

I don't know how to do this, but I am sure it's easy for some.

It would be interesting to go back and look at the following scenario.

$100K in a 70/30 3-fund lazy portfolio going into the "great recession."

Rebalancing the asset allocation each time it got outside of +/- 5% of target allocation. On the way down, and on the way up.

You would likely have been buying into equities on the way down, and selling them off on the way up. Without running the numbers, my "guess" is that you would be well ahead of the average market return over that time and significantly positive.

Stay the course on your AA.

[jdilla1107]

I think this is funny:

http://finance.yahoo.com/news/najarian- ... 41405.html

"With the likelihood that the U.S. will go over the so-called "fiscal cliff," OptionMonster's Jon Najarian said Thursday he has exited all his positions.
"For the first time in 31 years in the market, I'm completely out of everything," he said. "I see no reason to stick with this thing - no reason to get short, either."
On "Fast Money," Najarian did not believe there would be a last-minute grand victory in the Washington budget negotiations to avoid the so-called "fiscal cliff," a series of tax hikes and federal spending cuts that will take effect Jan. 1 if an agreement isn't reached."

[john94549]

Bacchus, I ran the numbers for a two-fund portfolio (VTSAX and VBTSX) allocated 70/30 from May, 2008 to date. Assuming three bands hit (on or about 9/29 and 11/10/08 and 3/2/09), and assuming no re-balancing on the way "up" (just re-investing dividends), so as to keep all those "cheap(er)" shares of VTSAX, yes, you'd be up more than had you not re-balanced, but not by as much as you might think. The re-balancer is up about 28%. Rip van Winkle, who did nothing, is up about 21%. Of course, by the time the Great Recession was looming, stocks were off their 2007 highs, by roughly 10%. If you go back to the week of October 8, 2007, VTSAX was essentially right where it closed Friday last. Gains for Mr. Re-balancer would be greater than those for Rip (essentially, Rip's are re-invested dividends), but neither would have anything to crow about.

Should Mr. Re-balancer have re-balanced going "up", I suspect you could lop a bit off that 28%, since the bond fund NAV (plus dividends) went up much less, on a percentage basis, than stocks. Which would also explain why the portfolio is now seriously "out of whack", at roughly 80/20.