Robert Shiller: Stock Market Like 1928

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Ricola
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Robert Shiller: Stock Market Like 1928

Post by Ricola » Fri Jan 26, 2018 8:09 pm

Irrational Exuberance...is this phase II coming ??? or is this just Noise.

https://finance.yahoo.com/news/robert-s ... 53341.html

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Taylor Larimore
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"Stay the Course"

Post by Taylor Larimore » Fri Jan 26, 2018 8:18 pm

Ricola wrote:
Fri Jan 26, 2018 8:09 pm
Irrational Exuberance...is this phase II coming ??? or is this just Noise.

https://finance.yahoo.com/news/robert-s ... 53341.html
Ricola:

When I am unsure what to do, I remember this advice from our mentor, Jack Bogle:
Stay the course. I have said 'stay the course' a thousand times and I meant it every time. It is the most important single piece of advice I can give to you.
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Robert Shiller: Stock Market Like 1928

Post by sunnywindy » Fri Jan 26, 2018 8:37 pm

Some investors/pundits see opportunities in every market and get all excited about it (like perma-bull Jeremy Siegel). Some investors see big risks everywhere nearly all the time and become very nervous (like Shiller). Shiller did not win a Nobel Prize for being an investment advisor and the CAPE Ratio is and was never intended to be a buy/sell market timing tool. His guess is only that, a guess.

I would set my allocation to something that you can maintain through thick & thin, and then not worry about it.
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Re: "Stay the Course"

Post by staythecourse » Fri Jan 26, 2018 8:39 pm

Taylor Larimore wrote:
Fri Jan 26, 2018 8:18 pm
Ricola wrote:
Fri Jan 26, 2018 8:09 pm
Irrational Exuberance...is this phase II coming ??? or is this just Noise.

https://finance.yahoo.com/news/robert-s ... 53341.html
Ricola:

When I am unsure what to do, I remember this advice from our mentor, Jack Bogle:
Stay the course. I have said 'stay the course' a thousand times and I meant it every time. It is the most important single piece of advice I can give to you.
Best wishes.
Taylor
Excellent advice. Another great quote from Mr. Bogle fits here as well (paraphrasing), "When everybody is doing something just stand there and do nothing".

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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Re: Robert Shiller: Stock Market Like 1928

Post by JoeRetire » Fri Jan 26, 2018 8:40 pm

Ricola wrote:
Fri Jan 26, 2018 8:09 pm
Irrational Exuberance...is this phase II coming ??? or is this just Noise.

https://finance.yahoo.com/news/robert-s ... 53341.html
Meh.

Even if today's market is actually like 1928, the real question is will next year's market be like 1929?
And the answer is that nobody knows - even Mr. Shiller indicates that he doesn't know.
Very Stable Genius

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Re: Robert Shiller: Stock Market Like 1928

Post by Kenkat » Fri Jan 26, 2018 8:50 pm

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Re: Robert Shiller: Stock Market Like 1928

Post by BuyAndHoldOn » Fri Jan 26, 2018 9:07 pm

JoeRetire wrote:
Fri Jan 26, 2018 8:40 pm
Ricola wrote:
Fri Jan 26, 2018 8:09 pm
Irrational Exuberance...is this phase II coming ??? or is this just Noise.

https://finance.yahoo.com/news/robert-s ... 53341.html
Meh.

Even if today's market is actually like 1928, the real question is will next year's market be like 1929?
And the answer is that nobody knows - even Mr. Shiller indicates that he doesn't know.

Ain't that the truth? [US] Stocks may be expensive for a long time; or they may "correct" and come down. We just don't know.

Keep in mind also: US Market volatility does not necessarily mean a severe recession is on the horizon. We could see some selling, and that could just be a re-pricing of equities for who-knows whatever reason. Even in 2017: People got nervous with the N. Korea headlines, and there was a pinch of volatility in stocks globally to go with it.
Last edited by BuyAndHoldOn on Fri Jan 26, 2018 9:13 pm, edited 1 time in total.

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Re: Robert Shiller: Stock Market Like 1928

Post by nisiprius » Fri Jan 26, 2018 9:12 pm

Bleaugh. I'm very disappointed. "The stock market today is similar to the stock market in 1928." Really? Maybe I'm even more naïve than I think.

In 1928 there was no SEC. In the early 20th century, "Bulls" and "bears" didn't mean people who thought the market would go up or down, it meant people who were trying to make the market go up or down. It was a contest of strengths between syndicates, hiding from each other how much money was behind them because the side with more money would probably win. Manipulation was assumed. Inside information was assumed. Inside information about manipulation was assumed.

Those 1980's E. F. Hutton commercials were referencing a reality: the historical Edward Francis Hutton did have inside information and did share it--with select clients.

Before about 1920, stock investing had mostly been the sport of a relatively small number of fairly wealthy people. In the 1920s it started to be democratized.

What was happening in the 1920s was a sort of genteel version of "pump and dump" on a grand scale. In Only Yesterday, Frederick Lewis Allen writes (in 1931, so almost contemporaneous with events:)
What on earth was happening? Wasn't business bad, and credit inflated, and the stock-price level dangerously high?....

What was actually happening was that a group of powerful speculators with fortunes made in the automobile business and in the grain markets and in the earlier days of the bull market in stocks--men like W. C. Durant and Arthur Cutten and the Fisher Brothers and John J. Raskob--were buying in unparalleled volume. They thought that business was due to come out of its doldrums. They knew that with Ford production delayed, the General Motors Corporation was likely to have a big year. They knew that the Radio Corporation had been consolidating its position and was now ready to make more money than it had ever made before, and that as scientific discovery followed discovery, the future possibilities of the biggest radio company were exciting. Automobiles and radios--these were the two most characteristic products of the decade of confident mass production, the brightest flowers of Coolidge Prosperity: they held a ready-made appeal to the speculative imagination. The big bull operators knew, too, that thousands of speculators had been selling stocks short in the expectation of a collapse in the market, would continue to sell short, and could be forced to repurchase if prices were driven relentlessly up. And finally, they knew their American public. It could not resist the appeal of a surging market. It had an altogether normal desire to get rich quick, and it was ready to believe anything about the golden future of American business. If stocks started upward the public would buy, no matter what the forecasters said, no matter how obscure was the business prospect.

They were right. The public bought.
Mind you, I could be wrong, but I'd hoped we were sort of past that sort of thing. It's not just a question of numbers and price-to-earnings ratios and ups and downs, I think it's a question of the very nature of the stock market... and I don't think it's the same kind of thing as it was in 1928.

Now, the cryptocurrency market... that sounds just like the 1920s.
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Re: Robert Shiller: Stock Market Like 1928

Post by CULater » Fri Jan 26, 2018 9:58 pm

"Stay the course," but just be sure you're on a course you can stay with -- mebbe for a long, long time. Not for sissies...
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Re: Robert Shiller: Stock Market Like 1928

Post by steve roy » Fri Jan 26, 2018 10:08 pm

1928? January 1928?

So we’ve got, what? A year and eight months until the bottom falls out?

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Re: Robert Shiller: Stock Market Like 1928

Post by Leesbro63 » Fri Jan 26, 2018 10:21 pm

Wasn't leverage worse in 1928?

am
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Re: "Stay the Course"

Post by am » Fri Jan 26, 2018 10:41 pm

Taylor Larimore wrote:
Fri Jan 26, 2018 8:18 pm
Ricola wrote:
Fri Jan 26, 2018 8:09 pm
Irrational Exuberance...is this phase II coming ??? or is this just Noise.

https://finance.yahoo.com/news/robert-s ... 53341.html
Ricola:

When I am unsure what to do, I remember this advice from our mentor, Jack Bogle:
Stay the course. I have said 'stay the course' a thousand times and I meant it every time. It is the most important single piece of advice I can give to you.
Best wishes.
Taylor
If I remember correctly, didn’t Bogle in 1999 change his asset allocation based on high valuations?

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Re: "Stay the Course"

Post by Leesbro63 » Fri Jan 26, 2018 10:52 pm

am wrote:
Fri Jan 26, 2018 10:41 pm
Taylor Larimore wrote:
Fri Jan 26, 2018 8:18 pm
Ricola wrote:
Fri Jan 26, 2018 8:09 pm
Irrational Exuberance...is this phase II coming ??? or is this just Noise.

https://finance.yahoo.com/news/robert-s ... 53341.html
Ricola:

When I am unsure what to do, I remember this advice from our mentor, Jack Bogle:
Stay the course. I have said 'stay the course' a thousand times and I meant it every time. It is the most important single piece of advice I can give to you.
Best wishes.
Taylor
If I remember correctly, didn’t Bogle in 1999 change his asset allocation based on high valuations?
If I recall, I think that was his recognition of his age and having enough. More like external reasons to change his investment plan, perhaps triggered by noticing the big run up in equity prices.

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Re: "Stay the Course"

Post by am » Fri Jan 26, 2018 10:55 pm

Leesbro63 wrote:
Fri Jan 26, 2018 10:52 pm
am wrote:
Fri Jan 26, 2018 10:41 pm
Taylor Larimore wrote:
Fri Jan 26, 2018 8:18 pm
Ricola wrote:
Fri Jan 26, 2018 8:09 pm
Irrational Exuberance...is this phase II coming ??? or is this just Noise.

https://finance.yahoo.com/news/robert-s ... 53341.html
Ricola:

When I am unsure what to do, I remember this advice from our mentor, Jack Bogle:
Stay the course. I have said 'stay the course' a thousand times and I meant it every time. It is the most important single piece of advice I can give to you.
Best wishes.
Taylor
If I remember correctly, didn’t Bogle in 1999 change his asset allocation based on high valuations?
If I recall, I think that was his recognition of his age and having enough. More like external reasons to change his investment plan, perhaps triggered by noticing the big run up in equity prices.
Even with the sky high valuations in 1999, look where we are now 18 yrs later. Seems like staying the course is a no brainer for those who have decades ahead.

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Re: Robert Shiller: Stock Market Like 1928

Post by Leesbro63 » Fri Jan 26, 2018 11:01 pm

Well, at age (about) 70 and with a heart transplant, perhaps Mr. Bogle wasn’t going to make the Pascal’s Wager that he would still be around if we went thru another long bad period like those that started in 1929 or 1966. Yes, in hindsight more stocks would have been worth more today than less stocks. But don’t confuse outcome with strategy. Using your logic, we all should have leveraged everything and bought stocks in 2009.

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Re: Robert Shiller: Stock Market Like 1928

Post by gilgamesh » Fri Jan 26, 2018 11:06 pm

nisiprius wrote:
Fri Jan 26, 2018 9:12 pm

Now, the cryptocurrency market... that sounds just like the 1920s.
Yikes!...the afficianados are going to rebel...they think its the 22nd century and think we are all stuck in the 21st. :oops:

P.S: I'm just noise...just couldn't help but insert my bias.

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Re: Robert Shiller: Stock Market Like 1928

Post by Valuethinker » Sat Jan 27, 2018 6:31 am

Leesbro63 wrote:
Fri Jan 26, 2018 10:21 pm
Wasn't leverage worse in 1928?
Margin debt was essentially unregulated, I believe. So yes-- more highly leveraged then. I'd have to check but I suspect with the Dodd Frank Act, Basel II/ III etc. bank leverage is back down towards what it was in 1929. Securities companies are generally now regulated as banks (JP Morgan, Morgan Stanley etc.) and so probably have less leverage than in 1929.

However personal and corporate debt relative to GDP was far, far lower in 1929. Derivatives (the primary form of leverage in financial markets) hardly existed. So no.

I would say we are as leveraged now, as we have ever been in recorded history, where we have enough information to tell.

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Re: "Stay the Course"

Post by nisiprius » Sat Jan 27, 2018 7:32 am

am wrote:
Fri Jan 26, 2018 10:41 pm
...If I remember correctly, didn’t Bogle in 1999 change his asset allocation based on high valuations?...
The really interesting thing--unfortunately I can no longer find the actual quotation, is that in 1999--I think it was in 1999--in the annual reports for some? all? Vanguard funds, Bogle's letter to shareholders contained a fairly strongly-worded warning that he didn't think the recent performance could possibly be sustained, investors shouldn't count on getting similar returns going forward, and... well... I'm just not going to trust my memory on this. The actual wording was careful, hedged, and not quite actionable--like Babson's 1929 "Sooner or later a crash is coming and it may be terrific." But it was a warning. You could NOT say he called the top and told people to get it out, he didn't. But it was an astonishing thing for someone in his position--a fund company CEO in the official reports to shareholders--to say.

Anyone have the actual language?

(It's possible that he'd been saying the same things in 1998, 1997, etc...)
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Re: "Stay the Course"

Post by AlohaJoe » Sat Jan 27, 2018 7:37 am

nisiprius wrote:
Sat Jan 27, 2018 7:32 am
am wrote:
Fri Jan 26, 2018 10:41 pm
...If I remember correctly, didn’t Bogle in 1999 change his asset allocation based on high valuations?...
The really interesting thing--unfortunately I can no longer find the actual quotation, is that in 1999--I think it was in 1999--in the annual reports for some? all? Vanguard funds, Bogle's letter to shareholders
Bogle resigned in 1996 so it is unlikely he would have been writing letters to shareholders 3 years later.

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Re: Robert Shiller: Stock Market Like 1928

Post by RRAAYY3 » Sat Jan 27, 2018 7:49 am

Here’s my take (I’ve got 20+ years left) :

Equities are not overly “risky”, they are quite volatile. If you’re going to check daily and/or invest money you need short term - don’t. If you have the stomach for it and a 10+ year horizon, where better to put your money long term?

This may be overly simplistic, but it’s how I stay aggressive and sleep at night. Whatever I’m putting in now is likely going to be worth a lot more in 20-30 years. If it isn’t, it means we have bigger problems than where my money is actually held - so why not play the game

For those nearing retirement - no harm in taking some off the top as you’ve likely accumulated quite a bit and should keep at least some of those profits “safe”.

For those accumulating - invest as often as you can with as much as you can (by “can” I mean not need short term) and don’t actually check your balance until your about 5-10 years from retiring.

The world appears to be in great shape economically and this run - despite its length - doesn’t appear to be ending anytime soon. I believe there was a slight “correction” a couple years ago too so it’s not as if this has been a straight line up since 09.

Cliff note: Pick a Us / Int’l / Fixed Income ratio you’re comfortable with and feed it accordingly.

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Re: Robert Shiller: Stock Market Like 1928

Post by Call_Me_Op » Sat Jan 27, 2018 8:15 am

Nobody knows Nuthin'.
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Re: Robert Shiller: Stock Market Like 1928

Post by AtlasShrugged? » Sat Jan 27, 2018 8:23 am

You can put me firmly in the nisiprius camp. I read headlines like this "Stock Market Like 1928" and I think to myself: Meh....financial porn. :oops:

The 'market' of 2018 resembles the market of 1928 about as much as horse puckeys resemble roast beef. Seriously, who is he (Shiller) kidding? The companies are different. The regulatory climate is different. The investing public is different (e.g. much more informed now). The world is a very different place today. The direction of the market is ultimately unknowable. As Mr. Swedroe has said many times, "Our crystal balls are cloudy, at best". I am actually quite surprised a guy as sharp as him would get into the prognostication game. :shock: Prognostication is a game for losers.

What I have taken away from the Bogleheads over time: Live Below Your Means. Invest you must. Spend some time on your asset allocation. Learn to control your emotions. And....Stay the course. 8-)
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Re: Robert Shiller: Stock Market Like 1928

Post by lazyday » Sat Jan 27, 2018 8:36 am

Thanks for posting Ricola, I enjoyed the video.

Many of those posting in this thread seem to have read the headline and stopped there.

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Re: Robert Shiller: Stock Market Like 1928

Post by Valuethinker » Sat Jan 27, 2018 8:48 am

My take?

We are getting near the top of this stock market cycle. Unfortunately, that observation doesn't help much, because the top could be 50% up from here. Jeremy Grantham talks about a "melt up" and the near perfect conditions for same. Valuations are extreme, but not as extreme as they were in 2000. The macroeconomic fundamentals are, at the moment, benign. Extreme risk taking seems concentrated in pockets (Bitcoin, Canadian housing etc.)-- there does not appear to be the evidence of systemic risk taking of the 2006-7 period.

The market, now, looks more like it did in 1999 say (high valuation against a genuine transformative secular trend, the internets), or perhaps in the "Nifty Fifty" era of One Decision Stocks of the early 1970s. The FAANGs look, in some ways, like the Nifty Fifty of that era.

I am now in my 50s, I need to start taking money off the table, having ridden through the crash of 2008-09 in all its horror, and (being a UK based investor) having barely broken even on contributions from the late 1990s.

So I have been buying bonds. Currently the returns on short term gilts (UK government bonds) or even the 10 year gilt are well less than current inflation (yield on the 10 year just over 1.0%, CPI inflation 2.9%).

In addition there is considerable event risk on GBP from 1). the risk of a hard Brexit (no deal with the EU) as many in the governing party are demanding 2). election of a very left wing government (the Official Opposition is as left wing as it has been since the 1970s, or maybe the 1940s). However in my pension accounts, I do not really have other options.

Them's the breaks. No asset looks "cheap".

Generally I would suggest, as I did in 2008 (mostly), that one has a target asset allocation, and one sticks to it. That is what "stay the course" really means in practical terms.

But understand your own need to take risk. In other words, don't just let it be driven by recent returns or by greed overcoming fear.

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Re: Robert Shiller: Stock Market Like 1928

Post by Valuethinker » Sat Jan 27, 2018 8:53 am

JCE66 wrote:
Sat Jan 27, 2018 8:23 am
You can put me firmly in the nisiprius camp. I read headlines like this "Stock Market Like 1928" and I think to myself: Meh....financial porn. :oops:

The 'market' of 2018 resembles the market of 1928 about as much as horse puckeys resemble roast beef. Seriously, who is he (Shiller) kidding? The companies are different. The regulatory climate is different. The investing public is different (e.g. much more informed now). The world is a very different place today. The direction of the market is ultimately unknowable. As Mr. Swedroe has said many times, "Our crystal balls are cloudy, at best". I am actually quite surprised a guy as sharp as him would get into the prognostication game. :shock: Prognostication is a game for losers.

What I have taken away from the Bogleheads over time: Live Below Your Means. Invest you must. Spend some time on your asset allocation. Learn to control your emotions. And....Stay the course. 8-)
I was thinking how much things look like the 1920s though, in so many ways. And the Victorian 1840s for that matter.

History itself feels like Rome about 180 AD, towards the end of the reign of Marcus Aurelius, the last of "the 5 Good Emperors".

I accept unknowability, but the fundamental source code, the human being and his/ her relationship to their society, has not changed. The more things change, the more they stay the same.

https://www.britannica.com/topic/Five-Good-Emperors

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Re: Robert Shiller: Stock Market Like 1928

Post by Cycle » Sat Jan 27, 2018 9:27 am

Keep the finger on the rebalancing button. Maintain AA.
Never look back unless you are planning to go that way

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Re: Robert Shiller: Stock Market Like 1928

Post by Ged » Sat Jan 27, 2018 9:55 am

Valuethinker wrote:
Sat Jan 27, 2018 8:48 am
My take?

We are getting near the top of this stock market cycle. Unfortunately, that observation doesn't help much, because the top could be 50% up from here.
Indeed. The top in 2000 (measured by CAPE) was 30%+ from here. Also some argue the current CAPE ratio is misleading because it includes some very low levels of earnings from 2008.

Since I'm in retirement my asset allocation is at 50/50. Younger folks who are 100% in equities may want to think about how they would handle a drop to S&P 1000.

I think the biggest risk in stock market investing is psychological risk.
Last edited by Ged on Sat Jan 27, 2018 10:09 am, edited 1 time in total.

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Re: Robert Shiller: Stock Market Like 1928

Post by Lauretta » Sat Jan 27, 2018 9:56 am

Valuethinker wrote:
Sat Jan 27, 2018 8:48 am
Jeremy Grantham talks about a "melt up" and the near perfect conditions for same.
my understanding from his letter is that only some conditions are in place: quality stocks did outperform junk in 2017, but what he calls the 'advance-decline line' on page 7 of his letter is not signalling the conditions of a melt-up.
So it would appear (if his analysis is correct) that it's likely but I wouldn't say the conditions are near perfect. In fact he concluded 'A melt-up or end-phase of a bubble within the next 6 months to 2 years is likely, i.e.,
over 50%.'
He also advises to overweigh EM as much as possible (which I have done - nearly 20%, though I'm thinking I should have even more as they are cheapest... :confused )
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Re: Robert Shiller: Stock Market Like 1928

Post by sperry8 » Sat Jan 27, 2018 10:27 am

nisiprius wrote:
Fri Jan 26, 2018 9:12 pm
Bleaugh. I'm very disappointed. "The stock market today is similar to the stock market in 1928." Really? Maybe I'm even more naïve than I think.

In 1928 there was no SEC. In the early 20th century, "Bulls" and "bears" didn't mean people who thought the market would go up or down, it meant people who were trying to make the market go up or down. It was a contest of strengths between syndicates, hiding from each other how much money was behind them because the side with more money would probably win. Manipulation was assumed. Inside information was assumed. Inside information about manipulation was assumed.

Those 1980's E. F. Hutton commercials were referencing a reality: the historical Edward Francis Hutton did have inside information and did share it--with select clients.

Before about 1920, stock investing had mostly been the sport of a relatively small number of fairly wealthy people. In the 1920s it started to be democratized.

What was happening in the 1920s was a sort of genteel version of "pump and dump" on a grand scale. In Only Yesterday, Frederick Lewis Allen writes (in 1931, so almost contemporaneous with events:)
What on earth was happening? Wasn't business bad, and credit inflated, and the stock-price level dangerously high?....

What was actually happening was that a group of powerful speculators with fortunes made in the automobile business and in the grain markets and in the earlier days of the bull market in stocks--men like W. C. Durant and Arthur Cutten and the Fisher Brothers and John J. Raskob--were buying in unparalleled volume. They thought that business was due to come out of its doldrums. They knew that with Ford production delayed, the General Motors Corporation was likely to have a big year. They knew that the Radio Corporation had been consolidating its position and was now ready to make more money than it had ever made before, and that as scientific discovery followed discovery, the future possibilities of the biggest radio company were exciting. Automobiles and radios--these were the two most characteristic products of the decade of confident mass production, the brightest flowers of Coolidge Prosperity: they held a ready-made appeal to the speculative imagination. The big bull operators knew, too, that thousands of speculators had been selling stocks short in the expectation of a collapse in the market, would continue to sell short, and could be forced to repurchase if prices were driven relentlessly up. And finally, they knew their American public. It could not resist the appeal of a surging market. It had an altogether normal desire to get rich quick, and it was ready to believe anything about the golden future of American business. If stocks started upward the public would buy, no matter what the forecasters said, no matter how obscure was the business prospect.

They were right. The public bought.
Mind you, I could be wrong, but I'd hoped we were sort of past that sort of thing. It's not just a question of numbers and price-to-earnings ratios and ups and downs, I think it's a question of the very nature of the stock market... and I don't think it's the same kind of thing as it was in 1928.

Now, the cryptocurrency market... that sounds just like the 1920s.
I was thinking just this (bold my emphasis), when I read the quote. Eerily similar.
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Re: Robert Shiller: Stock Market Like 1928

Post by cheapindexer » Sat Jan 27, 2018 10:47 am

It is well documented that even the great Jack bogle himself , when P/E ratios got to unreasonable levels , changed his AA to something like 20/80!

By his 10 year forecast , around 200 or so he thought bonds would outperform stocks during that time


So , let us remember , he is guilty of timing at least at p/e extremes !!

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Re: Robert Shiller: Stock Market Like 1928

Post by Leesbro63 » Sat Jan 27, 2018 11:00 am

cheapindexer wrote:
Sat Jan 27, 2018 10:47 am
It is well documented that even the great Jack bogle himself , when P/E ratios got to unreasonable levels , changed his AA to something like 20/80!

By his 10 year forecast , around 200 or so he thought bonds would outperform stocks during that time


So , let us remember , he is guilty of timing at least at p/e extremes !!
Again, Jack was well into retirement age and had some real health issues when this happened. If he was 30 and completely healthy, he might have not made the change. I suspect the high valuations were just a trigger to force a reevaluation of his personal situation.

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Re: Robert Shiller: Stock Market Like 1928

Post by lazyday » Sat Jan 27, 2018 11:16 am

In my opinion, in 2000 it made no sense to choose the S&P 500 over TIPS. TIPS paid about 4% real for 30 years. Using the dividend discount model, stocks were expected to earn much less.

am
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Re: Robert Shiller: Stock Market Like 1928

Post by am » Sat Jan 27, 2018 11:37 am

Low interest rates, new tax cuts, high profits, lowest Corp. tax rate In decades, pro business leadership, etc. Current conditions could drive market much higher. In 99’, valuations were higher, but even after the bear that followed, look where we are now! Stay the course if you have decades to invest!

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saltycaper
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Re: Robert Shiller: Stock Market Like 1928

Post by saltycaper » Sat Jan 27, 2018 11:39 am

Uh, oh. That leaves just about a year for Bogleheads to developed their asset allocation abandonment strategy Plan B. Remember to write it down now so you can pretend to stay the course later!
Quod vitae sectabor iter?

Sockpuppet
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Re: Robert Shiller: Stock Market Like 1928

Post by Sockpuppet » Sat Jan 27, 2018 1:10 pm

In 1928 the Dow went up 50%!

It's going to be a great year!

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Re: Robert Shiller: Stock Market Like 1928

Post by TravelGeek » Sat Jan 27, 2018 1:30 pm

am wrote:
Sat Jan 27, 2018 11:37 am
Low interest rates, new tax cuts, high profits, lowest Corp. tax rate In decades, pro business leadership, etc. Current conditions could drive market much higher.
Wait - those aren’t secrets you just spilled. Isn’t that priced in already? :twisted:

book lover
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Re: Robert Shiller: Stock Market Like 1928

Post by book lover » Sat Jan 27, 2018 2:46 pm

Stick to your plan, stay the course, no one has a crystal ball.

am
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Re: Robert Shiller: Stock Market Like 1928

Post by am » Sat Jan 27, 2018 2:48 pm

Priced in? It’s a bunch of baloney. You got a bunch of impulsive emotion driven humans trying to outguess each other. Not sure priced in, pe 10 or any other quantitative figures can explain human behavior.

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Re: Robert Shiller: Stock Market Like 1928

Post by Jeff Albertson » Sat Jan 27, 2018 3:31 pm

Shiller has a related article on his Project Syndicate web page.
"The World’s Priciest Stock Market"
https://www.project-syndicate.org/colum ... j--shiller

He makes an interesting observation on bond rates -
But bond markets act as if they think inflation can be extrapolated. Long-term interest rates tend to be high when the last decade’s inflation was high. US long-term bond yields, such as the ten-year Treasury yield, are highly positively correlated (70% since 1913) with the previous ten years’ inflation. But the correlation between the Treasury yield and the inflation rate over the next ten years is only 28%.
and concludes with -
The truth is that it is impossible to pin down the full cause of the high price of the US stock market. The lack of any clear justification for its high CAPE ratio should remind all investors of the importance of diversification, and that the overall US stock market should not be given too much weight in a portfolio.

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nedsaid
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Re: "Stay the Course"

Post by nedsaid » Sat Jan 27, 2018 3:48 pm

nisiprius wrote:
Sat Jan 27, 2018 7:32 am
am wrote:
Fri Jan 26, 2018 10:41 pm
...If I remember correctly, didn’t Bogle in 1999 change his asset allocation based on high valuations?...
The really interesting thing--unfortunately I can no longer find the actual quotation, is that in 1999--I think it was in 1999--in the annual reports for some? all? Vanguard funds, Bogle's letter to shareholders contained a fairly strongly-worded warning that he didn't think the recent performance could possibly be sustained, investors shouldn't count on getting similar returns going forward, and... well... I'm just not going to trust my memory on this. The actual wording was careful, hedged, and not quite actionable--like Babson's 1929 "Sooner or later a crash is coming and it may be terrific." But it was a warning. You could NOT say he called the top and told people to get it out, he didn't. But it was an astonishing thing for someone in his position--a fund company CEO in the official reports to shareholders--to say.

Anyone have the actual language?

(It's possible that he'd been saying the same things in 1998, 1997, etc...)
Here is the YouTube video where Bogle discusses precisely this:

https://www.youtube.com/watch?v=k6ra5PO ... e=youtu.be

Bogle discusses what he did with his asset allocation starting at 2:20.
A fool and his money are good for business.

ulrichw
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Re: Robert Shiller: Stock Market Like 1928

Post by ulrichw » Sat Jan 27, 2018 4:00 pm

To be fair to Shiller what he said was (emphasis mine): “In some sense, we’re similar to the 1920 — I’ll say the ’28 market.”
Jeff Albertson wrote:
Sat Jan 27, 2018 3:31 pm
Shiller [...] concludes with -
The truth is that it is impossible to pin down the full cause of the high price of the US stock market. The lack of any clear justification for its high CAPE ratio should remind all investors of the importance of diversification, and that the overall US stock market should not be given too much weight in a portfolio.
It's also worth mentioning that CAPE, which no doubt has some explanatory value, is a fairly arbitrary measure. Why average 10 years specifically? What is the impact of including in the average two years of exceptionally low earnings during and following the financial crisis - which is now almost 10 years in the past?

For reference here are historical S&P 500 earnings per share (inflation-adjusted) that are still being averaged into CAPE-10 (including a couple of no-longer-included years for context):
Dec 31, 2016 96.54
Dec 31, 2015 90.19
Dec 31, 2014 107.41
Dec 31, 2013 105.99
Dec 31, 2012 92.89
Dec 31, 2011 94.98
Dec 31, 2010 87.00
Dec 31, 2009 58.19
Dec 31, 2008 17.45
Dec 31, 2007 77.68
Dec 31, 2006 99.57

Ask yourself: what happens to CAPE when the earnings from 2008 and 2009 are replaced with 2018 and 2019?

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Re: Robert Shiller: Stock Market Like 1928

Post by stlutz » Sat Jan 27, 2018 4:21 pm

Thanks for posting the video link, nedsaid. A few takeaways for me:

--Around that time the 10 year treasury yielded over 6%. That was pretty compelling vs. the earnings yield on stocks.

--Every major bear market is different in terms of its causes and how it unfolds. It's never "just like 1928" or "just like 1999" or "just like 2007".

--When it doubt, it's generally better to do nothing.

I don't think this is a time for everyone to go from 75/25 to 25/75, simply because there really isn't much in the way of attractive alternatives to global stock markets. Bonds aren't yielding 6 or 7%. We don't have a case a small segment of the market has been soaring while other parts have not, thus offering opportunities to concentrate in particular areas).

I've suggested in other threads that it's a good time for some investors to reconsider their need to take risk given how much their portfolios have increased in value. For me personally, I'm continuing to stick to my allocation--perhaps just being a little more aggressive in rebalancing back to my target weights.

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Re: Robert Shiller: Stock Market Like 1928

Post by am » Sat Jan 27, 2018 4:29 pm

ulrichw wrote:
Sat Jan 27, 2018 4:00 pm
To be fair to Shiller what he said was (emphasis mine): “In some sense, we’re similar to the 1920 — I’ll say the ’28 market.”
Jeff Albertson wrote:
Sat Jan 27, 2018 3:31 pm
Shiller [...] concludes with -
The truth is that it is impossible to pin down the full cause of the high price of the US stock market. The lack of any clear justification for its high CAPE ratio should remind all investors of the importance of diversification, and that the overall US stock market should not be given too much weight in a portfolio.
It's also worth mentioning that CAPE, which no doubt has some explanatory value, is a fairly arbitrary measure. Why average 10 years specifically? What is the impact of including in the average two years of exceptionally low earnings during and following the financial crisis - which is now almost 10 years in the past?

For reference here are historical S&P 500 earnings per share (inflation-adjusted) that are still being averaged into CAPE-10 (including a couple of no-longer-included years for context):
Dec 31, 2016 96.54
Dec 31, 2015 90.19
Dec 31, 2014 107.41
Dec 31, 2013 105.99
Dec 31, 2012 92.89
Dec 31, 2011 94.98
Dec 31, 2010 87.00
Dec 31, 2009 58.19
Dec 31, 2008 17.45
Dec 31, 2007 77.68
Dec 31, 2006 99.57

Ask yourself: what happens to CAPE when the earnings from 2008 and 2009 are replaced with 2018 and 2019?

What will be cape 10 when 08 and 09 are removed assuming similar earnings?

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Re: Robert Shiller: Stock Market Like 1928

Post by visualguy » Sat Jan 27, 2018 4:32 pm

One alternative that may be relevant to some is to cash out the gains from the last year, and use the money to invest in another asset class by buying direct real estate in a good location (assuming the stock market gains are sufficient for a healthy down payment).

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Re: Robert Shiller: Stock Market Like 1928

Post by H-Town » Sat Jan 27, 2018 4:34 pm

Ricola wrote:
Fri Jan 26, 2018 8:09 pm
Irrational Exuberance...is this phase II coming ??? or is this just Noise.

https://finance.yahoo.com/news/robert-s ... 53341.html
Just... Be careful.

ulrichw
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Re: Robert Shiller: Stock Market Like 1928

Post by ulrichw » Sat Jan 27, 2018 5:04 pm

am wrote:
Sat Jan 27, 2018 4:29 pm
ulrichw wrote:
Sat Jan 27, 2018 4:00 pm
[...]
Ask yourself: what happens to CAPE when the earnings from 2008 and 2009 are replaced with 2018 and 2019?

What will be cape 10 when 08 and 09 are removed assuming similar earnings?
The answer is it'll be somewhere between 10 and 15% lower than it would have with a flatter earnings history.

You can't predict the actual value of CAPE10 because to do so would require knowing the future price, but you can tell that there's a built-in downward bias on the measure based on the history of earnings.

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Re: Robert Shiller: Stock Market Like 1928

Post by nedsaid » Sat Jan 27, 2018 5:13 pm

stlutz wrote:
Sat Jan 27, 2018 4:21 pm
Thanks for posting the video link, nedsaid. A few takeaways for me:

--Around that time the 10 year treasury yielded over 6%. That was pretty compelling vs. the earnings yield on stocks.

--Every major bear market is different in terms of its causes and how it unfolds. It's never "just like 1928" or "just like 1999" or "just like 2007".

--When it doubt, it's generally better to do nothing.

I don't think this is a time for everyone to go from 75/25 to 25/75, simply because there really isn't much in the way of attractive alternatives to global stock markets. Bonds aren't yielding 6 or 7%. We don't have a case a small segment of the market has been soaring while other parts have not, thus offering opportunities to concentrate in particular areas).

I've suggested in other threads that it's a good time for some investors to reconsider their need to take risk given how much their portfolios have increased in value. For me personally, I'm continuing to stick to my allocation--perhaps just being a little more aggressive in rebalancing back to my target weights.
Soon I will be doing yet another round of mild rebalancing from stocks to bonds. As much as I don't like doing this, I owe it to myself to keep the risks in my portfolio in check. I cried in my root bear during the New Year's Day weekend over my "subpar" 15.01% return in 2017, but I am realizing that my rebalancing program doubtlessly sliced a bit off my returns.

At age 58, I am still 66% in stocks, one reason being that interest rates are still so low. Unlike 2000, when bonds were the steal of the century, bonds like stocks are expensive in 2018. I am buying bonds not because I am excited about them but because they are less volatile than stocks.
A fool and his money are good for business.

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Re: Robert Shiller: Stock Market Like 1928

Post by willthrill81 » Sat Jan 27, 2018 5:34 pm

Leesbro63 wrote:
Sat Jan 27, 2018 11:00 am
cheapindexer wrote:
Sat Jan 27, 2018 10:47 am
It is well documented that even the great Jack bogle himself , when P/E ratios got to unreasonable levels , changed his AA to something like 20/80!

By his 10 year forecast , around 200 or so he thought bonds would outperform stocks during that time


So , let us remember , he is guilty of timing at least at p/e extremes !!
Again, Jack was well into retirement age and had some real health issues when this happened. If he was 30 and completely healthy, he might have not made the change. I suspect the high valuations were just a trigger to force a reevaluation of his personal situation.
Bogle's decision wasn't entirely based on his own personal circumstances. He made it clear that stock valuations were a component of his decision. Even though he is publicly disdainful of market timing, he practiced it himself to an extent. And I cannot blame him for doing so one tiny bit, regardless of the outcome of his decision.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: "Stay the Course"

Post by Rowan Oak » Sat Jan 27, 2018 6:50 pm

nisiprius wrote:
Sat Jan 27, 2018 7:32 am
am wrote:
Fri Jan 26, 2018 10:41 pm
...If I remember correctly, didn’t Bogle in 1999 change his asset allocation based on high valuations?...
The really interesting thing--unfortunately I can no longer find the actual quotation, is that in 1999--I think it was in 1999--in the annual reports for some? all? Vanguard funds, Bogle's letter to shareholders contained a fairly strongly-worded warning that he didn't think the recent performance could possibly be sustained, investors shouldn't count on getting similar returns going forward, and... well... I'm just not going to trust my memory on this. The actual wording was careful, hedged, and not quite actionable--like Babson's 1929 "Sooner or later a crash is coming and it may be terrific." But it was a warning. You could NOT say he called the top and told people to get it out, he didn't. But it was an astonishing thing for someone in his position--a fund company CEO in the official reports to shareholders--to say.

Anyone have the actual language?

(It's possible that he'd been saying the same things in 1998, 1997, etc...)
Here's an interview from 2014 when he talks about the decision he made in 2000. He was in poor health and the market conditions were extremely different than today.

- He was around 70 yrs old at the time;
- his heart was failing;
- equity position 70-80%;
- bonds yielding around 7%;
- stocks yielding 1%;
- stock market closer to 40x earnings than to 30;

Jack Bogle: I think it's impossible in the next decade, and I look at things in decade lengths, that stocks will outperform bonds. So returns on stocks ought to be, you know, pretty close to nominal and the returns on bonds gonna be 7% a year. That's doubling your money in a decade. And then I looked at him and said, "You know, Don, sometimes I sit here and worry why I have any money in stocks whatsoever.

And I was in the process then, and I can't remember the exact timing, but obviously around that time, of reducing my own equity position from about what's normal of about 70-75%. I don't even remember, maybe 80% down to about 25-30%. And I did that.

...everybody said, "you knew what was going to happen", and I suppose you could argue that I did, but that was also, my heart was failing; my life was in danger. I wanted to make sure what kind of estate I had mostly my retirement plan here (Vanguard) was protected for my family so it was a personal financial decision greatly abetted by the fact that it made totally financial and economic sense. How many times in a lifetime does that come along.

https://youtu.be/k6ra5POdsYg
Last edited by Rowan Oak on Sat Jan 27, 2018 10:58 pm, edited 3 times in total.
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

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Re: "Stay the Course"

Post by GreatOdinsRaven » Sat Jan 27, 2018 8:33 pm

Taylor Larimore wrote:
Fri Jan 26, 2018 8:18 pm
Ricola wrote:
Fri Jan 26, 2018 8:09 pm
Irrational Exuberance...is this phase II coming ??? or is this just Noise.

https://finance.yahoo.com/news/robert-s ... 53341.html
Ricola:

When I am unsure what to do, I remember this advice from our mentor, Jack Bogle:
Stay the course. I have said 'stay the course' a thousand times and I meant it every time. It is the most important single piece of advice I can give to you.
Best wishes.
Taylor
Taylor,
I understand and appreciate the sentiment. But even Jack took equity risk off the table prior to the tech bubble crash.

That said, I’m staying the course. I’m investing for 30-60 years from now. And, according to this Bloomberg article even if you bought US equities at the market peak in 2007, you have since doubled your money. Even after the GFC.
"The greatest enemies of the equity investor are expenses and emotions." -John C. Bogle, Little Book of Common Sense Investing. | | "Winter is coming." Lord Eddard Stark.

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