“The Worst Kind of Bear Market”

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ribonucleic
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“The Worst Kind of Bear Market”

Post by ribonucleic »

(apologies if anyone else posted this in the last 4 days)
... government bonds experienced a real bear market which lasted 5 decades, almost four times as long as the worst one in the stock market.
https://awealthofcommonsense.com/2018/1 ... ar-market/

This has made me reconsider the relative risk of these two instruments.

Any thoughts?
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Re: “The Worst Kind of Bear Market”

Post by z3r0c00l »

Magnitude matters too. A slow, creeping decline of 10% real per decade is still preferable to the ability of stocks to drop 20% in one day, and 90% in a year or two. I would hate to sell bonds that were down 10%, but imagine if stocks were down 90% and you also lose your job 5 years from retirement, with no bonds because stocks are actually safer. What then?
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Re: “The Worst Kind of Bear Market”

Post by nisiprius »

My thoughts are that anybody who discusses inflation risks of bonds and never even mentions TIPS is dishonest, not to be trusted, and not worth reading.

No, TIPS were not available in the United States until 1998 (European countries introduced inflation-linked bonds much earlier), and they are not the ultimate answer to everything, and yes, just as with every other investment the income tax is levied on nominal gains and not real gains and therefore, just as with every other investment an investment that keeps up with inflation before taxes may lose to inflation after taxes, etc. etc.

But they exist, and someone who simply does not mention them at all is either being ignorant, or is grinding an axe and intentionally not mentioning them because they don't want to complicate a simplistic narrative.

Also: "Jeremy Schwartz made a comment about a stat from one of Jeremy Seigel’s books..." I would remind everyone that these two gentlemen coauthored a piece in the Wall Street Journal on August 18th, 2010 in which they said:
Ten years ago we experienced the biggest bubble in U.S. stock market history—the Internet and technology mania that saw high-flying tech stocks selling at an excess of 100 times earnings. The aftermath was predictable: Most of these highfliers declined 80% or more, and the Nasdaq today sells at less than half the peak it reached a decade ago.

A similar bubble is expanding today that may have far more serious consequences for investors. It is in bonds, particularly U.S. Treasury bonds....
The important thing is that they conditioned those consequences on this:
If over the next year, 10-year interest rates, which are now 2.8%, rise to 3.15%, bondholders will suffer a capital loss equal to the current yield. If rates rise to 4% as they did last spring, the capital loss will be more than three times the current yield.
In fact, the ten-year rate did rise into that territory, actually reaching over 3.7% in February 2011. In, in fact, bond funds lost just about the amount of money you'd expect--a pure Treasury fund -3.78%, Total Bond about -2%, Bill Gross' PIMCO total return -1.4%--and regained it all in less than six months.

So if you can't remember the great bond crash of 2011, it's because it actually happened and didn't amount to much.
Last edited by nisiprius on Sat Oct 20, 2018 9:54 am, edited 1 time in total.
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Re: “The Worst Kind of Bear Market”

Post by Leesbro63 »

TIPS don’t work in large taxable accounts due to the taxflation problem
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Re: “The Worst Kind of Bear Market”

Post by Leesbro63 »

TIPS don’t work in large taxable accounts due to the taxflation problem
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Re: “The Worst Kind of Bear Market”

Post by Elysium »

IBonds can be purchased with taxable money, and no need to pay taxes until cashed / mature. Free from state taxes. Inflation adjusted, protect against rising rates, what's the problem? limits to 10,000 per person per year, no problems build a ladder over time.
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Re: “The Worst Kind of Bear Market”

Post by nisiprius »

Leesbro63 wrote: Sat Oct 20, 2018 9:44 am TIPS don’t work in large taxable accounts due to the taxflation problem
Your so-called "taxflation problem" exists in every investment. It is not some special issue with TIPS.

In discussions that talk about "the historic returns of the stock market" how often do you see after-tax numbers quoted? Very, very rarely. The effect of taxes is used selectively: often when discussing TIPS, rarely when discussing any other investment.
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Re: “The Worst Kind of Bear Market”

Post by Leesbro63 »

nisiprius wrote: Sat Oct 20, 2018 9:55 am
Leesbro63 wrote: Sat Oct 20, 2018 9:44 am TIPS don’t work in large taxable accounts due to the taxflation problem
Your so-called "taxflation problem" exists in every investment. It is not some special issue with TIPS.

In discussions that talk about "the historic returns of the stock market" how often do you see after-tax numbers quoted? Very, very rarely. The effect of taxes is used selectively: often when discussing TIPS, rarely when discussing any other investment.
But you are touting TIPS as the answer to an inflationary situation.
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Re: “The Worst Kind of Bear Market”

Post by btenny »

This inflation issue is why many old timers are big fans of dividend stocks like utilities and reits. They hold the line on value in inflation and pay you a nice dividend to hold them. They also hold more value in down markets due to these dividends vs non dividend stocks. Many guys like Warren Buffett like 95% stocks for the same reason.
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Re: “The Worst Kind of Bear Market”

Post by Northern Flicker »

With a larger percentage stock allocation, you expect stocks to best inflation, and nominal bonds, especially treasuries, would be used to diversify the high volatility of stocks.

With a high percentage bond allocation, bond holdings should be dominated by TIPS because stock holdings are likely insufficient to offset the inflation risk of nominal bonds, and the low allocation to stocks does not drive so much volatility.
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Re: “The Worst Kind of Bear Market”

Post by Northern Flicker »

This inflation issue is why many old timers are big fans of dividend stocks like utilities
Utility stocks incorporate some nominal term risk, and I think underperformed the broad market significantly during the US inflation of the 70’s. High oil prices were a double whammy.
Last edited by Northern Flicker on Sun Oct 21, 2018 11:37 pm, edited 1 time in total.
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Re: “The Worst Kind of Bear Market”

Post by finite_difference »

Leesbro63 wrote: Sat Oct 20, 2018 11:32 am
nisiprius wrote: Sat Oct 20, 2018 9:55 am
Leesbro63 wrote: Sat Oct 20, 2018 9:44 am TIPS don’t work in large taxable accounts due to the taxflation problem
Your so-called "taxflation problem" exists in every investment. It is not some special issue with TIPS.

In discussions that talk about "the historic returns of the stock market" how often do you see after-tax numbers quoted? Very, very rarely. The effect of taxes is used selectively: often when discussing TIPS, rarely when discussing any other investment.
But you are touting TIPS as the answer to an inflationary situation.
I see that in terms of bonds, he’s touting it as an answer, not necessarily the answer.

And if there’s higher than expected inflation, TIPS will perform better after-tax than regular bonds.

Stocks are also an answer for inflation protection.

So I think having a mix of stocks, bonds and TIPS is a good strategy.

But note that I think it took stocks ~10 years to catch-up to the high inflation during the 1970s, so stocks are not necessarily inflation proof either (that was not just inflation, but stagflation).
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Re: “The Worst Kind of Bear Market”

Post by nisiprius »

I did not "tout" it as "the answer to an inflationary situation." I said that "anybody who discusses inflation risks of 'bonds' and never even mentions TIPS is dishonest, not to be trusted, and not worth reading." In real life, TIPS may or may not actually keep up with inflation after taxes, but (assuming that the Treasury does not default on them) they will surely present a much reduced degree of inflation risk compared to nominal bonds. And data on what happened to nominal bonds during periods of high inflation is likely giving an exaggerated impression of the inflation risks involved in TIPS. Therefore, anyone discussing inflation risk of "bonds" should mention the existence of TIPS. A person can certainly mention TIPS briefly, and then briefly note various issues with them.
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Re: “The Worst Kind of Bear Market”

Post by fennewaldaj »

nisiprius wrote: Sat Oct 20, 2018 9:36 pm I did not "tout" it as "the answer to an inflationary situation." I said that "anybody who discusses inflation risks of 'bonds' and never even mentions TIPS is dishonest, not to be trusted, and not worth reading." In real life, TIPS may or may not actually keep up with inflation after taxes, but (assuming that the Treasury does not default on them) they will surely present a much reduced degree of inflation risk compared to nominal bonds. And data on what happened to nominal bonds during periods of high inflation is likely giving an exaggerated impression of the inflation risks involved in TIPS. Therefore, anyone discussing inflation risk of "bonds" should mention the existence of TIPS. A person can certainly mention TIPS briefly, and then briefly note various issues with them.
In fairness to Ben Carlson he has mentioned TIPS in other articles. But you are right a couple sentences at the end about TIPS and how having some of your bonds in TIPS would have lessened this problem would have been useful. Calling him dishonest not to be trusted and not worth reading seems unwarranted. All that I know about him would indicate he is one of the good guys in the finance industry.
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Re: “The Worst Kind of Bear Market”

Post by masteraleph »

I'm very, very suspicious of any article about the bond market in real terms that starts its analysis in 1940.

Why? Because despite the author's claim regarding inflation, there was significant inflation during the 1940s and early 1950s, initially due to the war effort, then due to the relative lack of drawdown in federal spending after WWII ended. In fact, if you note the 5 year chart, that's exactly when you get the massive jolt downwards.

But here's the problem: there were a zillion controls in place in the 1940s. Treasuries were rate capped, and so couldn't adjust to higher inflation rates. Wartime price controls, relaxed only several years after the war (which helped set up an inflation spike in the late 1940s) also meant that there was a lot of extra cash around, and much of that further was funneled into the bond market- remember how scared people were of stocks- keeping the yields low, too.

While it's certainly possible to see something similar, there's a huge behavioral and geopolitical component to the 1940s, and that's where the big real loss for bonds lies. Americans tend to forget about WWII being anything other than a war that happened somewhere else, and certainly don't think about the economic effect that it had.
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Re: “The Worst Kind of Bear Market”

Post by Northern Flicker »

While I agree this is not the most likely outcome in the next, say 30 years, when something actually happened in the past, it is a legitimate risk that must be accounted for.
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Re: “The Worst Kind of Bear Market”

Post by tfb »

nisiprius wrote: Sat Oct 20, 2018 9:42 am No, TIPS were not available in the United States until 1998 (European countries introduced inflation-linked bonds much earlier), and they are not the ultimate answer to everything, and yes, just as with every other investment the income tax is levied on nominal gains and not real gains and therefore, just as with every other investment an investment that keeps up with inflation before taxes may lose to inflation after taxes, etc. etc.

But they exist, and someone who simply does not mention them at all is either being ignorant, or is grinding an axe and intentionally not mentioning them because they don't want to complicate a simplistic narrative.
If TIPS existed back then, the likely scenarios would have been that you got a boost in price but real yields fell to negative. When those existing TIPS matured, you could only buy TIPS with negative real yields. They would've helped only when you had the vision to hold long term TIPS (either directly or through a fund) before the unexpected inflation started. Then you had the protection longer. If you only had intermediate TIPS as in a typical TIPS fund, you were protected for several years but you would still have negative real returns afterwards.
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Re: “The Worst Kind of Bear Market”

Post by llama »

tfb wrote: Sun Oct 21, 2018 11:32 am If TIPS existed back then, the likely scenarios would have been that you got a boost in price but real yields fell to negative. When those existing TIPS matured, you could only buy TIPS with negative real yields. They would've helped only when you had the vision to hold long term TIPS (either directly or through a fund) before the unexpected inflation started. Then you had the protection longer. If you only had intermediate TIPS as in a typical TIPS fund, you were protected for several years but you would still have negative real returns afterwards.
This seems like an argument in favor of I Bonds? You get the 30-year inflation protection if you need it but without the risk of holding an actual long term bond.
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Re: “The Worst Kind of Bear Market”

Post by Valuethinker »

masteraleph wrote: Sat Oct 20, 2018 10:56 pm I'm very, very suspicious of any article about the bond market in real terms that starts its analysis in 1940.

Why? Because despite the author's claim regarding inflation, there was significant inflation during the 1940s and early 1950s, initially due to the war effort, then due to the relative lack of drawdown in federal spending after WWII ended. In fact, if you note the 5 year chart, that's exactly when you get the massive jolt downwards.
From memory there was quite a severe economic slump in 1945-46? That was the defence drawdown. However civilian consumption then soared as 5 years of repressed demand was fulfilled and industry struggled to keep pace. In addition the Baby Boom had started and that meant families were spending, had to spend. The GI Bill and the various Housing Bills meant a movement to the suburbs and the mass purchase of houses by the working class for the first time.

So US Federal spending did drop quite quickly. However private consumption rose unusually rapidly.
But here's the problem: there were a zillion controls in place in the 1940s. Treasuries were rate capped, and so couldn't adjust to higher inflation rates. Wartime price controls, relaxed only several years after the war (which helped set up an inflation spike in the late 1940s) also meant that there was a lot of extra cash around, and much of that further was funneled into the bond market- remember how scared people were of stocks- keeping the yields low, too.

While it's certainly possible to see something similar, there's a huge behavioral and geopolitical component to the 1940s, and that's where the big real loss for bonds lies. Americans tend to forget about WWII being anything other than a war that happened somewhere else, and certainly don't think about the economic effect that it had.
This is all very good analysis.

It's been shown that large economic shocks cause extreme risk aversion and that lasts your whole life - it's part of a standard story why stocks perform so well because investors overprice very safe assets.

The Great Depression was an economic shock that no one who lived through it ever forgot. Stocks crashed during the 1930s more than once - 1929, but also 1937 (and they rallied into 1930 or 31 and then went right back down again?). The lesson to those who were investing or whose fathers were investing was that stocks were very dangerous. Just as a generation coming of age as investors since 2008 has learned that stocks only go up.

(the playwright Arthur Miller saw his father's rag trade business go broke. He never really recovered - just moped around the apartment (I think he was divorced or widowed). Arthur Miller wrote that into his plays again and again: The Price (most autobiographically), Death of a Salesman, Broken Glass, possibly All My Sons)

It's not surprising it took investors a long time to reorient themselves towards an inflationary environment - 3 decades, in fact.
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Re: “The Worst Kind of Bear Market”

Post by Leesbro63 »

Valuethinker wrote: Sun Oct 21, 2018 12:04 pm
It's not surprising it took investors a long time to reorient themselves towards an inflationary environment - 3 decades, in fact.
And many of us who came of age in the 1970s have been slow to reorient toward a low inflation environment. I still fear inflation, probably to my detriment as I've kept bond durations too short for too long and missed a whole lotta interest over the past 10 years. But I remind myself not to confuse strategy with outcome. I believe Dr. Bernstein is ultimately right...that anything beyond short term bonds are probably too risky for the reward that's been provided (during the last generation or so). He's right, but he's been wrong. :shock:
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Re: “The Worst Kind of Bear Market”

Post by Valuethinker »

Leesbro63 wrote: Sun Oct 21, 2018 12:37 pm
Valuethinker wrote: Sun Oct 21, 2018 12:04 pm
It's not surprising it took investors a long time to reorient themselves towards an inflationary environment - 3 decades, in fact.
And many of us who came of age in the 1970s have been slow to reorient toward a low inflation environment. I still fear inflation, probably to my detriment as I've kept bond durations too short for too long and missed a whole lotta interest over the past 10 years. But I remind myself not to confuse strategy with outcome. I believe Dr. Bernstein is ultimately right...that anything beyond short term bonds are probably too risky for the reward that's been provided (during the last generation or so). He's right, but he's been wrong. :shock:
There is ample evidence that the decade you came of adult age impacts on your attitude to stock market investing.

1929-1939 was so searing for those who went through it (read Taylor Larrimore's description of what happened to his family) that it changed them, forever. The 1970s had a similar impact the other way, as you say, for many.

The 2008 recession changed peoples' views of the world - made many people feel permanently less secure (as did 9-11 in a different way). On the other hand it taught the "lesson" that stock markets quickly roar back and exceed their previous highs. If you didn't lose your job, if you didn't default on your home, you probably did alright (if you were an American investor). British people were taught that "houses always go up" (the housing crash in 2008 was not so severe here, and in London hardly noticeable).

Whereas my peak investing year was probably 1999 or 2000 and thus the lesson I was taught was that stock markets fall, bear markets last seemingly forever (2.75 years in that case), and that they don't actually recover their previous highs (the UK stock market had not by the time 2008 hit, and has lagged again this time although total return basis is probably alright).

As I get closer to the time when I will need the money, I found those revelations haunt me. Indeed it has caused me to push out my intended retirement date, because I can't predict returns over the next 10 years or so. However I am also aware that there aren't a lot of new openings available to people in their mid 50s - most organizations are quite ageist.
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Re: “The Worst Kind of Bear Market”

Post by aspirit »

That's essentially what economist John Maynard Keynes meant when he said, “The market can stay irrational longer than you can stay solvent.” A bear can live for decades. Irrational is up/down/flat.
Plan accordingly.
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Re: “The Worst Kind of Bear Market”

Post by ShabonScribe »

masteraleph wrote: Sat Oct 20, 2018 10:56 pm I'm very, very suspicious of any article about the bond market in real terms that starts its analysis in 1940.

Why? Because despite the author's claim regarding inflation, there was significant inflation during the 1940s and early 1950s, initially due to the war effort, then due to the relative lack of drawdown in federal spending after WWII ended. In fact, if you note the 5 year chart, that's exactly when you get the massive jolt downwards.

But here's the problem: there were a zillion controls in place in the 1940s. Treasuries were rate capped, and so couldn't adjust to higher inflation rates. Wartime price controls, relaxed only several years after the war (which helped set up an inflation spike in the late 1940s) also meant that there was a lot of extra cash around, and much of that further was funneled into the bond market- remember how scared people were of stocks- keeping the yields low, too.

While it's certainly possible to see something similar, there's a huge behavioral and geopolitical component to the 1940s, and that's where the big real loss for bonds lies. Americans tend to forget about WWII being anything other than a war that happened somewhere else, and certainly don't think about the economic effect that it had.
I will add to this as a matter of historical interest that several radio shows at the time, and well into the 1950s, were sponsored in part by agencies urging listeners to buy war bonds and, later, savings bonds. Some promised a return of $4.00 for every $3.00 invested, although no timeframe was mentioned in the ads.

This happened at a time when commissions on stock trades could approach 10%, which also featured in some programs of the era. There's an episode of The Great Gildersleeve in which our hero gets a stock tip and wants in. His wealthy neighbor suggests leaving such matters to professionals. We've come a long way since then, although it seems certain retail outfits wish you to think otherwise.

Also, as recently as the early aughts, radio spots on US Armed Forces Radio were also urging servicemembers to buy savings bonds ("A Great American Investment" and a very annoying jingle I can still hear when I close my eyes).
Valuethinker wrote: Sun Oct 21, 2018 3:59 pm
Leesbro63 wrote: Sun Oct 21, 2018 12:37 pm
Valuethinker wrote: Sun Oct 21, 2018 12:04 pm
It's not surprising it took investors a long time to reorient themselves towards an inflationary environment - 3 decades, in fact.
And many of us who came of age in the 1970s have been slow to reorient toward a low inflation environment. I still fear inflation, probably to my detriment as I've kept bond durations too short for too long and missed a whole lotta interest over the past 10 years. But I remind myself not to confuse strategy with outcome. I believe Dr. Bernstein is ultimately right...that anything beyond short term bonds are probably too risky for the reward that's been provided (during the last generation or so). He's right, but he's been wrong. :shock:
There is ample evidence that the decade you came of adult age impacts on your attitude to stock market investing.

1929-1939 was so searing for those who went through it (read Taylor Larrimore's description of what happened to his family) that it changed them, forever. The 1970s had a similar impact the other way, as you say, for many.

The 2008 recession changed peoples' views of the world - made many people feel permanently less secure (as did 9-11 in a different way). On the other hand it taught the "lesson" that stock markets quickly roar back and exceed their previous highs. If you didn't lose your job, if you didn't default on your home, you probably did alright (if you were an American investor). British people were taught that "houses always go up" (the housing crash in 2008 was not so severe here, and in London hardly noticeable).

Whereas my peak investing year was probably 1999 or 2000 and thus the lesson I was taught was that stock markets fall, bear markets last seemingly forever (2.75 years in that case), and that they don't actually recover their previous highs (the UK stock market had not by the time 2008 hit, and has lagged again this time although total return basis is probably alright).

As I get closer to the time when I will need the money, I found those revelations haunt me. Indeed it has caused me to push out my intended retirement date, because I can't predict returns over the next 10 years or so. However I am also aware that there aren't a lot of new openings available to people in their mid 50s - most organizations are quite ageist.
An interesting insight. I came of age around the turn of the millennium and opened my first Vanguard account in spring, 2009. This may explain my inherent bullishness. Market's down today? No worries - I have a long horizon. T'is but a scratch.
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Re: “The Worst Kind of Bear Market”

Post by Valuethinker »

ShabonScribe wrote: Sun Oct 21, 2018 10:47 pm
masteraleph wrote: Sat Oct 20, 2018 10:56 pm I'm very, very suspicious of any article about the bond market in real terms that starts its analysis in 1940.

Why? Because despite the author's claim regarding inflation, there was significant inflation during the 1940s and early 1950s, initially due to the war effort, then due to the relative lack of drawdown in federal spending after WWII ended. In fact, if you note the 5 year chart, that's exactly when you get the massive jolt downwards.

But here's the problem: there were a zillion controls in place in the 1940s. Treasuries were rate capped, and so couldn't adjust to higher inflation rates. Wartime price controls, relaxed only several years after the war (which helped set up an inflation spike in the late 1940s) also meant that there was a lot of extra cash around, and much of that further was funneled into the bond market- remember how scared people were of stocks- keeping the yields low, too.

While it's certainly possible to see something similar, there's a huge behavioral and geopolitical component to the 1940s, and that's where the big real loss for bonds lies. Americans tend to forget about WWII being anything other than a war that happened somewhere else, and certainly don't think about the economic effect that it had.
I will add to this as a matter of historical interest that several radio shows at the time, and well into the 1950s, were sponsored in part by agencies urging listeners to buy war bonds and, later, savings bonds. Some promised a return of $4.00 for every $3.00 invested, although no timeframe was mentioned in the ads.

This happened at a time when commissions on stock trades could approach 10%, which also featured in some programs of the era. There's an episode of The Great Gildersleeve in which our hero gets a stock tip and wants in. His wealthy neighbor suggests leaving such matters to professionals. We've come a long way since then, although it seems certain retail outfits wish you to think otherwise.

Also, as recently as the early aughts, radio spots on US Armed Forces Radio were also urging servicemembers to buy savings bonds ("A Great American Investment" and a very annoying jingle I can still hear when I close my eyes).
Valuethinker wrote: Sun Oct 21, 2018 3:59 pm
Leesbro63 wrote: Sun Oct 21, 2018 12:37 pm
Valuethinker wrote: Sun Oct 21, 2018 12:04 pm
It's not surprising it took investors a long time to reorient themselves towards an inflationary environment - 3 decades, in fact.
And many of us who came of age in the 1970s have been slow to reorient toward a low inflation environment. I still fear inflation, probably to my detriment as I've kept bond durations too short for too long and missed a whole lotta interest over the past 10 years. But I remind myself not to confuse strategy with outcome. I believe Dr. Bernstein is ultimately right...that anything beyond short term bonds are probably too risky for the reward that's been provided (during the last generation or so). He's right, but he's been wrong. :shock:
There is ample evidence that the decade you came of adult age impacts on your attitude to stock market investing.

1929-1939 was so searing for those who went through it (read Taylor Larrimore's description of what happened to his family) that it changed them, forever. The 1970s had a similar impact the other way, as you say, for many.

The 2008 recession changed peoples' views of the world - made many people feel permanently less secure (as did 9-11 in a different way). On the other hand it taught the "lesson" that stock markets quickly roar back and exceed their previous highs. If you didn't lose your job, if you didn't default on your home, you probably did alright (if you were an American investor). British people were taught that "houses always go up" (the housing crash in 2008 was not so severe here, and in London hardly noticeable).

Whereas my peak investing year was probably 1999 or 2000 and thus the lesson I was taught was that stock markets fall, bear markets last seemingly forever (2.75 years in that case), and that they don't actually recover their previous highs (the UK stock market had not by the time 2008 hit, and has lagged again this time although total return basis is probably alright).

As I get closer to the time when I will need the money, I found those revelations haunt me. Indeed it has caused me to push out my intended retirement date, because I can't predict returns over the next 10 years or so. However I am also aware that there aren't a lot of new openings available to people in their mid 50s - most organizations are quite ageist.
An interesting insight. I came of age around the turn of the millennium and opened my first Vanguard account in spring, 2009. This may explain my inherent bullishness. Market's down today? No worries - I have a long horizon. T'is but a scratch.
Thank you for the historical references, which would be familiar to my mother.

The bear market from May 2000 to March 2003 seemed to go on forever. Markets oscillate. You had these rallies followed by collapses - Japan has been through I have lost count of the number of rallies since 1989, each followed by a final collapse. We may have reached bottom in Japan, because Japanese households no longer do much stock investing (I understand, have not checked). The market swings on foreign investors buying in because it's cheap, and selling out when that cheapness never changes.

The 1990 bear market ended the moment the first bomb fell on Saddam's invasion force in Kuwait. From memory it was relatively brief.

Black Monday in October 1987 was fairly shocking. Markets ended up for the year, but no one had imagined one could lose 20% of one's portfolio in *one day*. That, I think, made people instinctively more cautious. As did the Mexico Crash of 1994 which seemed to set Emerging Markets back 10 years. And the Asia Crash and subsequent default of Long Term Capital Management in 1997-98, which hit stocks pretty hard, before the run up to the Millennium - that's where the idea of the "Greenspan put" was born, that the Fed would always intervene, slash interest rates, and the market would go back up again. Except in 2008 that interest rate intervention was not enough - the Fed Funds rate was cut, but the LIBOR (interbank) rate stayed stubbornly high.

Those here who remember the 1970s can tell you about the Dow flying up to 1000 and then dropping back to 600 - vertiginous swings both ways. In the end leaving a decade where Business Week could trumpet "the Death of Equities" -- and where inflation killed real returns.

"It's only a flesh wound" ;-).
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