stocks about to plunge
-
- Posts: 16022
- Joined: Thu Feb 22, 2007 7:28 am
- Location: St Louis MO
stocks about to plunge
http://www.cbsnews.com/news/just-ignore ... forecasts/
One of my favorite hobbies is collecting forecasts to hold the forecasters accountable
Larry
One of my favorite hobbies is collecting forecasts to hold the forecasters accountable
Larry
Re: stocks about to plunge
Danke!
I know you think you understand what you thought I said but I'm not sure you realize that what you heard is not what I meant. - Alan Greenspan
-
- Posts: 1054
- Joined: Wed Jun 27, 2012 12:05 pm
Re: stocks about to plunge
You typed "on pick" you probably meant "pick on."
Re: stocks about to plunge
I predict that prices of equities traded on the stock markets will sometimes go down and sometimes go up.
Please feel free to send me a sizeable amount of money if you disagree.
Please feel free to send me a sizeable amount of money if you disagree.
Last edited by kenner on Tue Jul 08, 2014 7:41 am, edited 1 time in total.
Re: stocks about to plunge
Sounds boring to me. I don't spend my days looking through trash cans for tasty tidbits.larryswedroe wrote: One of my favorite hobbies is collecting forecasts to hold the forecasters accountable
Re: stocks about to plunge
Thanks for the link!
- HardKnocker
- Posts: 2063
- Joined: Mon Oct 06, 2008 11:55 am
- Location: New Jersey USA
Re: stocks about to plunge
All the same it is a good idea to mentally prepare yourself for such an event so that you can have a rational plan and avoid rash moves.
There can be no doubt a correction will occur someday.
There can be no doubt a correction will occur someday.
“Gold gets dug out of the ground, then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility.”--Warren Buffett
Re: stocks about to plunge
The markets have been "about to plunge" since the first day I invested in my first stock mutual fund on July 16, 1984. That was almost 30 years ago. Good thing I did not listen to the "experts" and the "forecasters." I would never have invested.
A fool and his money are good for business.
-
- Posts: 904
- Joined: Sat Apr 06, 2013 7:11 pm
- Location: Springfield
Re: stocks about to plunge
June 9, 2014: 'Why You Need to Be in This Stock Market Now: Adams'
http://www.bloomberg.com/video/need-to- ... bG2AA.html
http://www.bloomberg.com/video/need-to- ... bG2AA.html
Re: stocks about to plunge
Let me guess. It's a stock picker's market, isn't it?
Most of my posts assume no behavioral errors.
- HardKnocker
- Posts: 2063
- Joined: Mon Oct 06, 2008 11:55 am
- Location: New Jersey USA
Re: stocks about to plunge
And it has plunged like a doozy three times since 1984:nedsaid wrote:The markets have been "about to plunge" since the first day I invested in my first stock mutual fund on July 16, 1984. That was almost 30 years ago. Good thing I did not listen to the "experts" and the "forecasters." I would never have invested.
1987, 2000, 2008.
“Gold gets dug out of the ground, then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility.”--Warren Buffett
Re: stocks about to plunge
There was a lot of chatter that the stock market would fall at the end of 2012, even some threads on this forum arguing for it happening, I am not going to list the reasons the forecasters gave, since some of them were political and off-limits for this site, but since Dec 2012 the market as measured by the SP 500 has gone up 40 percent.
"Don't trust everything you read on the Internet"- Abraham Lincoln
-
- Posts: 551
- Joined: Tue Dec 14, 2010 2:19 pm
Re: stocks about to plunge
Great article. Thanks, Larry.
Re: stocks about to plunge
I do the same thing with all of the small value, momentum, and profitability forecasters.
Re: stocks about to plunge
One of my favorite lines is, "He has called 10 of the last 5 market downturns."
Bob
Re: stocks about to plunge
"Whenever some analyst seems to know what he's talking about, remember that pigs will fly before he'll ever release a full list of his past forecasts, including the bloopers."
That sentence was worth reading the article
That sentence was worth reading the article
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
- Clearly_Irrational
- Posts: 3087
- Joined: Thu Oct 13, 2011 3:43 pm
Re: stocks about to plunge
There was some weakness in 2013 but by September my indicators were suggesting it was still too early to call, which looks to have been correct. My current data suggests we're still in a period of market order that started July 2011. Latest crash indicator reading is only 14.29/100 (over 30 is usually bad) Leading indicator swirlogram is showing a slowdown but it's still a long ways from a contraction. The current economic expansion is still within the normal range based on the historical length of prior expansions. Absent a significant triggering event, we're likely to continue on the current path for a while yet, I see no reason not to continue with a buy and hold strategy at this time.
Re: stocks about to plunge
The most entertaining thing I read today was from a poster on another board who has been predicting a big correction for the past two years. Despite being wrong at every turn, he remains undaunted: "eventually I will be right." He just doesn't know when.
- bertilak
- Posts: 10725
- Joined: Tue Aug 02, 2011 5:23 pm
- Location: East of the Pecos, West of the Mississippi
Re: stocks about to plunge
With erudition like that you've gotta be right! I'm taking action immediately.Clearly_Irrational wrote:There was some weakness in 2013 but by September my indicators were suggesting it was still too early to call, which looks to have been correct. My current data suggests we're still in a period of market order that started July 2011. Latest crash indicator reading is only 14.29/100 (over 30 is usually bad) Leading indicator swirlogram is showing a slowdown but it's still a long ways from a contraction. The current economic expansion is still within the normal range based on the historical length of prior expansions. Absent a significant triggering event, we're likely to continue on the current path for a while yet, I see no reason not to continue with a buy and hold strategy at this time.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
-
- Posts: 25625
- Joined: Thu Apr 05, 2007 8:20 pm
- Location: New York
Re: stocks about to plunge
In the words of JP Morgan "it will fluctuate".
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Re: stocks about to plunge
I am 99 percent this was a joke, but the sad thing is how many people in the general public would act on this.bertilak wrote:With erudition like that you've gotta be right! I'm taking action immediately.Clearly_Irrational wrote:There was some weakness in 2013 but by September my indicators were suggesting it was still too early to call, which looks to have been correct. My current data suggests we're still in a period of market order that started July 2011. Latest crash indicator reading is only 14.29/100 (over 30 is usually bad) Leading indicator swirlogram is showing a slowdown but it's still a long ways from a contraction. The current economic expansion is still within the normal range based on the historical length of prior expansions. Absent a significant triggering event, we're likely to continue on the current path for a while yet, I see no reason not to continue with a buy and hold strategy at this time.
"Don't trust everything you read on the Internet"- Abraham Lincoln
- Clearly_Irrational
- Posts: 3087
- Joined: Thu Oct 13, 2011 3:43 pm
Re: stocks about to plunge
I wasn't joking, I'm pretty sure Bertilak was, though if someone took the offered advice "continue with a buy and hold strategy" then they'd hardly be doing badly thereby.denovo wrote:I am 99 percent this was a joke, but the sad thing is how many people in the general public would act on this.
Re: stocks about to plunge
I meant the stuff before the final conclusionClearly_Irrational wrote:I wasn't joking, I'm pretty sure Bertilak was, though if someone took the offered advice "continue with a buy and hold strategy" then they'd hardly be doing badly thereby.denovo wrote:I am 99 percent this was a joke, but the sad thing is how many people in the general public would act on this.
"Don't trust everything you read on the Internet"- Abraham Lincoln
Re: stocks about to plunge
I didn't quite understand that but you must know what you're talking about. I'm convinced.Clearly_Irrational wrote:There was some weakness in 2013 but by September my indicators were suggesting it was still too early to call, which looks to have been correct. My current data suggests we're still in a period of market order that started July 2011. Latest crash indicator reading is only 14.29/100 (over 30 is usually bad) Leading indicator swirlogram is showing a slowdown but it's still a long ways from a contraction. The current economic expansion is still within the normal range based on the historical length of prior expansions. Absent a significant triggering event, we're likely to continue on the current path for a while yet, I see no reason not to continue with a buy and hold strategy at this time.
Re: stocks about to plunge
Do you have a newsletter? How much does it cost to subscribe?Clearly_Irrational wrote:There was some weakness in 2013 but by September my indicators were suggesting it was still too early to call, which looks to have been correct. My current data suggests we're still in a period of market order that started July 2011. Latest crash indicator reading is only 14.29/100 (over 30 is usually bad) Leading indicator swirlogram is showing a slowdown but it's still a long ways from a contraction. The current economic expansion is still within the normal range based on the historical length of prior expansions. Absent a significant triggering event, we're likely to continue on the current path for a while yet, I see no reason not to continue with a buy and hold strategy at this time.
- Clearly_Irrational
- Posts: 3087
- Joined: Thu Oct 13, 2011 3:43 pm
Re: stocks about to plunge
1) Market order: The market is a levy flight rather than a random walk. Due to this, the market tends to have long periods of order where the normal buy and hold rules work appropriately. Generally this can be seen by plotting S&P 500 price against dividends (Example 1971-Present):slbnoob wrote:I didn't quite understand that but you must know what you're talking about. I'm convinced.Clearly_Irrational wrote:There was some weakness in 2013 but by September my indicators were suggesting it was still too early to call, which looks to have been correct. My current data suggests we're still in a period of market order that started July 2011. Latest crash indicator reading is only 14.29/100 (over 30 is usually bad) Leading indicator swirlogram is showing a slowdown but it's still a long ways from a contraction. The current economic expansion is still within the normal range based on the historical length of prior expansions. Absent a significant triggering event, we're likely to continue on the current path for a while yet, I see no reason not to continue with a buy and hold strategy at this time.
The first crazy looking section is the tech bubble while the second one is the housing crash. When the trend breaks you have a period of disorder then things settle down into a new trend. (That's the flight part of the levy flight) RIght now we're in the section after the whole looping back on itself part ended, which as you can see is a period of order. The current price/dividend ratio is 52.42 which is within the normal range for this trend. If we had several readings over 56.27 that would be a pretty strong indicator that the current trend had broken.
2) Crash indicator: After reading through the literature I was able to identify the following indicators that seem to be pretty reliable in detecting recessions/market crashes: Federal reserve sign changes, USSLIND, FRED recession probability, CFNAI-MA3, Schiller PE10, Yield Curve Inversion and Corporate Dividend Cuts. By combining them into a single reading you get a fairly straightforward warning signal as to whether things are likely to go bad soon (orange bars are recessions):
3) Swirlogram: By plotting the most recent six months worth of leading indicator readings against their velocity you get a fairly reasonable view of how things are looking coming up (Starting in the lower left quadrant and going clockwise the readings are Contraction, Recovery, Expansion or Slowdown):
4) Economic expansions always end eventually and since they're mostly based on the business cycle they tend to be fairly predictable:
Based on a normal distribution the likely end dates are:
Dec 2007 Last Peak
Aug 2012 Mean
Feb 2014 Linear Trend
Jan 2015 One Sigma
May 2017 Two Sigma
Oct 2019 Three Sigma
So there is about a 95% chance that we'll have a recession prior to May 2017, while the chance of having one by January are much lower at only 68%.
If the market were a random walk then all of this would irrelevant, since it's a levy flight instead there are rare instances where it may be possible to intervene effectively. In my opinion it makes sense to keep an eye out, especially since the main thing all this tells you most of the time is "do nothing...do nothing...do nothing...". I personally find it comforting to know that even if I wanted to market time, now isn't the time to do so. Someone else who has less liking for analysis may decide to just grit their teeth and bear it instead and for them that may be the best choice.
- Clearly_Irrational
- Posts: 3087
- Joined: Thu Oct 13, 2011 3:43 pm
Re: stocks about to plunge
No, but I could probably make a go of it if I really wanted to. The problem is that the incentives in running a newsletter are opposed to the message I'd want to send.mptfan wrote:Do you have a newsletter? How much does it cost to subscribe?
- nisiprius
- Advisory Board
- Posts: 52211
- Joined: Thu Jul 26, 2007 9:33 am
- Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry
Re: stocks about to plunge
Very nice stuff, clearly_irrational, and I learned a new term from you today: "Lévy flight." http://en.wikipedia.org/wiki/Lévy_flight
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
- Clearly_Irrational
- Posts: 3087
- Joined: Thu Oct 13, 2011 3:43 pm
Re: stocks about to plunge
Thanks! I actually owe you credit for the composite crash indicator. I was tracking a list of indicators previously but you kept asking a lot of tough questions so I kept having to be more and more objective/quantifiable. Originally I didn't think I could put an exact number to it, but under pressure I eventually came up with a reasonable method to do so. As it turns out several of my original indicators had to be thrown out since they weren't as predictive as I originally thought.nisiprius wrote:Very nice stuff, clearly_irrational, and I learned a new term from you today: "Lévy flight." http://en.wikipedia.org/wiki/Lévy_flight
Market order I got from the Political Calculations blog.
The swirlogram method I re-puruposed from some Goldman Sachs stuff that kept getting posted on Zerohedge. (I just applied it to different data)
The NBER recessions analysis is all me, though I'm sure someone elsewhere has done virtually the same thing.
Re: stocks about to plunge
I agree with Nisi. Although this type of post isn't usually looked upon with great favor in this forum, I think it is interesting and I like the way you use it to double-check a buy & hold mentality rather than just outright time the market in and out. Please keep us posted when things get a bit more dicey in your model(s).
A man is rich in proportion to the number of things he can afford to let alone.
- Clearly_Irrational
- Posts: 3087
- Joined: Thu Oct 13, 2011 3:43 pm
Re: stocks about to plunge
For me it works, I could see how for some people it might lead them into bad behavior instead. I ended up on Bogleheads because the evidence lead me here not from any philosophical choice but not everyone makes decisions that way. I'll definitely keep you posted, if for no other reason than it gives us something fun to talk about. Besides, it's nice to have a bunch of smart people poke holes in your theories, if they survive they end up being much more robust.matjen wrote:I agree with Nisi. Although this type of post isn't usually looked upon with great favor in this forum, I think it is interesting and I like the way you use it to double-check a buy & hold mentality rather than just outright time the market in and out. Please keep us posted when things get a bit more dicey in your model(s).
- zaboomafoozarg
- Posts: 2431
- Joined: Sun Jun 12, 2011 12:34 pm
Re: stocks about to plunge
Last edited by zaboomafoozarg on Tue Jul 08, 2014 10:26 pm, edited 1 time in total.
- DonCamillo
- Posts: 1050
- Joined: Tue Nov 26, 2013 9:27 pm
- Location: Northern New Jersey
Re: stocks about to plunge
I stay the course. But I have to admit that the only investment I feel really good about in today's market is paying for my grandchildren's music lessons.
Les vieillards aiment à donner de bons préceptes, pour se consoler de n'être plus en état de donner de mauvais exemples. |
(François, duc de La Rochefoucauld, maxim 93)
Re: stocks about to plunge
Yes HardKnocker, I remember 1987. I lost a few hundred dollars that day and my world just crashed. I may as well have lost millions of dollars. Would the sun ever shine again? It seems silly now but my emotions were real and the event really made an impression on me. I just laugh when people say they have high risk tolerance and want a 100% stock portfolio. One needs their first bear market to find out if that is really true and also discover their true risk tolerance.
2000 and 2008 were atleast tolerable because I had some of my money in bonds. I also had an emergency fund, which I am a big believer in. Even today I like good old fashioned money in the bank.
An emergency fund and some bonds in your retirement portfolio sure come in handy from time to time. As in 1987, 2000, and 2008.
Thanks for your comments.
2000 and 2008 were atleast tolerable because I had some of my money in bonds. I also had an emergency fund, which I am a big believer in. Even today I like good old fashioned money in the bank.
An emergency fund and some bonds in your retirement portfolio sure come in handy from time to time. As in 1987, 2000, and 2008.
Thanks for your comments.
A fool and his money are good for business.
- asset_chaos
- Posts: 2629
- Joined: Tue Feb 27, 2007 5:13 pm
- Location: Melbourne
Re: stocks about to plunge
"stocks about to plunge"
Zippy, this would make my rebalancing decisions so much easier!
Zippy, this would make my rebalancing decisions so much easier!
Regards, |
|
Guy
Re: stocks about to plunge
Things are more like they are now than they ever were before.
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman
Re: stocks about to plunge
This is a great discussion.
Larry, I enjoyed your article, and really appreciate your perspective. Holding the forecast gurus accountable is a great way to put all of the financial news into perspective.
Clearly_rrational, your market analysis was also very interesting and helpful. That kind of analysis also helps me to stick with a buy and hold strategy.
Larry, I enjoyed your article, and really appreciate your perspective. Holding the forecast gurus accountable is a great way to put all of the financial news into perspective.
Clearly_rrational, your market analysis was also very interesting and helpful. That kind of analysis also helps me to stick with a buy and hold strategy.
Re: stocks about to plunge
zaboomafoozarg wrote:
"Don't trust everything you read on the Internet"- Abraham Lincoln
-
- Posts: 63
- Joined: Mon Jan 13, 2014 12:53 am
- Location: Las Vegas
Re: stocks about to plunge
Laughable. It reminds me of goofs in Las Vegas who get a kick out of claiming that the public always loses on sports bets. "Bet against the public." They compile a handful of examples that support their version and conveniently ignore anything else. They hold up the so-called evidence in a forum they know is predisposed to support the bias, and accept the undeserved applause.
A full sample would reveal very close to 50/50 accuracy. I actually did that for a 6 month period when I worked at the Horseshoe, to gauge the validity of "bet against the public." Every day I wrote down the games with the highest percentage of small tickets (<=$33) on one side, and also the games with the highest percentage of big tickets (>=$550) on one side, the so-called wise guys. At the end of 6 months the win percentage was virtually identical, both samples just north of 51%. The only difference was the big bettors generally beat the average pointspread on the game in question, while the small bettors had slightly worse. Otherwise the small bettors, the public, actually had a slightly superior "opinion." There were more numbers to produce a winning ticket on their side than were available for the wise guy games.
Somebody mentioned Nate Silver on this site recently, with his related theory that predicting weather in the short term is viable but there are simply too many unforeseen variables in play to accurately do so long range. I believe that's exactly correct, and can be applied to stocks. If done correctly and without bias, I would expect any compilation of market predictions to fare well if aimed at a short window and lose steam if focused too far.
Nate Silver ruined political wagering, BTW. Previously it was cupcakes. The oddsmakers somehow looked at political margins no differently than a football or basketball game. Since a 2 point favorite carries a money line of -135, then a political race with a leader supposedly in a shaky position with "only" a 2 point average edge in the polls has to be only a small favorite, right? What could go wrong? It's still unbelievable to this day. I took advantage beginning in 1992 but I should have plunged far more once I knew the advantage was there. I remember posting on political sites in the early 2000s that somebody would have to turn up in the media and mathematically ruin the misconceptions. Now those odds are exponentially greater on the favorite.
A full sample would reveal very close to 50/50 accuracy. I actually did that for a 6 month period when I worked at the Horseshoe, to gauge the validity of "bet against the public." Every day I wrote down the games with the highest percentage of small tickets (<=$33) on one side, and also the games with the highest percentage of big tickets (>=$550) on one side, the so-called wise guys. At the end of 6 months the win percentage was virtually identical, both samples just north of 51%. The only difference was the big bettors generally beat the average pointspread on the game in question, while the small bettors had slightly worse. Otherwise the small bettors, the public, actually had a slightly superior "opinion." There were more numbers to produce a winning ticket on their side than were available for the wise guy games.
Somebody mentioned Nate Silver on this site recently, with his related theory that predicting weather in the short term is viable but there are simply too many unforeseen variables in play to accurately do so long range. I believe that's exactly correct, and can be applied to stocks. If done correctly and without bias, I would expect any compilation of market predictions to fare well if aimed at a short window and lose steam if focused too far.
Nate Silver ruined political wagering, BTW. Previously it was cupcakes. The oddsmakers somehow looked at political margins no differently than a football or basketball game. Since a 2 point favorite carries a money line of -135, then a political race with a leader supposedly in a shaky position with "only" a 2 point average edge in the polls has to be only a small favorite, right? What could go wrong? It's still unbelievable to this day. I took advantage beginning in 1992 but I should have plunged far more once I knew the advantage was there. I remember posting on political sites in the early 2000s that somebody would have to turn up in the media and mathematically ruin the misconceptions. Now those odds are exponentially greater on the favorite.