The credit bubble's back - start taking profits

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matt
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The credit bubble's back - start taking profits

Post by matt » Wed Feb 09, 2011 10:18 pm

I thought investor sentiment was too high. Now I know that it's too high.

The junk bond market is ignoring risk as much or more than it was in late 2006/early 2007. The following blog post provides some good detail on current market conditions.
http://www.distressed-debt-investing.co ... -bell.html

Overall credit conditions are not quite as bad as we saw 4 years ago, of course, with the mortgage market being as obvious example where risk attitudes today are nowhere near the housing bubble peak. Nonetheless, what is going on in junk bonds should be worrisome for investors who are heavily weighted in risk assets. As the blog post notes, there is not yet a catalyst to send prices lower, but high valuations ultimately lead to poor returns, even if the party lasts a while longer. Trust me, you don't want to be the last one to leave the party.

I think this is a good time for investors to take some profits from equities (particularly global small caps, Emerging Markets, and REITs) and corporate bonds (particularly high yield) and re-allocate to some U.S. Treasury debt now that yields there have risen. My preference right now is a combination of long-term nominal and long-term TIPS to get the highest yield without having to make a bet on inflation or deflation.

P.S. Widespread Boglehead opposition to this idea will be convincing evidence that it is indeed the right thing to do. I remember quite well how no one heeded this advice is 2007, either. Somewhere along the way to March 2009, all sorts of investors began to question their high beta asset exposures. Heck, there was even a fear that REITs might go to zero! http://www.bogleheads.org/forum/viewtop ... sc&start=0

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fredflinstone
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Post by fredflinstone » Wed Feb 09, 2011 10:31 pm

you may be right. but if I sold my stocks every time I thought the market was overvalued I would probably be out of the stock market something like 95% of the time. In the long run, it's better to pick an asset allocation you can live with and then just stay the course.

skibbi9
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Post by skibbi9 » Wed Feb 09, 2011 10:44 pm

i'm interested as to why EM is the place to profit take.

I don't see P/E ratios super out of whack...

Plus if it seems like the inability to get yield from debt means people will flood to equity, that seems to suggest that the market still has more growth before the next correction.

I think most people are struggling to figure out what bonds/Fixed income to look at.

none of this is new, we all know that between inflation and near historic low rates that bonds aren't super attractive and can get worse. I mean even bill gross doesn't like bonds right now.

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bob90245
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Post by bob90245 » Wed Feb 09, 2011 10:51 pm

Adhere to Adrian's Rule and ignore the short-term noise generated by market pundits and you'll do fine.
Ignore the market noise. Keep to your rebalancing schedule whether that is semi-annual, annual or trigger bands.

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stratton
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Post by stratton » Thu Feb 10, 2011 2:15 am

Might be a good time to check rebalancing bands if you use them.

Paul
...and then Buffy staked Edward. The end.

EO 11110
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Post by EO 11110 » Thu Feb 10, 2011 3:30 am

stratton wrote:Might be a good time to check rebalancing bands if you use them.

Paul
solid advice. junk has had a nice run versus other bonds.

the rally in junk is helping stocks. issuers able to get great rates and improve their finances....or pay bonuses :roll:

Valuethinker
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Re: The credit bubble's back - start taking profits

Post by Valuethinker » Thu Feb 10, 2011 4:07 am

matt wrote:I thought investor sentiment was too high. Now I know that it's too high.

The junk bond market is ignoring risk as much or more than it was in late 2006/early 2007. The following blog post provides some good detail on current market conditions.
http://www.distressed-debt-investing.co ... -bell.html

Overall credit conditions are not quite as bad as we saw 4 years ago, of course, with the mortgage market being as obvious example where risk attitudes today are nowhere near the housing bubble peak. Nonetheless, what is going on in junk bonds should be worrisome for investors who are heavily weighted in risk assets. As the blog post notes, there is not yet a catalyst to send prices lower, but high valuations ultimately lead to poor returns, even if the party lasts a while longer. Trust me, you don't want to be the last one to leave the party.

I think this is a good time for investors to take some profits from equities (particularly global small caps, Emerging Markets, and REITs) and corporate bonds (particularly high yield) and re-allocate to some U.S. Treasury debt now that yields there have risen. My preference right now is a combination of long-term nominal and long-term TIPS to get the highest yield without having to make a bet on inflation or deflation.

P.S. Widespread Boglehead opposition to this idea will be convincing evidence that it is indeed the right thing to do. I remember quite well how no one heeded this advice is 2007, either. Somewhere along the way to March 2009, all sorts of investors began to question their high beta asset exposures. Heck, there was even a fear that REITs might go to zero! http://www.bogleheads.org/forum/viewtop ... sc&start=0
It's not obvious what a catalyst for trouble would be.

In the end, junk bonds are a form of equity, and profits and cash flows are still rising.

I have greater concerns about the overhang of debt from the crash: residential and commercial property debt in particular. History says that will take a long time to sort out.

I agree there is considerable geopolitical risk and the wiki revelations about the Saudi capacity to expand production (Guardian yesterday) are pretty scary.

Overall though I feel valuations are pushing the upper ends but not stretched. Doesn't mean we can't come back 20-30% on some bad news, of course. China's incipient property bubble is the one that I have my eye on.

It may be however that junk bonds are another 'mini bubble'. I've seen the same point made about prime Commercial RE properties in this market (US and UK) .

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Post by jebmke » Thu Feb 10, 2011 7:21 am

stratton wrote:Might be a good time to check rebalancing bands if you use them.

Paul
That is what I do and there has not been a trigger since spring of 2009.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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Post by fishndoc » Thu Feb 10, 2011 7:37 am

P.S. Widespread Boglehead opposition to this idea will be convincing evidence that it is indeed the right thing to do.
So, what will you do if there is widespread Boglehead support to your conclusion??? :)

FWIW, I agree with your concern, as the markets seem to have priced everything for the best case scenario.
OTOH, I'm staying the course - if I acted every time I was convinced markets were wrong, my AA would look like a yo-yo.
" Successful investing involves doing just a few things right, and avoiding serious mistakes." - J. Bogle

Valuethinker
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Post by Valuethinker » Thu Feb 10, 2011 8:52 am

skibbi9 wrote:i'm interested as to why EM is the place to profit take.

I don't see P/E ratios super out of whack...

Plus if it seems like the inability to get yield from debt means people will flood to equity, that seems to suggest that the market still has more growth before the next correction.

I think most people are struggling to figure out what bonds/Fixed income to look at.

none of this is new, we all know that between inflation and near historic low rates that bonds aren't super attractive and can get worse. I mean even bill gross doesn't like bonds right now.
The EM ratios have gone up with China.

China is building up the mother of all property bubbles-- massive asset price inflation.

When that pops raw materials producers get canned-- that's Brasil and Russia especially. And all the countries that export to China (that's most of the EMs). India lives on its own cycle, but capital flows are a big part of Indian stock valuation so it would get hit too.

You can find EM stocks and countries on low PEs, but there is no pricing in there now for the known risks of EMs-- Egypt style political disruptions, foreign exchange fluctuations, corporate governance etc.

skibbi9
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Post by skibbi9 » Thu Feb 10, 2011 9:16 am

note: I was refering to US stocks by P/E sorry for the confusion.

Do you have anything on this Chinese Asset bubble? I've not read anything about it. I don't see a case-schiller index for china. Is it not possibly a growth boom?

I'm not saying you're wrong but wouldn't mind reading more on it.

Valuethinker
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Post by Valuethinker » Thu Feb 10, 2011 9:51 am

skibbi9 wrote:note: I was refering to US stocks by P/E sorry for the confusion.

Do you have anything on this Chinese Asset bubble? I've not read anything about it. I don't see a case-schiller index for china. Is it not possibly a growth boom?

I'm not saying you're wrong but wouldn't mind reading more on it.
I had a post in Investing this week about Edward Chancellor (GMO)'s column in the FT on Monday.

Seminal points:

- construction is 25% of China's GDP
- value of property is 3.5 times GDP

peter71
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Post by peter71 » Thu Feb 10, 2011 10:13 am

Matt,

Any possibility you're psychologically anchored on S&P 1200 (also the level of the interim low of July 15, 2008)?

http://www.bogleheads.org/forum/viewtopic.php?p=270011

You had to know someone was going to link to it, right? :D

All in good fun,
Pete

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tadamsmar
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Post by tadamsmar » Thu Feb 10, 2011 10:39 am

Matt:

Here's evidence that you should sell everything else and buy EM, REITs and Global Small Caps. There is more than widespread Boglehead opposition to this idea, there is 100% Boglehead opposition to this idea. History shows that Bogleheads have always been 100% opposed to selling out and buying these asset classes just before their prices shot up, evidence indeed that this is the right thing to do.

P.S. Here is convincing evidence that this is just the sort of evidence that you find convincing:
matt wrote:P.S. Widespread Boglehead opposition to this idea will be convincing evidence that it is indeed the right thing to do.

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Post by citydweller00 » Thu Feb 10, 2011 12:34 pm

matt,

Given your questionable market timing skills evidenced in your Sept. 4, 2008 claim that mid-July 2008 was the bottom of the 2008 market drop, why should anyone care about any of your predictions or thoughts on the market?

Answer: We don't, and you're not any better than anyone else at predicting markets.

You can claim you've had mega-gains and great market timing since then, but I won't believe it. I'm more likely to believe you've had mega-losses.

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oneleaf
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Post by oneleaf » Thu Feb 10, 2011 12:50 pm

citydweller00 wrote:matt,

Given your questionable market timing skills evidenced in your Sept. 4, 2008 claim that mid-July 2008 was the bottom of the 2008 market drop, why should anyone care about any of your predictions or thoughts on the market?

Answer: We don't, and you're not any better than anyone else at predicting markets.

You can claim you've had mega-gains and great market timing since then, but I won't believe it. I'm more likely to believe you've had mega-losses.
matt may not have had great timing, but he has offered very valuable insight. Given the quality of his posts, I am more likely to believe his performance claims as I am certain he is better than most at accurately calculating them, and I have no reason to believe he is lying. He also is more deeply familiar with the credit markets than the average poster here, giving me a valuable perspective. His contributions (along with VT and Swedroe) are easily at the top 3 for me, in terms of providing me valuable insight, perspective, and general financial education.

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Post by fishndoc » Thu Feb 10, 2011 12:55 pm

peter71 wrote:Matt,

Any possibility you're psychologically anchored on S&P 1200 (also the level of the interim low of July 15, 2008)?

http://www.bogleheads.org/forum/viewtopic.php?p=270011

You had to know someone was going to link to it, right? :D

All in good fun,
Pete
Pete,
Thanks for linking to that old thread - lots of fun reading thru it, and educational.

I think the definative post in that long thread was by Gregory towards the end:
Matt's egregiously incorrect call is but one more example of the inability to time markets. If Ben Graham, in all his years on Wall Street, found no one who could reliably market time, I'd be surprised to find the exception posting on the Bogleheads board.
:D
" Successful investing involves doing just a few things right, and avoiding serious mistakes." - J. Bogle

peter71
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Post by peter71 » Thu Feb 10, 2011 12:57 pm

Hi Oneleaf,

Interesting top-3, and between Swedroe and Matt it seems you're drawn to bold confidently-stated claims on both sides of a given issue.

http://www.newyorker.com/archive/2005/1 ... rbo_books1

FWIW, some empirical research suggests such confidence is actually a contra-indicator of predictive accuracy.

All best,
Pete

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Post by Snowjob » Thu Feb 10, 2011 1:03 pm

Matt,

I agree prices are higher than I would perfer and because I dont see the impending crisis, my solution is to simply focus more money into paying down debt and reducing margin.

2007 in some way was easy. You could see the mess starting to unravel with subprime morgage companies going under ala AHM over the spring and summer.

If someone does see the cracks forming on the wall please let us all know.

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oneleaf
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Post by oneleaf » Thu Feb 10, 2011 1:09 pm

peter71 wrote:Hi Oneleaf,

Interesting top-3, and between Swedroe and Matt it seems you're drawn to bold confidently-stated claims on both sides of a given issue.

http://www.newyorker.com/archive/2005/1 ... rbo_books1

FWIW, some empirical research suggests such confidence is actually a contra-indicator of predictive accuracy.

All best,
Pete
Hi Pete,

Matt has consistently offered educational contributions on the fine nitty-gritties of a large variety of financial topics. This includes a very well-thought out rebuttal and correction to one of Mr. Swedroe's rare mistakes on bond funds vs bond ladders.

It is true that bold confidence is not the best way to judge quality. I don't invest in gold or high yield (as matt does), nor is my portfolio extremely heavily small-value tilted (as Swedroe does). But both of them offer extremely educational contributions on financial topics and it is quite clear that both of them are very well educated in the field of finance. The two of them, along with VT, consistently show a broad understanding of financial theory and history. Along with that may come bold confidence, but it is their knowledge of the facts that make me value their contributions most.

peter71
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Post by peter71 » Thu Feb 10, 2011 1:33 pm

oneleaf wrote:
peter71 wrote:Hi Oneleaf,

Interesting top-3, and between Swedroe and Matt it seems you're drawn to bold confidently-stated claims on both sides of a given issue.

http://www.newyorker.com/archive/2005/1 ... rbo_books1

FWIW, some empirical research suggests such confidence is actually a contra-indicator of predictive accuracy.

All best,
Pete
Hi Pete,

Matt has consistently offered educational contributions on the fine nitty-gritties of a large variety of financial topics. This includes a very well-thought out rebuttal and correction to one of Mr. Swedroe's rare mistakes on bond funds vs bond ladders.

It is true that bold confidence is not the best way to judge quality. I don't invest in gold or high yield (as matt does), nor is my portfolio extremely heavily small-value tilted (as Swedroe does). But both of them offer extremely educational contributions on financial topics and it is quite clear that both of them are very well educated in the field of finance. The two of them, along with VT, consistently show a broad understanding of financial theory and history. Along with that may come bold confidence, but it is their knowledge of the facts that make me value their contributions most.
Hi Oneleaf,

Matt and I have indeed often been on the same side in arguing generally (not always) minor technical matters with Swedroe -- and I too enjoy VT's posts.

All best,
Pete

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Post by matt » Thu Feb 10, 2011 1:45 pm

fredflinstone wrote:you may be right. but if I sold my stocks every time I thought the market was overvalued I would probably be out of the stock market something like 95% of the time. In the long run, it's better to pick an asset allocation you can live with and then just stay the course.
You shouldn't sell your stocks when YOU think they're overvalued. You should sell your stocks when I think they're overvalued.

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Post by matt » Thu Feb 10, 2011 1:46 pm

bob90245 wrote:Adhere to Adrian's Rule and ignore the short-term noise generated by market pundits and you'll do fine.
Huh? Adrian's a market timer and I think he bought back some bonds recently.

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Re: The credit bubble's back - start taking profits

Post by matt » Thu Feb 10, 2011 1:51 pm

Valuethinker wrote:It's not obvious what a catalyst for trouble would be.
No, there's no obvious catalyst, but if you wait for that, it might be too late.

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Post by leonard » Thu Feb 10, 2011 1:54 pm

matt wrote:
bob90245 wrote:Adhere to Adrian's Rule and ignore the short-term noise generated by market pundits and you'll do fine.
Huh? Adrian's a market timer and I think he bought back some bonds recently.
Ad hominem and diversion from the critque. You know he was referring to Adrian's rule on stock ownership - not to Adrian's actual investments.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

matt
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Post by matt » Thu Feb 10, 2011 1:57 pm

peter71 wrote:Matt,

Any possibility you're psychologically anchored on S&P 1200 (also the level of the interim low of July 15, 2008)?

http://www.bogleheads.org/forum/viewtopic.php?p=270011

You had to know someone was going to link to it, right? :D

All in good fun,
Pete
Doesn't bother me. Poster LH was always unsatisfied with my comments because my predictions weren't specific enough. So I decided one time that I would make one specific and it might as well be bold. Turned out to be wrong, which I figured was a 50% chance.

Feel free to go back to early/mid 2007 and find the posts where I was the only one here that predicted the credit crisis and told everyone that risky assets were due for trouble. Others such as Larry and VT also saw the risk, but weren't quite willing to say it would happen. It did happen.

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Post by matt » Thu Feb 10, 2011 1:58 pm

oneleaf wrote:matt may not have had great timing, but he has offered very valuable insight. Given the quality of his posts, I am more likely to believe his performance claims as I am certain he is better than most at accurately calculating them, and I have no reason to believe he is lying. He also is more deeply familiar with the credit markets than the average poster here, giving me a valuable perspective. His contributions (along with VT and Swedroe) are easily at the top 3 for me, in terms of providing me valuable insight, perspective, and general financial education.
Good post. I can't disagree with anything here!

matt
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Post by matt » Thu Feb 10, 2011 2:00 pm

fishndoc wrote:I think the definative post in that long thread was by Gregory towards the end:
Matt's egregiously incorrect call is but one more example of the inability to time markets. If Ben Graham, in all his years on Wall Street, found no one who could reliably market time, I'd be surprised to find the exception posting on the Bogleheads board.
:D
Ben Graham did, in fact, advise investors to time the market based on valuations. He recommended that you should always have at least 25% in bonds and 25% in stocks, but vary the weightings depending on the opportunities available in the market.

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Post by matt » Thu Feb 10, 2011 2:10 pm

peter71 wrote:Hi Oneleaf,

Interesting top-3, and between Swedroe and Matt it seems you're drawn to bold confidently-stated claims on both sides of a given issue.

http://www.newyorker.com/archive/2005/1 ... rbo_books1

FWIW, some empirical research suggests such confidence is actually a contra-indicator of predictive accuracy.

All best,
Pete
Hey, I've read a lot of that research! As a contrarian, I'm using others' overconfidence against them. Could I be overconfident in the consensus overconfidence? I suppose!

For me, the biggest problem with overconfidence is that which is driven by ideology, e.g., twits like Jeremy Siegel who can always come up with a reason why stocks are cheap. The only ideology driving my investment decisions is the profit motive. I don't see Larry as being overconfident either as he doesn't let personal biases - we all have them - stop him from eventually coming to the right conclusion. On the other hand, there is one prominent advisor/author on this forum who is considered Larry's "equal", but is heavily swayed by his biases and has an absolute refusal to reconsider anything he believes. That is dangerous.

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Post by matt » Thu Feb 10, 2011 2:14 pm

leonard wrote:
matt wrote:
bob90245 wrote:Adhere to Adrian's Rule and ignore the short-term noise generated by market pundits and you'll do fine.
Huh? Adrian's a market timer and I think he bought back some bonds recently.
Ad hominem and diversion from the critque. You know he was referring to Adrian's rule on stock ownership - not to Adrian's actual investments.
There is no attack on Adrian here. He IS a market timer. He dumped all of his bonds for stocks in late 2008/early 2009 and I believe he's been selling stocks lately to buy bonds, although I don't know to what extent. I congratulate him for his successful market timing.

As for Adrian's 50% rule, I think it's flawed for any investor that rebalances. Sorry, Adrian.

peter71
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Post by peter71 » Thu Feb 10, 2011 2:20 pm

Hey Matt,

Well, the ideal old post would be from Oct. 2007 and would say, "sell it all now, because . . . "

I can't remember anything like that, even though true to form I was making lots of wishy-washy posts about valuations back then (including starting the below poll) . . .

http://www.bogleheads.org/forum/viewtopic.php?p=86299

I'm honestly guessing you CAN do better than that . . . and I hate when people make me dig up my own old threads, but can you yourself dig up one of those old threads?

All best,
Pete

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Post by peter71 » Thu Feb 10, 2011 2:27 pm

matt wrote:
peter71 wrote:Hi Oneleaf,

Interesting top-3, and between Swedroe and Matt it seems you're drawn to bold confidently-stated claims on both sides of a given issue.

http://www.newyorker.com/archive/2005/1 ... rbo_books1

FWIW, some empirical research suggests such confidence is actually a contra-indicator of predictive accuracy.

All best,
Pete
Hey, I've read a lot of that research! As a contrarian, I'm using others' overconfidence against them. Could I be overconfident in the consensus overconfidence? I suppose!

For me, the biggest problem with overconfidence is that which is driven by ideology, e.g., twits like Jeremy Siegel who can always come up with a reason why stocks are cheap. The only ideology driving my investment decisions is the profit motive. I don't see Larry as being overconfident either as he doesn't let personal biases - we all have them - stop him from eventually coming to the right conclusion. On the other hand, there is one prominent advisor/author on this forum who is considered Larry's "equal", but is heavily swayed by his biases and has an absolute refusal to reconsider anything he believes. That is dangerous.
This is a controversial subject of discussion these days, so let me say two of the nice things I've already said about advisors. 1) In that misleading poll about how much value a "good" advisor would add, I actually voted for 25 basis points -- IIRC that makes me more pro-advisor than the median voter here! 2) meh, maybe I'd better leave it at that. :D

All best,
Pete

matt
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Post by matt » Thu Feb 10, 2011 2:42 pm

peter71 wrote:Hey Matt,

Well, the ideal old post would be from Oct. 2007 and would say, "sell it all now, because . . . "

I can't remember anything like that, even though true to form I was making lots of wishy-washy posts about valuations back then (including starting the below poll) . . .

http://www.bogleheads.org/forum/viewtopic.php?p=86299

I'm honestly guessing you CAN do better than that . . . and I hate when people make me dig up my own old threads, but can you yourself dig up one of those old threads?

All best,
Pete
No. I don't have any "sell it all" now posts. That would be a sign of overconfidence.

I liked my response to this poll, though: http://www.bogleheads.org/forum/viewtopic.php?t=4527

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Post by leonard » Thu Feb 10, 2011 2:48 pm

matt wrote:
leonard wrote:
matt wrote:
bob90245 wrote:Adhere to Adrian's Rule and ignore the short-term noise generated by market pundits and you'll do fine.
Huh? Adrian's a market timer and I think he bought back some bonds recently.
Ad hominem and diversion from the critque. You know he was referring to Adrian's rule on stock ownership - not to Adrian's actual investments.
There is no attack on Adrian here. He IS a market timer. He dumped all of his bonds for stocks in late 2008/early 2009 and I believe he's been selling stocks lately to buy bonds, although I don't know to what extent. I congratulate him for his successful market timing.
Using the fact that someone called you out on an ad hominem to in fact continue that ad hominem. Plus, you are defining ad hominem too narrowly as an "attack". It is really any time you undermine an argument using the characteristics of the presenter - not just an "attack" on the presenter.
matt wrote:As for Adrian's 50% rule, I think it's flawed for any investor that rebalances. Sorry, Adrian.
Ah, finally got around to it there. Well done.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

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bob90245
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Post by bob90245 » Thu Feb 10, 2011 3:17 pm

Buy-hold-rebalance is not easy for many people as examples on this thread demonstrate. But it's better than most alternatives. As a smart general once said: The enemy of the good plan is the quest for the perfect plan.
Ignore the market noise. Keep to your rebalancing schedule whether that is semi-annual, annual or trigger bands.

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Post by hlfo718 » Thu Feb 10, 2011 3:33 pm

Matt,

I am not agreeing or disagreeing but I do enjoy your posts and links you have provided. For my benefit, please continue to send us your market views.

Thank you

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Post by Bongleur » Fri Feb 11, 2011 2:52 am

Matt said "Trust me, you don't want to be the last one to leave the party."

I was thinking I could wait until the NAV went down to my cost basis before getting out of the junk bond funds. Esp as I'm still trying to figure out what my currently random AA ought to be.

GMO's Grantham is saying this in his Jan 2011 screed -- & I wonder why October? --

http://www.gmo.com/America/MyHome/default
>
Looking Forward
 Be prepared for a strong market and continued outperformance of everything risky.
 But be aware that you are living on borrowed time as a bull; on our data, the market is worth about 910 on the
S&P 500, substantially less than current levels, and most risky components are even more overpriced.
 The speed with which you should pull back from the market as it advances into dangerously overpriced
territory this year is more of an art than a science, but by October 1 you should probably be thinking much more
conservatively.
 As before, in our opinion, U.S. quality stocks are the least overpriced equities.
 To make money in emerging markets from this point, animal sprits have to stay strong and not much can go
wrong. This is possibly the last chapter in a 12-year love affair. Emerging equities seem to be in the early stages
of the “Emerging, Emerging Bubble” that, 3½ years ago, I suggested would occur. How far a bubble expands is
always anyone’s guess, but from now on, we must be more careful.
>
Seeking Iso-Elasticity. | Tax Loss Harvesting is an Asset Class. | A well-planned presentation creates a sense of urgency. If the prospect fails to act now, he will risk a loss of some sort.

protagonist
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Post by protagonist » Fri Feb 11, 2011 3:26 pm

Thanks for the link to that New Yorker article "Everybody's an Expert"!!

That should be required reading.

lazyday
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Post by lazyday » Sat Feb 12, 2011 3:28 am

Bongleur wrote:GMO's Grantham is saying this in his Jan 2011 screed -- & I wonder why October?

....

 The speed with which you should pull back from the market as it advances into dangerously overpriced
territory this year is more of an art than a science, but by October 1 you should probably be thinking much more
conservatively.
Probably at least in part, the election cycle. Though I think that would mean early November. Maybe he's giving an extra month because October has sometimes been a terrible crash month, and is statistically the worst or second worst month of the year.

matt
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Post by matt » Wed Mar 16, 2011 10:29 am

I know you guys didn't listen to me on February 9, but if you had you would have avoided some of the approx. 6% loss on global stocks since then and captured some of the 6+% gain on long-term Treasuries (nominal and TIPS).

Since you ignored that call, you should also probably ignore my call today to swap some of those Treasuries back into stocks. Sentiment has backed off enough to justify a rally and interestingly, the riskier areas of the market have held up pretty well during this sell-off, which to me implies continued strength in the bull market. It will all die violently some day, but apparently not quite yet.

gkaplan
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Post by gkaplan » Wed Mar 16, 2011 10:35 am

I'm surprised CNBC is not calling you.
Gordon

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Sheepdog
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Post by Sheepdog » Wed Mar 16, 2011 10:37 am

Thank you for your advice. And you are correct that I should ignore your call today.
It's not what you gather, but what you scatter which tells what kind of life you have lived---Helen Walton

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nisiprius
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Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Post by nisiprius » Wed Mar 16, 2011 10:37 am

(Never mind)
Last edited by nisiprius on Wed Mar 16, 2011 10:53 am, edited 10 times in total.
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.

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kenyan
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Post by kenyan » Wed Mar 16, 2011 10:39 am

Thankfully, I did avoid some of the loss and capture some of the gain with my asset allocation!

jmbkb4
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Post by jmbkb4 » Wed Mar 16, 2011 10:45 am

peter71 wrote:Matt,

Any possibility you're psychologically anchored on S&P 1200 (also the level of the interim low of July 15, 2008)?

http://www.bogleheads.org/forum/viewtopic.php?p=270011

You had to know someone was going to link to it, right? :D

All in good fun,
Pete
ha. ha.

anakinskywalker
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Post by anakinskywalker » Wed Mar 16, 2011 11:09 am

fredflinstone wrote:you may be right. but if I sold my stocks every time I thought the market was overvalued I would probably be out of the stock market something like 95% of the time. In the long run, it's better to pick an asset allocation you can live with and then just stay the course.
Have you considered the possibility that we may be living through a multi-decade bubble, and that if so, staying out of the market 95% of the time may in fact be the right thing to do if you don't expect the bubble (of the last 15 years) to continue another 40 years (which could be your investment horizon)?

If your investment horizon is only another decade at most then you may be turn out to have been right to stay in the market.

I believe in "Buy and hold" over active short-term trading. Because the market is efficient, making active trading a losing strategy due to friction.

However I do not believe that the market is rational. Hence blind "buy and hold" is not a strategy I can follow.

It may seem that there is no third option. But there is.

Anakin

diasurfer
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Post by diasurfer » Wed Mar 16, 2011 11:19 am

matt wrote:I know you guys didn't listen to me on February 9, but if you had you would have avoided some of the approx. 6% loss on global stocks since then and captured some of the 6+% gain on long-term Treasuries (nominal and TIPS).

Since you ignored that call, you should also probably ignore my call today to swap some of those Treasuries back into stocks. Sentiment has backed off enough to justify a rally and interestingly, the riskier areas of the market have held up pretty well during this sell-off, which to me implies continued strength in the bull market. It will all die violently some day, but apparently not quite yet.
matt, as I've said before I think you're one of the most informed investors on this site and always read your posts with interest. That said, to some degree aren't you right for the wrong reason here? Last July or so as I recall when the market was about 1040 you put out a buy call. What if the earthquake had struck in August? It is quite reasonable to think that the market would have dropped 6% into the 900's then too. I suppose you could say that the credit conditions have predisposed the market to more of a sell off due to the Japanese crisis, but really this sell off has more to do with the crisis than credit situations. As you seem to admit since you think the bull will rise again for a while.

Personally I don't think I can successfully time these short term event and will stay at 60/40. After it "all dies violently some day", I may take on some more risk beyond rebalancing, and you are one of the commenters I'll be interested to read for opinion of whether it is indeed dead.

matt
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Post by matt » Wed Mar 16, 2011 12:04 pm

diasurfer wrote:matt, as I've said before I think you're one of the most informed investors on this site and always read your posts with interest. That said, to some degree aren't you right for the wrong reason here? Last July or so as I recall when the market was about 1040 you put out a buy call. What if the earthquake had struck in August? It is quite reasonable to think that the market would have dropped 6% into the 900's then too. I suppose you could say that the credit conditions have predisposed the market to more of a sell off due to the Japanese crisis, but really this sell off has more to do with the crisis than credit situations. As you seem to admit since you think the bull will rise again for a while.

Personally I don't think I can successfully time these short term event and will stay at 60/40. After it "all dies violently some day", I may take on some more risk beyond rebalancing, and you are one of the commenters I'll be interested to read for opinion of whether it is indeed dead.
As I said in the OP, the trade was based on valuations and sentiment, not a specific catalyst. Some catalyst or other eventually comes along and gives the market a reason to go down. When sentiment is very high, the market finds a way to fall. Risk is in the price, not the causation of events that cause the price to fall.

Risk assets have had a modest pullback in the past month, but sentiment has dropped quite a bit among retail investors. There are a few other things I see that imply momentum remains in the bull market. This pullback has obviously not made a significant dent in relatively high valuations, but they are not yet high enough that I will disregard some market momentum. If/when the S&P 500 gets to 1,400 or so, valuations will be so stretched that I would no longer consider momentum an important factor, because there is simply too much risk in the price. My emphasis at that time would be heavily weighted towards downside protection (and opportunities that are not dependent on overall market moves, which I always have some).

xerty24
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Post by xerty24 » Wed Mar 16, 2011 12:22 pm

Sheepdog wrote:And you are correct that I should ignore your call today.
We won't know that for a few weeks/months, will we?

yobria
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Post by yobria » Wed Mar 16, 2011 12:39 pm

Your crystal ball may be a bit cloudy...

http://www.bogleheads.org/forum/viewtopic.php?t=22775

Nick

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