If it were March, 2000, would you still allocate 50% to Stocks?

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chevca
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by chevca » Wed Aug 08, 2018 1:54 pm

CraigTester wrote:
Wed Aug 08, 2018 1:48 pm

Valuation levels are SIGNIFICANTLY higher today than they were in 1996.

Despite this fact, you would have been sitting on a loss 13 years later in 2009 (inflation adjusted, dividends reinvested)

Alternatively if you had purchased a bond in 1996, you could have locked in a "guaranteed" CAGR of 6% and more than doubled your money by 2009.
What's different about that today?

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Portfolio7
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by Portfolio7 » Wed Aug 08, 2018 1:56 pm

CraigTester wrote:
Wed Aug 08, 2018 12:59 pm
chevca wrote:
Wed Aug 08, 2018 10:28 am
OP, your example seems to be about someone having all the money they will ever have to invest at one time and deciding when to invest it all. Does that seem realistic to you? Most folks invest over many, many years. How does your scenario work out if someone invests throughout the time period you're talking about?
The "boglehead philosophy" should work fine for much of the time. If you're just steadily buying in over time, sometimes you get better prices than others, but on average, it should be a wash.

However, dollars invested (or held in investments) when valuations are at historical extremes will tend to get extreme results (in either direction).

And I've yet to hear a compelling argument why anyone would possibly invest in the SP500 at today's valuation level.

E.g. Stick one hand in a boiling pot of water; and the other in the freezer. On average you're fine. But that still doesn't convince me to stick my hand in a boiling pot of water. No matter what my Investment Declaration Statement might say....
When it comes to valuation ratios, at least at a macro level, I don't believe we understand them well enough to interpret what they're saying, and I also don't believe that current valuations can be compared to historical valuations in a way that offers any enlightenment. Underlying conditions change. I believe what matters is that the US economy has an escape valve that's far greater in scope than last century. Our overproduction now can so easily spill over into the Global Market via several mechanisms. I'm really not concerned about the US economy overheating. I could be wrong, so I stick to my IPS. I haven't slowed my buying at all.
An investment in knowledge pays the best interest.

reformed.trader
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by reformed.trader » Wed Aug 08, 2018 1:57 pm

goblue100 wrote:
Wed Aug 08, 2018 1:50 pm
reformed.trader wrote:
Wed Aug 08, 2018 1:28 pm
No

I am not like most on this board. I am currently heavily overweight EM and heavily underweight US. I ask myself why I have any US at all sometimes. Even still, the US is the big dog and when it goes down, everything will follow. For that reason I am also overweight reinsurance.
I don't think your handle of reformed.trader fits. :)
haha.

Or maybe it fits perfectly.

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vitaflo
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by vitaflo » Wed Aug 08, 2018 2:08 pm

CraigTester wrote:
Wed Aug 08, 2018 1:48 pm
You can choose to ignore this fact, and continue to invest in the SP500 in 2018, but I fear history will not be your friend.
People said this 5 years ago on these very boards and lived to regret it. You're also ignoring the fact that PE10 doesn't have the same meaning as it did in the past because of regulatory changes.

In the end it doesn't really matter. Savings rate and returns on sweat equity will always trump market returns in the end.
Last edited by vitaflo on Wed Aug 08, 2018 2:37 pm, edited 1 time in total.

delamer
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by delamer » Wed Aug 08, 2018 2:09 pm

CraigTester wrote:
Wed Aug 08, 2018 1:48 pm
HomerJ wrote:
Wed Aug 08, 2018 1:05 pm
CraigTester wrote:
Wed Aug 08, 2018 12:59 pm
And I've yet to hear a compelling argument why anyone would possibly invest in the SP500 at today's valuation level.
Really?

No one has used the words "long-term investment" yet? I could have sworn I saw those words already.

Can you give me a compelling argument why anyone would have possibly invested in SP500 in 1996?

I did, and all that money I had invested that year is nearly 7x what it was in 1996.
Valuation levels are SIGNIFICANTLY higher today than they were in 1996.

Despite this fact, you would have been sitting on a loss 13 years later in 2009 (inflation adjusted, dividends reinvested)

Alternatively if you had purchased a bond in 1996, you could have locked in a "guaranteed" CAGR of 6% and more than doubled your money by 2009.

Furthermore, if valuations weren't at the 2nd highest level in history today, you might still be sitting on loss even now.

So bottom line is that Valuation (e.g. price paid) controls EVERYTHING over the long term.

You can choose to ignore this fact, and continue to invest in the SP500 in 2018, but I fear history will not be your friend.

I can’t match your numbers.

The S&P500 total return index was 819.0 in January 1996. It was 1837.5 in December 2009. That is an increase of 124%.

The CPI-U was 154.7 in January 1996. It was 217.3 in December 2009. That is in increase of 40.5%.

How is that a real loss if you held the S&P500 and reinvested dividends?

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HomerJ
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by HomerJ » Wed Aug 08, 2018 2:21 pm

CraigTester wrote:
Wed Aug 08, 2018 1:48 pm
HomerJ wrote:
Wed Aug 08, 2018 1:05 pm
CraigTester wrote:
Wed Aug 08, 2018 12:59 pm
And I've yet to hear a compelling argument why anyone would possibly invest in the SP500 at today's valuation level.
Really?

No one has used the words "long-term investment" yet? I could have sworn I saw those words already.

Can you give me a compelling argument why anyone would have possibly invested in SP500 in 1996?

I did, and all that money I had invested that year is nearly 7x what it was in 1996.
Valuation levels are SIGNIFICANTLY higher today than they were in 1996.
Ex post facto data. At the TIME, valuations were ridiculously high by historical standards... Breaking 25 was huge. First time that happened in the past 70 years, and the last time CAPE broke 25, the Great Depression happened.

Shiller (who INVENTED CAPE) predicted a 0% real return for the next 10 years starting in 1996.

Instead, we got 8.5% nominal (so 5.5% or 6% real?)
Despite this fact, you would have been sitting on a loss 13 years later in 2009 (inflation adjusted, dividends reinvested)
This is false.

8/8/1996 to 8/8/2009 shows an annual return of 5.5% nominal (so around 2.5% or 3% real? - still positive)

Oh maybe you mean March 2009. I guess if you pick the exact bottom of the second crash, there was a brief moment of time (a couple of weeks over the past 22 years) where money invested in 1996 was sitting at a loss.
Last edited by HomerJ on Wed Aug 08, 2018 2:29 pm, edited 2 times in total.
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HomerJ
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by HomerJ » Wed Aug 08, 2018 2:25 pm

You can choose to ignore this fact, and continue to invest in the SP500 in 2018, but I fear history will not be your friend.
Here's the thing CraigTester.

I have set up an AA (Asset Allocation) that assumes the market will crash tomorrow and stay down for a while.

Because it might.

I think you may be misunderstanding us. We're not saying you're wrong. We're not saying the market won't crash. We know that it will. We're just saying no one knows when. Could be this year. Could be in 5 years. Could be tomorrow.

I'm close to retirement, and I have set up my AA to withstand it if a crash happens tomorrow.

Because it might.

Not because of valuations, but because I'm close to retirement, so I don't have "long-term" for all of my money anymore. But I'm certainly not out of stocks... I'm at 50/50 stocks/bonds. 35/15 US/International on the stock side.

So you running in here and saying "Guys, guys! The market is likely to crash soon!" doesn't faze me. Because I'm ALREADY prepared for a crash tomorrow. Even before you showed up.

(It also doesn't faze me, because someone JUST as sure as you are today showed up here in 2014, 2015, 2016, and 2017 screaming "Guys, guys! The market is likely to crash soon!")
Last edited by HomerJ on Wed Aug 08, 2018 2:50 pm, edited 2 times in total.
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FIREchief
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by FIREchief » Wed Aug 08, 2018 2:29 pm

CraigTester wrote:
Wed Aug 08, 2018 8:09 am
And further, just about every valuation multiple known to man is currently reflecting 2nd-highest-in-history levels. (Highest levels were reached around March 2000).
Is current P/E included in "every valuation multiple known to man?" If so, did you check what that is relative to historical levels prior to posting this? You might be surprised!
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

H-Town
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by H-Town » Wed Aug 08, 2018 2:30 pm

CraigTester wrote:
Wed Aug 08, 2018 12:59 pm

And I've yet to hear a compelling argument why anyone would possibly invest in the SP500 at today's valuation level.

E.g. Stick one hand in a boiling pot of water; and the other in the freezer. On average you're fine. But that still doesn't convince me to stick my hand in a boiling pot of water. No matter what my Investment Declaration Statement might say....
If I didn't know better, I think you're trolling. There are plenty of posts above that addressed your question. If you're not, then never mind.

Your money, your decision. :sharebeer

CantPassAgain
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by CantPassAgain » Wed Aug 08, 2018 2:32 pm

HomerJ wrote:
Wed Aug 08, 2018 2:25 pm
(It also doesn't faze me, because someone JUST as sure as you are today showed up here in 2014, 2015, 2016, and 2017 screaming "Guys, guys! The market is likely to crash soon!")
You forgot 2010, 2011, 2012, and 2013.

Dottie57
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by Dottie57 » Wed Aug 08, 2018 2:33 pm

:arrow:
Silk McCue wrote:
Wed Aug 08, 2018 11:05 am
CraigTester wrote:
Wed Aug 08, 2018 10:56 am
I wanted to understand if people on this forum were making their investment decisions based on some assessment of intrinsic value; or were rather just following a script.
If broad diversification, at a low ER, at Asset Allocation that matches our willingness, ability and need to take risk is "following a script", then yes we are following a well written script that will more likely result in long term investment success. The long term view is time in the market, not timing the market.

Cheers
I am following the Boglehead script. Not mindlessly. But both reading and experience has shown me that it works. While I was terrified n 2007-2008, I kept investing and it turned out extremely well for me.

No working Magic 8 ball here.

Just “following a script” as OP puts it.

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David Jay
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by David Jay » Wed Aug 08, 2018 2:45 pm

I was 100% stocks in 2000 and in 2008. Grin and bear it. Had quite a bit bigger nest egg in 2008, so the pain was greater. I tossed my Roth and 401K statements in a pile on the desk unopened. Knew it was down, didn't need to see how much.

Since coming to BH, I learned about rebalancing. It would have been great to have had a way to respond to the drop in equity prices, but I didn't know any better.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

acegolfer
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by acegolfer » Wed Aug 08, 2018 2:50 pm

CraigTester wrote:
Wed Aug 08, 2018 10:56 am
I wanted to understand if people on this forum were making their investment decisions based on some assessment of intrinsic value; or were rather just following a script.
My investment decisions are based on economic theories that won the Nobel prizes in 1990 and 2013.

CantPassAgain
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by CantPassAgain » Wed Aug 08, 2018 2:51 pm

CraigTester wrote:
Wed Aug 08, 2018 1:48 pm
HomerJ wrote:
Wed Aug 08, 2018 1:05 pm
CraigTester wrote:
Wed Aug 08, 2018 12:59 pm
And I've yet to hear a compelling argument why anyone would possibly invest in the SP500 at today's valuation level.
Really?

No one has used the words "long-term investment" yet? I could have sworn I saw those words already.

Can you give me a compelling argument why anyone would have possibly invested in SP500 in 1996?

I did, and all that money I had invested that year is nearly 7x what it was in 1996.
Valuation levels are SIGNIFICANTLY higher today than they were in 1996.

Despite this fact, you would have been sitting on a loss 13 years later in 2009 (inflation adjusted, dividends reinvested)

Alternatively if you had purchased a bond in 1996, you could have locked in a "guaranteed" CAGR of 6% and more than doubled your money by 2009.

Furthermore, if valuations weren't at the 2nd highest level in history today, you might still be sitting on loss even now.

So bottom line is that Valuation (e.g. price paid) controls EVERYTHING over the long term.

You can choose to ignore this fact, and continue to invest in the SP500 in 2018, but I fear history will not be your friend.
Did you read Nisiprius post just a few messages up from yours? If not, why not? And if so, did you not catch the part mentioning tactical allocation funds? Did you know about those funds? They invested according to market valuations. They were a failure. Why do you think that is?

MathWizard
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by MathWizard » Wed Aug 08, 2018 2:55 pm

If I recall correctly, I was 70 to 80% stocks then, and rebalanced into stocks in
2001, 2003 and 2008/9.

I had a long time horizon, and bonds were not going to cut it in saving for retirement.
I didn't like the valuations, but did not see an alternative.

reformed.trader
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by reformed.trader » Wed Aug 08, 2018 3:27 pm

Is the OP saying you should go from US stocks to cash or bonds? Or is he simply saying why buy US when you can buy EM or other cheaper countries? If the latter, then he is dead on imo. The chart from Meb Faber below compared US stocks, US Bonds, US Stocks when CAPE <20 else bonds, and the cheapest 25% of countries measured by CAPE. Buying cheap destroys buying only US.

My question for the market cap B&Hers, why would you want to overweight the most expensive countries? You would be holding nearly 50% of your portfolio in Japan in the late 80s, nearly 50% in US today. Why?

Image

http://mebfaber.com/2014/06/10/if-you-u ... ince-1995/

CantPassAgain
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by CantPassAgain » Wed Aug 08, 2018 3:39 pm

reformed.trader wrote:
Wed Aug 08, 2018 3:27 pm
Is the OP saying you should go from US stocks to cash or bonds? Or is he simply saying why buy US when you can buy EM or other cheaper countries?
I suspect he doesn't know or hasn't thought about it, and that the contributions thus far are meant primarily to generate responses (well done, op).

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bligh
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by bligh » Wed Aug 08, 2018 3:40 pm

CraigTester wrote:
Wed Aug 08, 2018 8:09 am
If it were March 2000, (or 1901, 1929, 1968, 2007) would you still invest half of everything you own in stocks?
Yes I'd own stock, because on March 2000 I did not know what was to come, just like today I do not know what is to come tomorrow.

If I knew what was to come, not only would I sell all my stocks but I'd buy puts with every penny I had. Also would have loaded up on Bitcoin back when it was worth pennies. :D

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slayed
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by slayed » Wed Aug 08, 2018 3:40 pm

CraigTester wrote:
Wed Aug 08, 2018 8:09 am

And by obvious extension, if you're currently sitting on enormous gains in your SP500 index fund, why not take profits?
Taxes.

BogleInTraining
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by BogleInTraining » Wed Aug 08, 2018 3:54 pm

CraigTester wrote:
Wed Aug 08, 2018 1:48 pm
HomerJ wrote:
Wed Aug 08, 2018 1:05 pm
CraigTester wrote:
Wed Aug 08, 2018 12:59 pm
And I've yet to hear a compelling argument why anyone would possibly invest in the SP500 at today's valuation level.
Really?

No one has used the words "long-term investment" yet? I could have sworn I saw those words already.

Can you give me a compelling argument why anyone would have possibly invested in SP500 in 1996?

I did, and all that money I had invested that year is nearly 7x what it was in 1996.
Valuation levels are SIGNIFICANTLY higher today than they were in 1996.

Despite this fact, you would have been sitting on a loss 13 years later in 2009 (inflation adjusted, dividends reinvested)

Alternatively if you had purchased a bond in 1996, you could have locked in a "guaranteed" CAGR of 6% and more than doubled your money by 2009.

Furthermore, if valuations weren't at the 2nd highest level in history today, you might still be sitting on loss even now.

So bottom line is that Valuation (e.g. price paid) controls EVERYTHING over the long term.

You can choose to ignore this fact, and continue to invest in the SP500 in 2018, but I fear history will not be your friend.
So what are YOU doing with your money? Saving cash?

BogleInTraining
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by BogleInTraining » Wed Aug 08, 2018 3:55 pm

BogleInTraining wrote:
Wed Aug 08, 2018 3:54 pm

Valuation levels are SIGNIFICANTLY higher today than they were in 1996.

Despite this fact, you would have been sitting on a loss 13 years later in 2009 (inflation adjusted, dividends reinvested)

Alternatively if you had purchased a bond in 1996, you could have locked in a "guaranteed" CAGR of 6% and more than doubled your money by 2009.

Furthermore, if valuations weren't at the 2nd highest level in history today, you might still be sitting on loss even now.

So bottom line is that Valuation (e.g. price paid) controls EVERYTHING over the long term.

You can choose to ignore this fact, and continue to invest in the SP500 in 2018, but I fear history will not be your friend.
So what are YOU doing with your money? Saving cash?
[/quote]

BogleInTraining
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by BogleInTraining » Wed Aug 08, 2018 3:57 pm

BogleInTraining wrote:
Wed Aug 08, 2018 3:55 pm

Valuation levels are SIGNIFICANTLY higher today than they were in 1996.

Despite this fact, you would have been sitting on a loss 13 years later in 2009 (inflation adjusted, dividends reinvested)

Alternatively if you had purchased a bond in 1996, you could have locked in a "guaranteed" CAGR of 6% and more than doubled your money by 2009.

Furthermore, if valuations weren't at the 2nd highest level in history today, you might still be sitting on loss even now.

So bottom line is that Valuation (e.g. price paid) controls EVERYTHING over the long term.

You can choose to ignore this fact, and continue to invest in the SP500 in 2018, but I fear history will not be your friend.
So what are YOU doing with your money? Saving cash?

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Earl Lemongrab
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by Earl Lemongrab » Wed Aug 08, 2018 4:29 pm

I wasn't investing in any organized fashion in 2000, but I did develop my asset allocation and set up my portfolio in fall of 2007, right before the next big crash. I think that demonstrates one of my core investing principles, "I have no talent for market timing."

And I had a 70% allocation to stocks. So I rebalanced, did a couple rounds of tax-loss harvesting, and continued to invest new money according to plan. As the recovery began in 2009, progress towards goals led me to change my base allocation to 65/35, then 60/40, where it continues.

I retired this year with a substantial portfolio. Naturally one can't guarantee the relatively quick recoveries that we've seen for last two crashes.

If it were obvious to YOU that a crash was in the offing, it would have been even more obvious to the guys with the best computers, quants, and data. They would have already sold, the crash would have happened, and you'd be too late. So you might guess and get it right, but that's not the same as knowing what you're doing.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

garlandwhizzer
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by garlandwhizzer » Wed Aug 08, 2018 9:01 pm

I was 100% in stocks in 2000 and almost all of that was in booming tech stocks. It was quite unpleasant to put it mildly and I was retired at the time without an income stream. Pain like that teaches lessons that you don't forget. I learned that balanced portfolios aren't just for sissies especially if you don't have an income stream. At first I couldn't believe the crash and dug a deeper hole buying beaten down tech stocks on the margin. They were cheap but I learned that could get cheaper yet. At some point reality dawned on me and with some frantic portfolio manipulations and using my home as an ATM for a while I was able to survive this crisis--sadder, more skeptical, and wiser about Mr. Market. The good news is that I was 100% invested in tech stocks throughout the tech boom of the 1990s and fortunately had made millions that way. So it was from a lofty perch with a lot of new age optimism that I fell.

There is no single rule for stocks versus bonds in a portfolio that fits all. You have to align your portfolio to your own specific circumstances which means you have to have a realistic picture of your circumstances and of yourself. Good luck on that. One thing to keep in mind is not to put much faith in what you believe the market is going to do, nor in the projections of the market experts. In serious market crashes the experts are usually as blind as we are. Crashes are the great leveler demonstrating as Bogle says, "Nobody knows nothing." To be safe and protect your mental health it's best to assume that yours and the experts' optimistic market projections for the near/intermediate term can be totally wrong. The market can and does turn on a dime often with a vengeance. Best IMO to keep some dry powder to see you through because you likely won't see it coming. Not in case it happens, but rather when it happens. If you play the investment game long enough you can be assured it will happen.

Garland Whizzer

CantPassAgain
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by CantPassAgain » Wed Aug 08, 2018 9:13 pm

garlandwhizzer wrote:
Wed Aug 08, 2018 9:01 pm
I was 100% in stocks in 2000 and almost all of that was in booming tech stocks. It was quite unpleasant to put it mildly and I was retired at the time without an income stream. Pain like that teaches lessons that you don't forget. I learned that balanced portfolios aren't just for sissies especially if you don't have an income stream. At first I couldn't believe the crash and dug a deeper hole buying beaten down tech stocks on the margin. They were cheap but I learned that could get cheaper yet. At some point reality dawned on me and with some frantic portfolio manipulations and using my home as an ATM for a while I was able to survive this crisis--sadder, more skeptical, and wiser about Mr. Market. The good news is that I was 100% invested in tech stocks throughout the tech boom of the 1990s and fortunately had made millions that way. So it was from a lofty perch with a lot of new age optimism that I fell.

There is no single rule for stocks versus bonds in a portfolio that fits all. You have to align your portfolio to your own specific circumstances which means you have to have a realistic picture of your circumstances and of yourself. Good luck on that. One thing to keep in mind is not to put much faith in what you believe the market is going to do, nor in the projections of the market experts. In serious market crashes the experts are usually as blind as we are. Crashes are the great leveler demonstrating as Bogle says, "Nobody knows nothing." To be safe and protect your mental health it's best to assume that yours and the experts' optimistic market projections for the near/intermediate term can be totally wrong. The market can and does turn on a dime often with a vengeance. Best IMO to keep some dry powder to see you through because you likely won't see it coming. Not in case it happens, but rather when it happens. If you play the investment game long enough you can be assured it will happen.

Garland Whizzer
Great post. Unfortunately it seems there are more and more folks showing up on this forum every day thinking they have the obvious answers and everyone else is obviously wrong. 0% bonds is wrong, 25% bonds is wrong, 50% bonds is wrong, every percentage point of stock ownership between 0% and leveraged to infinity % is wrong and everyone can prove all of it with simple backtesting.

It would be comical if it weren't so detrimental for novice investors who come here looking for some simple guidance.

CraigTester
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by CraigTester » Wed Aug 08, 2018 10:01 pm

Over the long-term, stocks have returned ~6.6% per year, above inflation, assuming dividends were reinvested.

The Buy-n-Holder’s strategy is to capture this return by buying a stock index fund and just shutting their eyes really tight for 30, 40 or 50 years.

The Buy-N-Holder's faith is grounded in Reversion-to-mean statistics that require money parked in a stock index fund for long enough to eventually return ~6.6% per year, above inflation.

But the uncomfortable truth with the above statement is that its only true because of the words, "long enough”.

During spans of time when risk doesn’t show up, the Buy-n-Hold strategy appears to be born of genius. A Buy-n-holder can bask in their returns during boom periods like the 1920’s or late 1990’s. And all that is required of them is to do absolutely nothing.

However, as there is no such thing as a free lunch, the sun doesn’t always shine on the Buy-n-Holder.

Over the last 120 years, Buy-n-Holders stock investments fell by 50%, 60%, 70%, 80% respectively on four separate occasions. Despite assurances that markets always recover sooner-or-later, following these crashes they had to wait 13, 14, 19 and 20 years just to break-even with their previous purchasing power levels. (Note: Assumes 100% of dividends were immediately reinvested).

In other words, if a 50 year old Buy-N-Holder invested $1M in a stock index fund in 1929, by 1932 his investment would have fallen to ~$200K.

He would not return to his 1929, $1M purchasing power until 20 years later at the age of 70.

(Periodic Rebalancing may add a bit of a sense of control during these waiting periods, but at the cost of significantly reduced returns. E.g. whatever portion was allocated to bonds does not return 6.6% per year, above inflation).

Philosophically, the Buy-n-hold approach might work fine for some. Particularly those who don’t have much to lose. If one is early in their career, and has 30 years to go before retirement, it will probably work out ok - as long as one keeps their eyes shut.

However, if you are near or already in retirement, signing up for a plan that will likely require you to wait 13, 14, 19, 20 years at some point along the way, just to breakeven, might feel a bit, eh-hem, irresponsible.

The good news is that the same words that eventually bail out the Buy-N-Holder, can also enable you to side-step much of the pain of the Buy-N-Hold strategy.

It turns out that over a “long enough” period, it is possible to very accurately predict stock market returns.

In 1929 it was very clear that stock market valuations were way above historical norms. Similarly this was also true in 1901, 1968, 2000, 2008, and 2018 — all very good times to not be invested in stocks.

The problem is that it was also clear (but too early) in 1928, 1900, 1966, 1998, 2007, and 2016.

Here lies the root of why the “experts" claim you cannot time the market.

Markets have this annoying tendency to get overvalued and stay that way, sometimes for years.

But that doesn’t mean you can’t time the market. It just means that the market may take a little while to realize that you can.

You see, eventually markets always revert to the mean.

If they didn’t, returns would not level out at 6.6%. They would just go up (or down) forever.

You just have to wait long enough.

In fact, Waiting (sometimes painfully) is a cruel synonym for Investing (sometimes painfully).

The only question within your control is which type of painful waiting you would rather avoid?

The pain of waiting “safely” on the sidelines as stocks rise ever further beyond their intrinsic value; or

The pain of waiting to recover from a 50%-to-80% “correction" as a Buy-N-Holder for up to 20 years just to break-even.

I came to this forum wondering if there is anything new under the sun.

What I found were some interesting insights as to why so many people appear so feverishly committed to ignoring valuation.

Thank you for the great discussion.

I'll stick around to see if anyone here has the courage to stand outside of what a psychologist might refer to as "group think". But get ready, the anti-bodies are gonna attack. :sharebeer

P.S. Has anybody checked on Buffett's latest record cash balances? He must of not gotten the memo that its impossible/sacrilege to time the market.

sambb
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by sambb » Wed Aug 08, 2018 10:15 pm

Market does seem overvalued and there has been a long bull market
Nothing wrong with being cautious
Im staying conservative on my allocation

But not all out, and not all in

delamer
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by delamer » Wed Aug 08, 2018 10:19 pm

CraigTester wrote:
Wed Aug 08, 2018 10:01 pm

Over the last 120 years, Buy-n-Holders stock investments fell by 50%, 60%, 70%, 80% respectively on four separate occasions. Despite assurances that markets always recover sooner-or-later, following these crashes they had to wait 13, 14, 19 and 20 years just to break-even with their previous purchasing power levels. (Note: Assumes 100% of dividends were immediately reinvested).
Please provide dates, total return stock indexes, valuations, and consumer price indexes for the 4 periods cited above.

Thanks.

CraigTester
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by CraigTester » Wed Aug 08, 2018 10:34 pm

delamer wrote:
Wed Aug 08, 2018 10:19 pm
CraigTester wrote:
Wed Aug 08, 2018 10:01 pm

Over the last 120 years, Buy-n-Holders stock investments fell by 50%, 60%, 70%, 80% respectively on four separate occasions. Despite assurances that markets always recover sooner-or-later, following these crashes they had to wait 13, 14, 19 and 20 years just to break-even with their previous purchasing power levels. (Note: Assumes 100% of dividends were immediately reinvested).
Please provide dates, total return stock indexes, valuations, and consumer price indexes for the 4 periods cited above.

Thanks.
Sigh.

AlohaJoe
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by AlohaJoe » Wed Aug 08, 2018 10:35 pm

I have a spreadsheet where I (sometimes) keep track of previous prognostications from scared investors.

In January 2016 riptide said "Why buy now, why not wait until the market really crashes??". Markets are up 61% since then.
In April 2017 etf_gaucho asked "Moving to a Lazy portfolio : Should I wait for a market correction?". Markets are up 26% since then.
In November 2012 bill8902 wondered "Invest now, or wait for a market crash". Markets are up 128% (!!) since then.
In February 2017 Scotty32 asked "Beginner investor: start investing now or wait for a correction? [4-5 year timeframe]". Markets are up 25% since then.
In April 2015 RSF wondered "Invest now or wait??". Markets are up 46% since then.
In January 2012 FlyingTortoise asked "Is Now Always the Best Time to Invest?". The markets answered him by going up 149% since then.

(I've got dozens more but you get the idea.)

When you read all of those threads every one of those people was convinced that (at the time of their post) "now" was just like March 2000. All of those posts are full of quotes like:
Why buy stocks now, why not wait until the market really crashes like down 20% or 30%? It would seem stocks would really be on sale then, since they have been so overpriced throughout 2015.

My only concern is that I've been following SeekingAlpha, Market Watch as well as other financial websites and many believe that the next bear market is nearby.

I have been contemplating weather to invest it all now, or wait and invest during a market downturn/crash as the market has been volatile as of late

I still think the plan is good, but I am concerned that are buying in with the market quite high. Should I just go ahead anyhow and get with the plan, or should I wait for the inevitable decline?

I find myself terribly paralyzed since the consensus is that the current bull market is winding to a close
We also don't have to rely solely on anecdotal data from Bogleheads when thinking about bubbles (& busts).

In Bubble Investing: Lessons from History the author found that just because there is a boom, doesn't mean there is an inevitable bust.
In this paper I examine the frequency of large, sudden increases in market value in a broad panel data of world equity markets extending from the beginning of the 20th century. I find the probability of a crash conditional on a boom is only slightly higher than the unconditional probability. The chances that a market gave back it gains following a doubling in value are about 10%. In simple terms, bubbles are booms that went bad. Not all booms are bad.
In Negative Bubbles: What Happens After a Crash the author found that large crashes are typically followed by large returns.
We study crashes using data from 101 global stock markets from 1698 to 2015. Extremely large, annual stock market declines are typically followed by positive returns. This is not true for smaller declines. This pattern does not appear to be driven by financial market disruptions, macroeconomic shocks, political conflicts, or survivorship issues.
In Bubbles For Fama the authors also find that large increases are usually not a prelude to a crash.
First, Fama is mostly right in that a sharp price increase of an industry portfolio does not, on average, predict unusually low returns going forward. Average returns following a price run-up approximately match those of the broader market in the following two years, and are unremarkable in raw terms as well. The historical accounts are typically based on burst bubbles, and do not take into consideration the fact that many industries that have gone up in price a lot just keep going up.
In Can We Use Volatility to Diagnose Financial Bubbles: Lessons from 40 historical bubbles the authors find that high-volatility doesn't tell you anything about whether a bubble exists or is about to burst.
We inspect the price volatility before, during, and after financial asset bubbles in order to uncover possible com- monalities and check empirically whether volatility might be used as an indicator or an early warning signal of an unsustainable price increase and the associated crash. Some researchers and finance practitioners believe that histori- cal and/or implied volatility increase before a crash, but we do not see this as a consistent behavior. We examine forty well-known bubbles and, using creative graphical representations to capture robustly the transient dynamics of the volatility, find that the dynamics of the volatility would not have been a useful predictor of the subsequent crashes. In approximately two-third of the studied bubbles, the crash follows a period of lower volatility, reminiscent of the idiom of a “lull before the storm”.

Dude2
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by Dude2 » Wed Aug 08, 2018 10:50 pm

When the dot com bubble burst I was 100% stocks. Now here we are, what, two additional bursts later, and I am sitting at 50/50. Yes, I believe that I can weather the storm at 50/50. That's why I chose it -- due to getting burned.

I just wish that the OP of this thread and the OP of the thread about why ever own a bond could get into the octagon and work it out.

CantPassAgain
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by CantPassAgain » Wed Aug 08, 2018 11:06 pm

Dude2 wrote:
Wed Aug 08, 2018 10:50 pm
I just wish that the OP of this thread and the OP of the thread about why ever own a bond could get into the octagon and work it out.
I would prefer the thunderdome. Except two men enter, none leave.

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HomerJ
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by HomerJ » Wed Aug 08, 2018 11:39 pm

CraigTester wrote:
Wed Aug 08, 2018 10:01 pm
Despite assurances that markets always recover sooner-or-later, following these crashes they had to wait 13, 14, 19 and 20 years just to break-even with their previous purchasing power levels. (Note: Assumes 100% of dividends were immediately reinvested).
This is false. Where did you get this incorrect information?
In other words, if a 50 year old Buy-N-Holder invested $1M in a stock index fund in 1929, by 1932 his investment would have fallen to ~$200K.

He would not return to his 1929, $1M purchasing power until 20 years later at the age of 70.
Incorrect. Why do you continue to post things that are incorrect?
However, if you are near or already in retirement
Someone who is near or already in retirement should not be 100% in stocks, and is already somewhat protected from crashes.
It turns out that over a “long enough” period, it is possible to very accurately predict stock market returns.
This is absolutely false.

I think I'm done with you, since you are obviously looking to troll and not have a meaningful discussion.
The J stands for Jay

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whodidntante
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by whodidntante » Wed Aug 08, 2018 11:56 pm

I think it's reasonable to consider expected returns when accumulating or when eating your portfolio. But things can stay out of whack for deeper and longer than most people expect, so trading on a feeling that things are expensive might not go well. The deck can make anyone look stupid.

If I wanted to time the market in an impactful way, I would use trend following for the rest of my life. I understand there is solid data that it has improved risk adjusted returns, but I wouldn't expect it to beat buy and hold over a choose your own adventure timeframe. And you have to have the kind of temperament that can actually sell every stock you have because your sell signal arrived, and then buy back once the buy signal arrives, systematically. I would think that most people are not cut out for that, just like most people aren't cut out for buy and hold.

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MossySF
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by MossySF » Thu Aug 09, 2018 12:03 am

I would still allocate at least 50% to stock because 65% is my target range. So IF I was to use some type of dynamic AA based on CAPE, reversion to mean, chasing previous worse sectors, over-rebalancing, etc -- it would be 50% min, 65% target, 80% max plan based on an algorithm I can calculate percentages on.

And to be honest, it's VERY hard changing from 65% to 50% once your portfolio grows. Once you run out of retirement assets to swing around, you're staring at 100K capital gains tax bills and it's hard to pull the trigger on that. It's much easier to go from 65% to 80% during a bear because you're tax loss harvesting like mad.

CraigTester
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by CraigTester » Thu Aug 09, 2018 12:10 am

HomerJ wrote:
Wed Aug 08, 2018 11:39 pm
CraigTester wrote:
Wed Aug 08, 2018 10:01 pm
Despite assurances that markets always recover sooner-or-later, following these crashes they had to wait 13, 14, 19 and 20 years just to break-even with their previous purchasing power levels. (Note: Assumes 100% of dividends were immediately reinvested).
This is false. Where did you get this incorrect information?
In other words, if a 50 year old Buy-N-Holder invested $1M in a stock index fund in 1929, by 1932 his investment would have fallen to ~$200K.

He would not return to his 1929, $1M purchasing power until 20 years later at the age of 70.
Incorrect. Why do you continue to post things that are incorrect?
However, if you are near or already in retirement
Someone who is near or already in retirement should not be 100% in stocks, and is already somewhat protected from crashes.
It turns out that over a “long enough” period, it is possible to very accurately predict stock market returns.
This is absolutely false.

I think I'm done with you, since you are obviously looking to troll and not have a meaningful discussion.
Homer J.
Sounds like you need to do some homework instead of just repeating something you heard somewhere.
The good news is you can verify every fact I’ve shared. Just go to Shillers website and run some numbers for yourself.
And don’t forget to inflation adjust.
In the mean time, your emotional response is very insightful.
Perhaps people are ignoring valuation simply because they aren’t looking at real history.
Sorry to be the messenger.

rgs92
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by rgs92 » Thu Aug 09, 2018 1:30 am

Many of these fast-growing companies that make up large parts of the S&P 500 are still pretty young on a historical scale and thus have a lot of room to grow much further.

We may easily be just barely into a new frontier. So there is justification for keeping around 50-60% of your portfolio in the broad market at any age. I would not bet against progress. (Like 5G for example.)

No reason for gloom and doom. (Just stay the course.)

And you never know what's going to happen on the upside. I don't recall anyone predicting 4% unemployment 5-10 years ago.

You really don't know. It pays to be humble and steer down the middle. If you are really scared, go 40/60 equities/bonds. But certainly 50/50 is prudent for the long haul. And if there is a, say, 40% pullback, the resulting 20% loss for your total portfolio won't kill you. Just ride it out.

Of course the real predictor of a peak is when there are 10 new threads each day about Why Not 100% Stocks?

boglesmind
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by boglesmind » Thu Aug 09, 2018 2:16 am

CantPassAgain wrote:
Wed Aug 08, 2018 11:06 pm
Dude2 wrote:
Wed Aug 08, 2018 10:50 pm
I just wish that the OP of this thread and the OP of the thread about why ever own a bond could get into the octagon and work it out.
I would prefer the thunderdome. Except two men enter, none leave.
+1.
There are well-meaning folks trying to educate an yet another market timer who refuses to be educated. My 2 cents is to request the moderators to lock this thread. Or at least, let Bogleheads not respond further to posts by OP and allow the thread to wither away.

Boglesmind

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iceport
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by iceport » Thu Aug 09, 2018 3:17 am

CraigTester wrote:
Thu Aug 09, 2018 12:10 am
HomerJ wrote:
Wed Aug 08, 2018 11:39 pm
CraigTester wrote:
Wed Aug 08, 2018 10:01 pm
Despite assurances that markets always recover sooner-or-later, following these crashes they had to wait 13, 14, 19 and 20 years just to break-even with their previous purchasing power levels. (Note: Assumes 100% of dividends were immediately reinvested).
This is false. Where did you get this incorrect information?
In other words, if a 50 year old Buy-N-Holder invested $1M in a stock index fund in 1929, by 1932 his investment would have fallen to ~$200K.

He would not return to his 1929, $1M purchasing power until 20 years later at the age of 70.
Incorrect. Why do you continue to post things that are incorrect?
However, if you are near or already in retirement
Someone who is near or already in retirement should not be 100% in stocks, and is already somewhat protected from crashes.
It turns out that over a “long enough” period, it is possible to very accurately predict stock market returns.
This is absolutely false.

I think I'm done with you, since you are obviously looking to troll and not have a meaningful discussion.
Homer J.
Sounds like you need to do some homework instead of just repeating something you heard somewhere.
The good news is you can verify every fact I’ve shared. Just go to Shillers website and run some numbers for yourself.
And don’t forget to inflation adjust.
In the mean time, your emotional response is very insightful.
Perhaps people are ignoring valuation simply because they aren’t looking at real history.
Sorry to be the messenger.
I'm with HomerJ on this. Your time frames for recovery of a realistic, responsibly diversified portfolio appear to be whack-a-do.

My real life portfolio was positioned in a globally diversified 70% equity/30% fixed income portfolio at the start of the Great Recession. From a relative portfolio peak at the end of May, 2008, my portfolio value had fully recovered (nominally) by the end of October, 2009, a period of 1 year, 5 months. But that's not really fair, because that included significant new contributions.

So I just ran Portfolio Visualizer for my starting portfolio with no contributions or withdrawals and annual rebalancing, which is close to reality. The portfolio would have fully recovered, on a real basis, from a relative portfolio peak at the end of May, 2008, by the end of December, 2010. That's 2 years, 7 months to fully recover.

Image

You can run the backtest yourself:

Code: Select all

VTSAX   33.00%
VSMAX    5.00%
VGSLX   10.00%
VTMGX   12.00%
VEMAX    5.00%
SCZ      5.00%
VBTIX   10.00%
VIPIX   10.00%
BWX      5.00%
CASHX    5.00% (Actually a stable value fund, but the cash drag is a minor handicap.)
This real-world experience is actually what strengthened my faith in buy-hold-and-rebalance investing the most.

Sorry if this doesn't fit your decade-plus scenario of doom and gloom.

Perhaps you are fixated on valuation simply because you aren’t looking at real portfolios.

(Good luck with your market-timing, BTW.)
Last edited by iceport on Thu Aug 09, 2018 4:59 am, edited 1 time in total.
"Discipline matters more than allocation.” ─William Bernstein

msk
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by msk » Thu Aug 09, 2018 3:41 am

CraigTester wrote:
Wed Aug 08, 2018 8:09 am
So here's my question. If it were March 2000, (or 1901, 1929, 1968, 2007) would you still invest half of everything you own in stocks?

And by obvious extension, if you're currently sitting on enormous gains in your SP500 index fund, why not take profits?
I was on the Board of Trustees of a pension fund around 1990 and the common view at the time was that "the next decade will show poor returns on stocks". I kept all my investable funds 100% in stocks. I also had some RE at the time. Rollover to 2000. That 1990-2000 decade was highly profitable, so what seemed obviously gloomy in 1990 did not pan out. I have to date stayed with 100% stocks; and not regretted doing so. Sold the RE and ploughed 100% into stocks.

As for your second question: greed. My investments have grown to a level that they are now primarily for my heirs, and I see no reason to take the profits and see inflation grind them down. What I found about my own behavior is ostrich-like. I check performance daily when the market is doing well, just to get a smile, and refuse to check for weeks/months on end when the market tanks. I worry less that way :beer

Admiral
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by Admiral » Thu Aug 09, 2018 6:24 am

This thread is nothing but troll feeding at this point. CraigTester continues to post inaccurate information so I would suggest there is no point in responding further.

Just my $.02.

ignition
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by ignition » Thu Aug 09, 2018 6:43 am

Shiller cape was 33 in 1998. About the same level as today.

If you bought and held in 1998, you would have earned a 7% annualized return (5% after inflation). That's not too bad.

High grade bonds earn less than 1% where I live (Europe) so I'll stick with a globally diversified stock portfolio.

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bottlecap
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by bottlecap » Thu Aug 09, 2018 7:01 am

Your presumption that Shiller's metric can predict what happened in 1929 is faulty.

If there was some magic metric with which one could predict the economy or the stock market, we'd all be rich. Either that or stock market trading would co e to a screeching halt.

JT

J295
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by J295 » Thu Aug 09, 2018 7:04 am

Our allocations are impacted by factors other than current market valuations.

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prudent
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Re: If it were March, 2000, would you still allocate 50% to Stocks?

Post by prudent » Thu Aug 09, 2018 7:10 am

This thread has run its course and is locked (topic exhausted, getting contentious).

Locked