This Bull Seems to be Getting Pretty Long In the Tooth

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azanon
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Re: This Bull Seems to be Getting Pretty Long In the Tooth

Post by azanon » Thu May 26, 2016 8:40 am

AlohaJoe wrote:
azanon wrote:
just frank wrote:People only care about valuation and CAPE until they don't, and switch to 'this time is different' and FOMO.
If you're saying everyone that evaluates stock that way, and then makes investment decisions based on it, eventually abandons the strategy, I don't think that assumption is fair. For example, I don't think Professor Shiller has abandoned CAPE.
Schiller has never used CAPE as an investing strategy and has repeatedly said people shouldn't use it as one. He hasn't abandoned it because he never adopted it.
I don't think Professor Shiller has abandoned CAPE...... as a valid metric for evaluating stock market valuations and providing meaningful data. I assumed too much and should have finished the sentence.

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Re: This Bull Seems to be Getting Pretty Long In the Tooth

Post by azanon » Thu May 26, 2016 8:42 am

TheTimeLord wrote:
just frank wrote:
azanon wrote:
just frank wrote:People only care about valuation and CAPE until they don't, and switch to 'this time is different' and FOMO.
If you're saying everyone that evaluates stock that way, and then makes investment decisions based on it, eventually abandons the strategy, I don't think that assumption is fair. For example, I don't think Professor Shiller has abandoned CAPE.

What's probably really true? Someone could follow a completely bogus strategy, but as long as its a low-cost one, and includes some equities, they'll probably end up with great performance if they stay the course.
Nothing that rigorous. Merely pointing our that if valuation ruled, there would never be any bubbles. Since there have been bubbles, QED.
Problem with valuation is it is looking in the rear view mirror seeing what the company has done while investing is about what the company will do. Bubbles form from unwarranted optimism.
To frank/TheTimelord, no one's saying valutions are perfect, not flawed in anyway, or is so dominant that it "rules" and makes it impossible for market bubbles. I didn't realize this was a possible misunderstanding, but I'm glad to get that cleared up!

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Re: This Bull Seems to be Getting Pretty Long In the Tooth

Post by KyleAAA » Thu May 26, 2016 8:45 am

It does seem a bit long in the tooth. On the other hand, based on the economic data I've seen (admittedly I'm not an economic news junkie like I used to be, so I could be missing a lot) it's hard to imagine the start of a deep recession over the next 18 months. In any event, I'm young enough that a 30% drop in stocks would be beneficial. And were I planning to retire in 5 years, I would already be at least 40% in bonds.
Last edited by KyleAAA on Thu May 26, 2016 8:46 am, edited 1 time in total.

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TheTimeLord
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Re: This Bull Seems to be Getting Pretty Long In the Tooth

Post by TheTimeLord » Thu May 26, 2016 8:45 am

azanon wrote:
TheTimeLord wrote:
just frank wrote:
azanon wrote:
just frank wrote:People only care about valuation and CAPE until they don't, and switch to 'this time is different' and FOMO.
If you're saying everyone that evaluates stock that way, and then makes investment decisions based on it, eventually abandons the strategy, I don't think that assumption is fair. For example, I don't think Professor Shiller has abandoned CAPE.

What's probably really true? Someone could follow a completely bogus strategy, but as long as its a low-cost one, and includes some equities, they'll probably end up with great performance if they stay the course.
Nothing that rigorous. Merely pointing our that if valuation ruled, there would never be any bubbles. Since there have been bubbles, QED.
Problem with valuation is it is looking in the rear view mirror seeing what the company has done while investing is about what the company will do. Bubbles form from unwarranted optimism.
To frank/TheTimelord, no one's saying valutions are perfect, not flawed in anyway, or is so dominant that it "rules" and makes it impossible for market bubbles. I didn't realize this was a possible misunderstanding, but I'm glad to get that cleared up!
I was just commenting on the nature of valuations. I left out that valuations are also relative to valuations of other investments. A high valuation for stocks can be sustainable if the valuations for other investments are even higher on a relative basis.
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just frank
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Re: This Bull Seems to be Getting Pretty Long In the Tooth

Post by just frank » Thu May 26, 2016 9:11 am

No worries @azanon. I wasn't going to argue about CAPE. I **personally** favor some of the analyses that argue that secular changes to the economy have lead to a linear ramp of what a 'fair value' CAPE may be (over the last century), but I don't really see it being a useful 'timing' tool, nor did I think you were advocating that.

Merely pointing out that if all anyone looked at was valuation and CAPE, we would have a lot less volatile market, and no bubbles or crashes.

I think the interesting thing is the rotation of investor psychology across an (idealized) business cycle....at the bottom, everyone is a bear and talking doom rather than valuation (and only seeing downside). In the middle goldilocks looks at CAPE and says things are just right (and thus only seeing a limited upside), and at the end everyone is proclaiming that this time is different and FOMO (and seeing unlimited upside). And in this stereotype....they are all WRONG in their own way.

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William4u
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Re: This Bull Seems to be Getting Pretty Long In the Tooth

Post by William4u » Thu May 26, 2016 9:17 am

Weren't people saying this 5 years ago. And 20 years ago, etc. And each time the market kept going up. No one can predict these things. I stick to my IPS, which just says to rebalance.

azanon
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Re: This Bull Seems to be Getting Pretty Long In the Tooth

Post by azanon » Thu May 26, 2016 10:45 am

Incidentally, saw this on my twitter feed just now: (link shows record P/S for S&P 500 since 1964) http://twitter.com/TN/status/730052121261944834?lang=en

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Re: This Bull Seems to be Getting Pretty Long In the Tooth

Post by azanon » Thu May 26, 2016 10:52 am

just frank wrote:No worries @azanon. I wasn't going to argue about CAPE. I **personally** favor some of the analyses that argue that secular changes to the economy have lead to a linear ramp of what a 'fair value' CAPE may be (over the last century), but I don't really see it being a useful 'timing' tool, nor did I think you were advocating that.

Merely pointing out that if all anyone looked at was valuation and CAPE, we would have a lot less volatile market, and no bubbles or crashes.

I think the interesting thing is the rotation of investor psychology across an (idealized) business cycle....at the bottom, everyone is a bear and talking doom rather than valuation (and only seeing downside). In the middle goldilocks looks at CAPE and says things are just right (and thus only seeing a limited upside), and at the end everyone is proclaiming that this time is different and FOMO (and seeing unlimited upside). And in this stereotype....they are all WRONG in their own way.
Yeah, in practice I don't recommend timing, rather my view is pick a portfolio with proven (expected) risk-adjusted returns, then hold that portfolio indefinitely w/rebalancing. So, I'm more in favor of an indefinite, static portfolio instead of, say, a target-date based one that's constantly changing, and i'm certainly against changing one year-to-year because of changing valuations.

As for valuations, well i don't market time per se, but I would have to confess to intentionally having a heavier weight to foreign stock in my portfolio than what is typically recommended, simply because I changed my portfolio recently*, the valuation-based expected return for foreign stock is higher, and I have 13 years till retirement.

* I know that's bad, and I have a behavioral investment issue. If I do that one more time, I vowed to go to betterment as a punishment for not being able to stay the course on my own.

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Re: This Bull Seems to be Getting Pretty Long In the Tooth

Post by Bastiat » Thu May 26, 2016 12:52 pm

Random Walker wrote:Seems as though the S&P 500 has had a huge, nearly continuous, rise since 2008-9. Anyone getting weary? Anyone pondering taking some risk off the table and cooling off the AA? Anyone struggling with whether to pay a capital gains tax?

Dave
You're asking "Is anyone else thinking about trying to time the market?"

No. I'm not.

Also, there have been a few fairly significant corrections since then.

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Re: This Bull Seems to be Getting Pretty Long In the Tooth

Post by jedblanks » Thu May 26, 2016 1:39 pm

I've always made all my money in bear markets, since I invest over the long haul.

Super simplistic example:
Invest $100 a month
year 1: Stock A is $25 per share, you can buy 4 shares
year 2: Stock is $10 a share, you can buy 10 shares (while everyone else sells theirs)
year 3: stock is $25 a share and you can buy 4.

Now repeat this but on a monthly basis, on a grander scale.
The people who sell their shares when it goes down lose money - and a lot of it. People who hold steady make money, and a lot of it.

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Re: This Bull Seems to be Getting Pretty Long In the Tooth

Post by azanon » Thu May 26, 2016 3:14 pm

jedblanks wrote:I've always made all my money in bear markets, since I invest over the long haul.

Super simplistic example:
Invest $100 a month
year 1: Stock A is $25 per share, you can buy 4 shares
year 2: Stock is $10 a share, you can buy 10 shares (while everyone else sells theirs)
year 3: stock is $25 a share and you can buy 4.

Now repeat this but on a monthly basis, on a grander scale.
The people who sell their shares when it goes down lose money - and a lot of it. People who hold steady make money, and a lot of it.
If you're just entering the workforce and about to start investing with a portfolio of 0 balance, with the intent to dollar-cost-average, yeah sure. Nothing to see here.

But if you have 1Million you've had in cd's (for some reason) and you're finally ready to "invest it all", it might be worth a little bit of effort to have some idea of how much stock you're getting for your money, and weight that against other choices (such as foreign stock).

That's just one example, but just wanted to point out there are a number of scenarios where it might be worth discussing.

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Re: This Bull Seems to be Getting Pretty Long In the Tooth

Post by itstoomuch » Thu May 26, 2016 4:19 pm

Random Walker wrote:Seems as though the S&P 500 has had a huge, nearly continuous, rise since 2008-9. Anyone getting weary? Anyone pondering taking some risk off the table and cooling off the AA? Anyone struggling with whether to pay a capital gains tax?

Dave
Most of our Discretionary is tax deferred (IRA, ROTH). Any losses, I eat 100%. Any gains, I eat too, but I can do so over time at 25% tax.
What little we have in Taxables within the Discretionary is fully invested. Any losses is worth a tax loss of 25% to me. Any gains is worth 15% in taxes at longterm rates.
We are struggling to pay the recapture of SS. {see SS Hump}
So in one sense we are taking "investments" off the table in the Deferreds, but another sense we are holding and going for riskier investments in the Taxables. Our first RMD will occur in 2017, payable 2018.
Overall, I'd rather be ahead and out, so that I can mull things over. Just ~`14% is invested.

YMMV
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Re: This Bull Seems to be Getting Pretty Long In the Tooth

Post by HomerJ » Thu May 26, 2016 4:29 pm

Here's a great article about CAPE and valuations

http://www.philosophicaleconomics.com/2 ... d-of-1929/
Surprisingly, a long-term investor that bought the market in November 1929, immediately after the first drop, did better than a long-term investor that bought the market in September 1980. For perspective, the market’s valuation in November 1929, as measured by the CAPE, was 21. Its valuation in September 1980 was 9.
The next time you see a heightened CAPE or Q-Ratio flaunted as a reason for abandoning a disciplined buy-and-hold strategy, it may help to remember the example of 1929–how it astonishingly outperformed 1982, otherwise considered to be the greatest buying opportunity of our generation. The familiar lesson of 1929 is that you should avoid investing in recessionary environments where monetary policy is inappropriately tight, but there is another, forgotten lesson to be learned: that valuation is an imperfect tool for estimating long-term future returns.

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Re: This Bull Seems to be Getting Pretty Long In the Tooth

Post by david99 » Thu May 26, 2016 9:08 pm

Random Walker wrote:Seems as though the S&P 500 has had a huge, nearly continuous, rise since 2008-9. Anyone getting weary? Anyone pondering taking some risk off the table and cooling off the AA? Anyone struggling with whether to pay a capital gains tax?

Dave
Dave,

Thanks for starting this thread. I've also been thinking that this bull is getting long in the tooth and thought of going from 60/40 to 50/50. After reading this thread, I think I'll stay put. I don't feel like paying long term capital gains tax (most of my stocks are in taxable). Besides it's too hard to time the market.

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Re: This Bull Seems to be Getting Pretty Long In the Tooth

Post by Yesterdaysnews » Thu May 26, 2016 9:19 pm

I'm not sure I understand the logic that because this bull market is fairly long, it is time to bail out. What if this is destined to be the longest bull market in history? It is impossible to predict, but I think just because it has been long really mean nothing at all. Better to just pick an AA that you are comfortable with and stay invested for the long-term.

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Re: This Bull Seems to be Getting Pretty Long In the Tooth

Post by TheTimeLord » Thu May 26, 2016 9:26 pm

Yesterdaysnews wrote:I'm not sure I understand the logic that because this bull market is fairly long, it is time to bail out.
If I was to venture a guess I would say the underlying psychology would be more like I have made a whole bunch of money in this bull market and don't want to give it back so I need to adjust my risk profile to protect some of my gains. But that is just a guess.
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Re: This Bull Seems to be Getting Pretty Long In the Tooth

Post by F150HD » Thu May 26, 2016 10:43 pm

Random Walker wrote:Seems as though the S&P 500 has had a huge, nearly continuous, rise since 2008-9. Anyone getting weary? Anyone pondering taking some risk off the table and cooling off the AA? Anyone struggling with whether to pay a capital gains tax?

Dave
Peak was last June, it's been down since. How is that a Bull is beyond me

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Re: This Bull Seems to be Getting Pretty Long In the Tooth

Post by unclescrooge » Fri May 27, 2016 6:10 am

livesoft wrote:
Random Walker wrote:Seems as though the S&P 500 has had a huge, nearly continuous, rise since 2008-9. Anyone getting weary? Anyone pondering taking some risk off the table and cooling off the AA? Anyone struggling with whether to pay a capital gains tax?

Dave
So, you are ignoring the more than 20% drops in US small-cap value, the 35% drop in large-cap emerging markets, the 24% drop in large-cap foreign developed markets, and a few other things that hit low points earlier in 2016?

I have no problems not paying capital gains taxes because I have tax-loss harvested all along, including in January 2016 and February 2016.

I guess I am jaded about selective memory exhibited by forum members, so it's really no big deal ..., but really, how could anyone miss a 35% drop?
Uh oh! Another bull market denier. :happy

This is the most hated bull market I've seen since 1996. I'm not worried about a bear market until I see signs of rising euphoria about the markets/economy. So far it's leaning towards pessimism.
Last edited by unclescrooge on Fri May 27, 2016 2:55 pm, edited 1 time in total.

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unclescrooge
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Re: This Bull Seems to be Getting Pretty Long In the Tooth

Post by unclescrooge » Fri May 27, 2016 6:17 am

I had a bear market in my retirement portfolio last year, when it was down a couple of percent.

Portfolio is up 5% this year so far.

I'm staying the course, and rebalancing twice a year.

I'm more concerned about my emergency fund which is in munies. That's up a lot more in the past year!

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Re: This Bull Seems to be Getting Pretty Long In the Tooth

Post by jalbert » Fri May 27, 2016 7:35 pm

invst65 wrote:
jalbert wrote:Being in the market during a downturn gives you the likely scenario of recoverying and seeing the market hit new highs.

Being out of the market for a rally often won't give you the second chance-- the market may never return to the point at which you sold out.
The first sentence makes perfectly good sense.

The second one, not so much. If I sold out and the market "never" returned to the point at which I sold, why wouldn't I conclude I that had made a wise decision in selling?
Being out of the market for a rally, means you missed the rally. If the market is up say 40% in the rally and you wait for it to fall back to the value at which you sold to reinvest, you may wait forever.

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Re: This Bull Seems to be Getting Pretty Long In the Tooth

Post by Random Walker » Tue May 31, 2016 11:08 am

We definitely cannot time markets. We do eventually have to pay the long term capital gains tax, either sooner or later. The only thing us individual investors can control is our financial goals. I'm just commenting that after this strong run since 2008-9, many of us may be closer to our goals than we may have expected. Given current valuations, perhaps it's a good time to see if we need to maintain current asset allocations or perhaps cool them off if we are closer to long term goals than expected at this point in time.

Dave

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Re: This Bull Seems to be Getting Pretty Long In the Tooth

Post by vitaflo » Tue May 31, 2016 11:27 am

Random Walker wrote:I'm just commenting that after this strong run since 2008-9, many of us may be closer to our goals than we may have expected. Given current valuations, perhaps it's a good time to see if we need to maintain current asset allocations or perhaps cool them off if we are closer to long term goals than expected at this point in time.
There is an AA strategy that I've employed for a long time that does something similar to what you are describing. Instead of using your age as a metric to decide bond allocation, it uses your portfolio balance.

In essence you figure out how much you spend every year, and use that to determine what you need to retire on (to maintain that cost of living). Then you figure out a range of bonds you want. Say 0% when the portfolio is $0, and 50% when you reach your "number". Your bond % then adjusts as your portfolio grows and you get closer to your number.

To your point Random Walker, bull markets where you accelerate to your number mean you more quickly ratchet up your bond %, because you are getting closer to your number faster.

This does a couple things. It means if you retire early you're not sitting on a high stock allocation when you do so because you've used the above glide path. It also means in bull markets you tend to slide more heavily into bonds naturally and if a large bear market hits you have the bonds available to rebalance (and of course you'd have to, as now your bond % would go down because it's tied to your portfolio size in relation to your "number").

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Re: The market is DOWN the last 12 months

Post by minesweep » Tue May 31, 2016 11:50 am

Taylor Larimore wrote:
Random Walker wrote:Seems as though the S&P 500 has had a huge, nearly continuous, rise since 2008-9. Anyone getting weary? Anyone pondering taking some risk off the table and cooling off the AA? Anyone struggling with whether to pay a capital gains tax?

Dave
Dave:

The S&P Index (not counting dividends) is down from its high made over a year ago.

Stay the course (and ignore the media).

Best wishes.
Taylor
This bull may be long in the tooth but the yearly checkup finds no significant cavities. :)

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Re: This Bull Seems to be Getting Pretty Long In the Tooth

Post by Random Walker » Tue May 31, 2016 12:30 pm

Vitaflow,
There's an excellent book called Value Averaging by Michael Edelson that pretty much describes what you are describing. It is oriented towards allocating a lump sum, but I think it can be adapted to accumulation phase as well. William Bernstein is a big fan of the author and the book.

Dave

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Re: This Bull Seems to be Getting Pretty Long In the Tooth

Post by HomerJ » Tue May 31, 2016 12:41 pm

vitaflo wrote:
Random Walker wrote:I'm just commenting that after this strong run since 2008-9, many of us may be closer to our goals than we may have expected. Given current valuations, perhaps it's a good time to see if we need to maintain current asset allocations or perhaps cool them off if we are closer to long term goals than expected at this point in time.
There is an AA strategy that I've employed for a long time that does something similar to what you are describing. Instead of using your age as a metric to decide bond allocation, it uses your portfolio balance.
It's not really age, but years to retirement that matter... which is basically the same thing you are saying.

I'm about 8-10 years out from retirement, and I've already started on the glide to becoming more conservative.

If the market doubles again in the next 3 years, maybe I'll realize that I could retire even earlier than that, and will go conservative faster.

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Re: This Bull Seems to be Getting Pretty Long In the Tooth

Post by WasabiOsbourne » Tue May 31, 2016 12:46 pm

grunching here....

i don't think bull markets die of old age.

market has had fabulous returns since 2009.... but depending on time division used there has been alot of volatility.... beautiful thing has been that 5%-10% pullbacks have generally come back pretty quickly

CAPE must be the most misused and misunderstood measure in financial history........ excluding technology bubble, selling at a historically high CAPE would have you in the poorhouse..... semi-related, but i think all market studies should just ignore 1999-2002. just link 1998 and 2003 - or something similar.

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Re: This Bull Seems to be Getting Pretty Long In the Tooth

Post by David Jay » Tue May 31, 2016 7:00 pm

unclescrooge wrote:This is the most hated bull market I've seen since 1996. I'm not worried about a bear market until I see signs of rising euphoria about the markets/economy. So far it's leaning towards pessimism.
Yea, just today I heard on the news that a Wall Street survey was the "most bearish in (xx) years". I remember the Ra-Ra attitudes 2000 (with terms like "burn rate" instead of "earnings") and 2007 (mortgage based derivatives). Until there is irrational exuberance, I am not worried about a crash.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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