Should we stay in Crazytown because there's no where to run?

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CULater
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Should we stay in Crazytown because there's no where to run?

Post by CULater » Sat Sep 29, 2018 9:03 am

U.S. stocks are nuts. Shiller CAPE now stands at 33.36 and the only time in history it was higher was Feb, 1998 to Mar 2001 which would have been a wild ride. If you had gotten out of stocks in Feb 1998 you could have stayed out for 12 years and gotten back in at the price you sold, meanwhile making about 50% on safe 5-year treasuries. Should we really just hold our noses and wait? How do you manage this psychologically? Feels like standing on the train track watching the light coming toward you getting bigger. Are we just staying in Crazytown because other places, like bonds, seem even crazier? Tough times for the buy-and-hold crowd. Anyone starting to flinch? I am.
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ImUrHuckleberry
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Re: Should we stay in Crazytown because there's no where to run?

Post by ImUrHuckleberry » Sat Sep 29, 2018 9:09 am

People were saying the same thing 5 years ago and 4 years ago and 3 years ago...

PFInterest
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Re: Should we stay in Crazytown because there's no where to run?

Post by PFInterest » Sat Sep 29, 2018 9:10 am

are you 100% stocks? that might be your problem.

otherwise, nothing has changed. my plan is still in place.

also stocks went up from 02/1998 - 02/2010 45%, not zero. so i dont know where you saw that.
total bond went up 95% though haha.

so flinch away, your selling fuels my buying.

stan1
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Re: Should we stay in Crazytown because there's no where to run?

Post by stan1 » Sat Sep 29, 2018 9:19 am

If you are close to having "enough" and are nearing or in retirement you might have less need to take risk. What is your age and asset allocation? Are you working? Do you have a multi-million dollar portfolio?

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Re: Should we stay in Crazytown because there's no where to run?

Post by desafinado » Sat Sep 29, 2018 9:19 am

i am an early accumulator (read: lowish assets relative to income) so here is what i'm doing.

1. keeping all the us stocks i already have.
2. continuing to buy us stocks in my 401k because i don't have good international options there.
3. buying lots and lots of international.
4. beefing up my emergency fund to 1 year of expenses.
5. once i have enough money for it to matter in a few years, i will also start adding long term treasuries as a diversifier.

Pinotage
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Re: Should we stay in Crazytown because there's no where to run?

Post by Pinotage » Sat Sep 29, 2018 9:22 am

Maybe consider buying something expensive, but necessary*, with some of your gains or new contributions you aren't comfortable investing.

Replacement vehicle, new roof/water heater/HVAC, pay off mortgage etc... Deferrable expenses that will eventually come due.

So, if/when a downturn does hit, you aren't forced to sell equities to manage these same expenses.

You may pay a little more for some of these things now because the economy is doing well, but you will have the peace of mind of reducing future expenses.

*meaning something you will need to buy anyway, of a quality you would ordinarily purchase.

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Re: Should we stay in Crazytown because there's no where to run?

Post by White Coat Investor » Sat Sep 29, 2018 9:23 am

Beginner investors have trouble staying the course in a market downturn. Intermediate investors have trouble staying the course in a prolonged bull market. Successful investors always stay the course with a reasonable plan designed for them.

Yes, by staying invested I will get hammered in the next downturn, but I will have benefited from the ENTIRE upswing and the ENTIRE recovery, which will help minimize the damage. Plus, holding rather than jumping in and out minimizes my transaction costs and taxes.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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Alexa9
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Re: Should we stay in Crazytown because there's no where to run?

Post by Alexa9 » Sat Sep 29, 2018 9:24 am

If you are worried, adjust your allocation somewhat but don't completely pull out. Put more into short term bonds and CD's and pay your mortgage ahead if you're concerned. You could be right or wrong.

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Re: Should we stay in Crazytown because there's no where to run?

Post by stan1 » Sat Sep 29, 2018 9:26 am

White Coat Investor wrote:
Sat Sep 29, 2018 9:23 am
Plus, holding rather than jumping in and out minimizes my transaction costs and taxes.
Taxable accounts definitely help stay the course in a bull market. Trades can be made in retirement accounts with no transaction or tax costs. Even with preferred rates for long term capital gains taxes the resulting bill still causes one to think carefully.

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Re: Should we stay in Crazytown because there's no where to run?

Post by Tycoon » Sat Sep 29, 2018 9:27 am

Judging from this recent post, and others you've recently penned, I think you should consider finding investments that don't cause you to second guess your decisions. Perhaps CDs, or treasuries, might better suit your disposition.
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Re: Should we stay in Crazytown because there's no where to run?

Post by ThePrince » Sat Sep 29, 2018 9:42 am

ImUrHuckleberry wrote:
Sat Sep 29, 2018 9:09 am
People were saying the same thing 5 years ago and 4 years ago and 3 years ago...
+1

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Re: Should we stay in Crazytown because there's no where to run?

Post by arcticpineapplecorp. » Sat Sep 29, 2018 9:52 am

CULater wrote:
Sat Sep 29, 2018 9:03 am
U.S. stocks are nuts. Shiller CAPE now stands at 33.36 and the only time in history it was higher was Feb, 1998 to Mar 2001 which would have been a wild ride. If you had gotten out of stocks in Feb 1998 you could have stayed out for 12 years and gotten back in at the price you sold, meanwhile making about 50% on safe 5-year treasuries. Should we really just hold our noses and wait? How do you manage this psychologically? Feels like standing on the train track watching the light coming toward you getting bigger. Are we just staying in Crazytown because other places, like bonds, seem even crazier? Tough times for the buy-and-hold crowd. Anyone starting to flinch? I am.
what choice do you have? There are limited investment options. If you can find something better, put your money there. Problem is, wouldn't everyone put their money in the places that have the highest expected returns?

read the following and maybe you'll understand it's not as crazy as it might seem and returns can still be good over time despite a high P/E:

viewtopic.php?f=10&t=229429&start=50#p3567987

now that you've read that post, what do you think?

Your post is really about market timing. I suggest you type in market timing in the search bar and read up on others opinions/experiences with market timing. You'll find that buy and hold works. Market timing doesn't (the more you try, the longer you have at it).

If you're nervous, it probably means you're allocated too heavily to stocks. Pick an asset allocation that allows you to sleep at night if a downturn occurs. But realize you're giving up return in exchange. Don't be upset when/if your portfolio doesn't do as well as you'd hope because you traded higher returns for safety. It's how risk and return works.

Do you have an IPS? If not, get one immediately and more importantly, stick with it:
https://www.bogleheads.org/wiki/Investm ... _statement
Last edited by arcticpineapplecorp. on Sat Sep 29, 2018 9:58 am, edited 2 times in total.
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Re: Should we stay in Crazytown because there's no where to run?

Post by Kenkat » Sat Sep 29, 2018 9:53 am

This is where I think a widely diversified portfolio really helps. There are places to run - or better said, to hide. International stocks have been pretty awful lately. Value funds have lagged, small caps have lagged a bit, REITs are stagnant, Commodities make me want to be physically ill, etc. I have all of these in my portfolio because these trends will not last forever. The large cap growth trend will end at some point. Long term, it all balances out but I think highly diversified portfolios have a more even ride. I’ve been tracking annual returns since 1999 and have had only 5 down years total, with only two (-14.71 in 2002 and -24.87 in 2008) greater than -5%.

We focus too much on the US market and the major indexes and not enough on other segments of the market that are not quite as highly valued.

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Re: Should we stay in Crazytown because there's no where to run?

Post by watchnerd » Sat Sep 29, 2018 9:58 am

White Coat Investor wrote:
Sat Sep 29, 2018 9:23 am
Beginner investors have trouble staying the course in a market downturn. Intermediate investors have trouble staying the course in a prolonged bull market. Successful investors always stay the course with a reasonable plan designed for them.

Yes, by staying invested I will get hammered in the next downturn, but I will have benefited from the ENTIRE upswing and the ENTIRE recovery, which will help minimize the damage. Plus, holding rather than jumping in and out minimizes my transaction costs and taxes.
CULater wrote:
Sat Sep 29, 2018 9:03 am
U.S. stocks are nuts. Shiller CAPE now stands at 33.36 and the only time in history it was higher was Feb, 1998 to Mar 2001 which would have been a wild ride. If you had gotten out of stocks in Feb 1998 you could have stayed out for 12 years and gotten back in at the price you sold, meanwhile making about 50% on safe 5-year treasuries. Should we really just hold our noses and wait? How do you manage this psychologically? Feels like standing on the train track watching the light coming toward you getting bigger. Are we just staying in Crazytown because other places, like bonds, seem even crazier? Tough times for the buy-and-hold crowd. Anyone starting to flinch? I am.
"the returns after hitting an all-time-high are very similar to the returns for all days in the market."

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Re: Should we stay in Crazytown because there's no where to run?

Post by nisiprius » Sat Sep 29, 2018 10:00 am

CULater wrote:
Sat Sep 29, 2018 9:03 am
U.S. stocks are nuts. Shiller CAPE now stands at 33.36 and the only time in history it was higher was Feb, 1998 to Mar 2001 which would have been a wild ride.
Stocks are a wild ride, period.
If you had gotten out of stocks in Feb 1998 you could have stayed out for 12 years and gotten back in at the price you sold, meanwhile making about 50% on safe 5-year treasuries.
And if I'd played 1 2 7 30 50 8 PB 5 in the Powerball, I'd have made $193 million. So, what's your point?
Should we really just hold our noses and wait?
Yes, we really should.
How do you manage this psychologically?
We'll see when the time comes. I didn't "manage" it well in 2008-2009, but I managed it just barely well enough.
Feels like standing on the train track watching the light coming toward you getting bigger.
That's why I'm not standing right on the train track. I'm actually standing on the platform a few feet off the train track, watching the light get bigger and hearing the roar and the whoosh of air but pretty sure I'm not going to be hit.
Are we just staying in Crazytown because other places, like bonds, seem even crazier?
No. And what's "crazier" about bonds?
Tough times for the buy-and-hold crowd. Anyone starting to flinch? I am.
I'm not, because stocks make me nervous and therefore I have a low stock allocation. If we have another 2008-2009 it is likely that I will feel the way I felt in 2008-2009, which was terrified, but my wife and I were able hold on.

I can turn your example around. A $10,000 investment in Total Stock at 10/31/2007, about the market peak, has grown to $24,000 (and I'm saying "has," not "would have," because I had that much (more) in Total Stock and haven't sold it). What that means is that Total Stock could now drop more than -50% and I'd still be ahead of where I'd have been if I'd gone to cash on 10/31/2007. If that happens it will feel like cold comfort, to be sure.
Last edited by nisiprius on Sat Sep 29, 2018 10:10 am, edited 1 time in total.
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Re: Should we stay in Crazytown because there's no where to run?

Post by sillysaver » Sat Sep 29, 2018 10:03 am

I'm in 50% international, overweight small cap emerging markets and value. Foreign markets are cheaper. The market is offering a discount because those assets are "risky". You can either stay with the "best house" in the neighborhood with low expected returns or go where stocks are unloved and do what's uncomfortable.
Last edited by sillysaver on Sat Sep 29, 2018 10:09 am, edited 1 time in total.

sambb
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Re: Should we stay in Crazytown because there's no where to run?

Post by sambb » Sat Sep 29, 2018 10:03 am

to the OP:
nothing wrong with taking some profits off the table if you feel uncomfortable with the risk of the current market. If you are at 60/40, then perhaps go to 50/50.

However if you are at 100% equities, then it sounds like your risk tolerance has changed, and you should move to 60/40 perhaps to be more comfortable. Good luck!

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Re: Should we stay in Crazytown because there's no where to run?

Post by sillysaver » Sat Sep 29, 2018 10:07 am

I've done something difficult, which is to get back into equities after being mostly out of the market for most of the past few years. Most people who try to time the top will never get back in. Unfortunately, life was difficult in 2008-2010 and I got burned by job losses and portfolio losses, and for years was not fully committed to a long-term investing plan.

After re-evaluating things, I've decided to never try to "time the market" and to just set aside the maximum every year towards retirement. I know stocks are volatile and fully expect to lose 50% at some point. I also keep big cash reserves and includes some bonds to provide a cushion during the next downturn.

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Re: Should we stay in Crazytown because there's no where to run?

Post by k66 » Sat Sep 29, 2018 10:28 am

CULater wrote:
Sat Sep 29, 2018 9:03 am
U.S. stocks are nuts. Shiller CAPE now stands at 33.36 and the only time in history it was higher was Feb, 1998 to Mar 2001 which would have been a wild ride. If you had gotten out of stocks in Feb 1998 you could have stayed out for 12 years and gotten back in at the price you sold, meanwhile making about 50% on safe 5-year treasuries. Should we really just hold our noses and wait? How do you manage this psychologically? Feels like standing on the train track watching the light coming toward you getting bigger. Are we just staying in Crazytown because other places, like bonds, seem even crazier? Tough times for the buy-and-hold crowd. Anyone starting to flinch? I am.
Is the US market really nuts? By what measure--the CAPE-10? The CAPE-10 is not actually a good predictor, but if you think that it has merit, at what level do you think an investor should retreat from the market--and assuming that you think that value is less than 33--have you gotten out?

And was there no gain in the stock market from 1998 to 2010? Portfolio Visualizer suggests that a $10k investment in VTI would have grown to $14,500 over that period without any additional contributions -- except those pesky quarterly distributions. People always seem to forget the opportunity cost to "not invest".

Is this really what "tough times" for the B&H crowd look like? I don't think so -- not even close.
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CULater
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Re: Should we stay in Crazytown because there's no where to run?

Post by CULater » Sat Sep 29, 2018 10:48 am

Scenario #1: Joe has $500,000 in his diligently grown retirement portfolio with 60% of that in U.S. stocks, or $300,000. Being a believer in stay the course, he has no plans to reduce his stock holdings in the face of scary valuations.

Scenario #2: Joe inherits $500,000 from his paternal aunt who passed away in Rhode Island. Lucky for him because he had nothing at all saved for his retirement. Looking at the current scary valuations of U.S. stocks he's not so sure he wants to plunk $300,000 into the stock market on Monday morning when the market opens. Perhaps he'll think it over, or perhaps he'll put a little in and plan to ease more in over time.

Sitting on $300,000 in stocks in a retirement portfolio is exactly the same as buying $300,000 in stocks when the market opens on Monday. You should be indifferent to Scenario #1 vs. Scenario #2. But would you? In the face of current valuations? Really? If you wouldn't buy, then you shouldn't hold.
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Re: Should we stay in Crazytown because there's no where to run?

Post by eye.surgeon » Sat Sep 29, 2018 10:52 am

CULater wrote:
Sat Sep 29, 2018 9:03 am
U.S. stocks are nuts. Shiller CAPE now stands at 33.36 and the only time in history it was higher was Feb, 1998 to Mar 2001 which would have been a wild ride. If you had gotten out of stocks in Feb 1998 you could have stayed out for 12 years and gotten back in at the price you sold, meanwhile making about 50% on safe 5-year treasuries. Should we really just hold our noses and wait? How do you manage this psychologically? Feels like standing on the train track watching the light coming toward you getting bigger. Are we just staying in Crazytown because other places, like bonds, seem even crazier? Tough times for the buy-and-hold crowd. Anyone starting to flinch? I am.
Posts like this are a good reminder that the biggest enemy of successful long term investing is emotion. Understand your ability to tolerate risk and invest accordingly. If you're losing sleep worrying about your portfolio, it's not the right portfolio for your risk tolerance.
"I would rather be certain of a good return than hopeful of a great one" | Warren Buffett

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Re: Should we stay in Crazytown because there's no where to run?

Post by moehoward » Sat Sep 29, 2018 11:00 am

eye.surgeon wrote:
Sat Sep 29, 2018 10:52 am
CULater wrote:
Sat Sep 29, 2018 9:03 am
U.S. stocks are nuts. Shiller CAPE now stands at 33.36 and the only time in history it was higher was Feb, 1998 to Mar 2001 which would have been a wild ride. If you had gotten out of stocks in Feb 1998 you could have stayed out for 12 years and gotten back in at the price you sold, meanwhile making about 50% on safe 5-year treasuries. Should we really just hold our noses and wait? How do you manage this psychologically? Feels like standing on the train track watching the light coming toward you getting bigger. Are we just staying in Crazytown because other places, like bonds, seem even crazier? Tough times for the buy-and-hold crowd. Anyone starting to flinch? I am.
Posts like this are a good reminder that the biggest enemy of successful long term investing is emotion. Understand your ability to tolerate risk and invest accordingly. If you're losing sleep worrying about your portfolio, it's not the right portfolio for your risk tolerance.
I like your response about losing sleep. I have a friend who puts all her money in CDs and says it makes he sleep well at night. I told her, you made the right decision. Before I get responses, I tried to persuade her to a 10/90 portfolio which she freaked out on. (Even bonds funds freaked her out)

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Re: Should we stay in Crazytown because there's no where to run?

Post by Nate79 » Sat Sep 29, 2018 11:08 am

Is this the daily thread on this same topic?

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Re: Should we stay in Crazytown because there's no where to run?

Post by Mr.BB » Sat Sep 29, 2018 11:09 am

Where is that post that was listed a couple of weeks ago (originated in 2015), where the guy was convinced the market was at the top. Referencing all the newsletters, articles and other data (Case-Shiller). I believe he was also going to start shorting the market. A good post to review.
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Re: Should we stay in Crazytown because there's no where to run?

Post by MotoTrojan » Sat Sep 29, 2018 11:11 am

CULater wrote:
Sat Sep 29, 2018 9:03 am
U.S. stocks are nuts. Shiller CAPE now stands at 33.36 and the only time in history it was higher was Feb, 1998 to Mar 2001 which would have been a wild ride. If you had gotten out of stocks in Feb 1998 you could have stayed out for 12 years and gotten back in at the price you sold, meanwhile making about 50% on safe 5-year treasuries. Should we really just hold our noses and wait? How do you manage this psychologically? Feels like standing on the train track watching the light coming toward you getting bigger. Are we just staying in Crazytown because other places, like bonds, seem even crazier? Tough times for the buy-and-hold crowd. Anyone starting to flinch? I am.
What were the 12 month trailing and forward estimated P/E ratios in February 98?

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Re: Should we stay in Crazytown because there's no where to run?

Post by MotoTrojan » Sat Sep 29, 2018 11:12 am

moehoward wrote:
Sat Sep 29, 2018 11:00 am
eye.surgeon wrote:
Sat Sep 29, 2018 10:52 am
CULater wrote:
Sat Sep 29, 2018 9:03 am
U.S. stocks are nuts. Shiller CAPE now stands at 33.36 and the only time in history it was higher was Feb, 1998 to Mar 2001 which would have been a wild ride. If you had gotten out of stocks in Feb 1998 you could have stayed out for 12 years and gotten back in at the price you sold, meanwhile making about 50% on safe 5-year treasuries. Should we really just hold our noses and wait? How do you manage this psychologically? Feels like standing on the train track watching the light coming toward you getting bigger. Are we just staying in Crazytown because other places, like bonds, seem even crazier? Tough times for the buy-and-hold crowd. Anyone starting to flinch? I am.
Posts like this are a good reminder that the biggest enemy of successful long term investing is emotion. Understand your ability to tolerate risk and invest accordingly. If you're losing sleep worrying about your portfolio, it's not the right portfolio for your risk tolerance.
I like your response about losing sleep. I have a friend who puts all her money in CDs and says it makes he sleep well at night. I told her, you made the right decision. Before I get responses, I tried to persuade her to a 10/90 portfolio which she freaked out on. (Even bonds funds freaked her out)
Because of current valuations or she has always only trusted CDs? Sad. I’d show her some plots of Monte Carlo expected trends for next 25-40 years. You probably have done similar.

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Re: Should we stay in Crazytown because there's no where to run?

Post by yohac » Sat Sep 29, 2018 11:15 am

I've been investing for over 30 years, and every single day some expert says it's a horrible time to invest and disaster is imminent.

Although I've never tried to calculate it, I have no doubt that my wife's long term investment returns beat mine. She couldn't tell you the difference between a Roth and a traditional IRA. Nor could she ballpark her balances within low 6 figures, because she never checks. Her only rule is that I put her money in a reasonable place and then don't EVER mess with it.

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Re: Should we stay in Crazytown because there's no where to run?

Post by GammaPoint » Sat Sep 29, 2018 11:19 am

CULater wrote:
Sat Sep 29, 2018 9:03 am
Should we really just hold our noses and wait?
This is a highly personal question. It depends on your risk tolerance, your willingness to accept tracking error, your judgement, and a host of other personal financial and psychological factors.

The average investor, in past historical situations, was well served by sticking to their AA and not utilizing their judgments in making allocation decisions. Therefore sticking to your AA and not making modifications is the good base prescription to be repeated over and over again when it's asked on a public forum.

However, that doesn't mean that it's the optimal choice for every individual. You could be one of the 50% of the population that has above-average judgement, that has above-average fortitude, etc. etc. I can't tell whether you are or not, and it's not a straight-forward proposition for you to do it either (though of course you are much better suited to that task than I am).

If you are going to do something different, I would personally suggest it be different for another reason than simply the CAPE (though I think the CAPE is itself part of a coherent argument for doing something different). What do you plan on doing different? Do you have a theory for why the market as a whole is doing something different than what you are planning on doing? Why are they the patsy in this trade? Humans are very irrational and short-term oriented, so it's not hard to come up with reasons why you think the person on the other side would be wrong, but you should have some good sense as to why that might be the case. Also, even if your reasoning is sound and your course of action has a higher probability of success than doing nothing, pure randomness might make your outcome worse than if you had done nothing. If that happens, how will you feel? What will you do in response? You don't have to have solid, permanent, written-down answers for all of these, but they are the types of questions someone who is going to make active decisions needs to constantly ask themselves.

If you do something different and happen to be a human with sub-average judgement (in the area of investing, not generally), then you will have a greater than ~50% chance of underperforming the buy and hold strategy. If you have above-average judgement, you will have a greater than ~50% chance of outperforming. There's no hard and fast rule. Ultimately it's your judgement (and some luck) that matters, and none of the posters on this forum can tell you about either.

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Re: Should we stay in Crazytown because there's no where to run?

Post by staythecourse » Sat Sep 29, 2018 11:32 am

White Coat Investor wrote:
Sat Sep 29, 2018 9:23 am
Beginner investors have trouble staying the course in a market downturn. Intermediate investors have trouble staying the course in a prolonged bull market. Successful investors always stay the course with a reasonable plan designed for them.

Yes, by staying invested I will get hammered in the next downturn, but I will have benefited from the ENTIRE upswing and the ENTIRE recovery, which will help minimize the damage. Plus, holding rather than jumping in and out minimizes my transaction costs and taxes.
Excellent post.

It would be great if you were correct and figured out correct this is the right time to get out. The BIG issue is you have only guessed 1/2 the issue. The other half is when do you get back in? Being invested all the way through is the only way to guarantee you won't miss any continued upswing in the market AND be invested with the eventual upswing happens again.

Believe it was the great Milton Friedman or Irving Fisher who once said (paraphrasing) "It is the duty of the equity investor to sustain losses from time to time and should do it without reproach to his investment plan". This means it is EXPECTED to lose money in equities when they drop AND does not mean you should come up with a new plan.

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

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Re: Should we stay in Crazytown because there's no where to run?

Post by HEDGEFUNDIE » Sat Sep 29, 2018 11:37 am

If you are at 100% equities, might I recommend shifting 10-20% into EDV (long term treasury strips). It has -0.5 correlation to stocks and also gives a moderate long term return (unlike cash).

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Re: Should we stay in Crazytown because there's no where to run?

Post by smectym » Sat Sep 29, 2018 11:53 am

It’s exactly “Crazytown” that definitely proves the market can’t be timed. A lot of “smartest guys in the room” have hated this rally all the way up. They could intimidate you or me with their command of detailed market metrics and their study of market history. They “get” chart lore like skew and kurtosis, and study all sorts of esoteric ratios that flash ominous signals. They sneer at the “sheeple” waiting to get sheared, the “dumb money” brainwashed into “staying too long in the casino.”

Meanwhile the boglehead who has tuned all this stuff out has done pretty well since March 2009. This has been one of the greatest bull markets ever.

“But the insanity can’t continue right? Surely NOW it’s time to get out!”

We don’t know that. Even accepting the “we’re in Crazyland” thesis: “in for a nickel, in for a dime”; things could double again. Nor, even when the bull ends, will we necessarily know it for some time. “They don’t ring a bell at the top.” Not all bear markets start with a Black Friday or an “October 1929 Moment.”

This is no argument for 100% equities. I’m not anywhere near. But as other posters above have already explained, the best advice is to find the stock / bond / [cash?] ratio that’s right for you and yours through all market cycles.

Smectym

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aspirit
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Re: Should we stay in Crazytown because there's no where to run?

Post by aspirit » Sat Sep 29, 2018 11:57 am

CULater wrote:
Sat Sep 29, 2018 10:48 am
Scenario #1: Joe has $500,000 in his diligently grown retirement portfolio with 60% of that in U.S. stocks, or $300,000. Being a believer in stay the course, he has no plans to reduce his stock holdings in the face of scary valuations.

Scenario #2: Joe inherits $500,000 from his paternal aunt who passed away in Rhode Island. Lucky for him because he had nothing at all saved for his retirement. Looking at the current scary valuations of U.S. stocks he's not so sure he wants to plunk $300,000 into the stock market on Monday morning when the market opens. Perhaps he'll think it over, or perhaps he'll put a little in and plan to ease more in over time.

Sitting on $300,000 in stocks in a retirement portfolio is exactly the same as buying $300,000 in stocks when the market opens on Monday. You should be indifferent to Scenario #1 vs. Scenario #2. But would you? In the face of current valuations? Really? If you wouldn't buy, then you shouldn't hold.
I disagree. As another pointed out above, rebalancing could/should/would allay ones fears & expectations.
Additionally, extricating a certain % from ones equities at current metrics and rebalancing into fixed income with its metrics sounds less risky & prudent.imho.

Facing similar circumstances I'm speculating with 3%ish CDs of varying accompanying maturities.
I remember that old saying: The mkt's can remain irrational longer than the investor can remain solvent. :happy Or something like that.
Good Luck!
Time & tides wait for no one. A man has to know his limitations.

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Re: Should we stay in Crazytown because there's no where to run?

Post by 2pedals » Sat Sep 29, 2018 12:24 pm

Jack Bogle has previously said we should expect lower real stock market returns in the future. What is your ability, willingness and need to take risk? A difficult question, so set your AA appropriately.

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Sandtrap
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Re: Should we stay in Crazytown because there's no where to run?

Post by Sandtrap » Sat Sep 29, 2018 12:38 pm

Good question.
What can you do?

Everything and all you can do:

1. Diversify and maximize income streams.
2. Diversify your "fixed" side of things within your comfort zone: Treasuries, CD Ladder, Bond Funds, etc, etc.
3. Set your allocation within your ability to take risk.
4. Minimize debt to maximize your ability to weather financial storms.
5. Increase your emergency fund to cover as many contingencies that you feel comfortable with.

Be flexible, ready to adapt and improvise.
j

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Re: Should we stay in Crazytown because there's no where to run?

Post by jeffyscott » Sat Sep 29, 2018 12:42 pm

k66 wrote:
Sat Sep 29, 2018 10:28 am
And was there no gain in the stock market from 1998 to 2010? Portfolio Visualizer suggests that a $10k investment in VTI would have grown to $14,500 over that period
And meanwhile an investment in cash would've grown to about $18,000, based on Vanguard short term treasury.
press on, regardless - John C. Bogle

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Re: Should we stay in Crazytown because there's no where to run?

Post by Ron Scott » Sat Sep 29, 2018 1:25 pm

CULater wrote:
Sat Sep 29, 2018 9:03 am
U.S. stocks are nuts. Shiller CAPE now stands at 33.36 and the only time in history it was higher was Feb, 1998 to Mar 2001 which would have been a wild ride. If you had gotten out of stocks in Feb 1998 you could have stayed out for 12 years and gotten back in at the price you sold, meanwhile making about 50% on safe 5-year treasuries. Should we really just hold our noses and wait? How do you manage this psychologically? Feels like standing on the train track watching the light coming toward you getting bigger. Are we just staying in Crazytown because other places, like bonds, seem even crazier? Tough times for the buy-and-hold crowd. Anyone starting to flinch? I am.
Your age in bonds.
Retirement is a game best played by those prepared for more volatility in the future than has been seen in the past. The solution is not to predict investment losses but to prepare for them.

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Re: Should we stay in Crazytown because there's no where to run?

Post by delamer » Sat Sep 29, 2018 3:51 pm

CULater wrote:
Sat Sep 29, 2018 10:48 am
Scenario #1: Joe has $500,000 in his diligently grown retirement portfolio with 60% of that in U.S. stocks, or $300,000. Being a believer in stay the course, he has no plans to reduce his stock holdings in the face of scary valuations.

Scenario #2: Joe inherits $500,000 from his paternal aunt who passed away in Rhode Island. Lucky for him because he had nothing at all saved for his retirement. Looking at the current scary valuations of U.S. stocks he's not so sure he wants to plunk $300,000 into the stock market on Monday morning when the market opens. Perhaps he'll think it over, or perhaps he'll put a little in and plan to ease more in over time.

Sitting on $300,000 in stocks in a retirement portfolio is exactly the same as buying $300,000 in stocks when the market opens on Monday. You should be indifferent to Scenario #1 vs. Scenario #2. But would you? In the face of current valuations? Really? If you wouldn't buy, then you shouldn't hold.
I was in this position with an inheritance about 2 years ago, and I bought stocks.

That was because buying stocks was consistent with my desired asset allocation. I don’t pay attention to CAPE values or any of that stuff.

I am investing for the long term, with a sufficient allocation to bonds/cash to meet any short-term needs.

There is a big part of me that doesn’t really understand why anyone would use a different approach.

So let’s flip it around — what is your rationale for selling stocks now, if you are investing for the long-term? (Excluding for rebalancing purposes.). Why do you care if stocks fall in the short term?

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Re: Should we stay in Crazytown because there's no where to run?

Post by stemikger » Sat Sep 29, 2018 3:56 pm

White Coat Investor wrote:
Sat Sep 29, 2018 9:23 am
Beginner investors have trouble staying the course in a market downturn. Intermediate investors have trouble staying the course in a prolonged bull market. Successful investors always stay the course with a reasonable plan designed for them.

Yes, by staying invested I will get hammered in the next downturn, but I will have benefited from the ENTIRE upswing and the ENTIRE recovery, which will help minimize the damage. Plus, holding rather than jumping in and out minimizes my transaction costs and taxes.
This is how you do it!!
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

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Re: Should we stay in Crazytown because there's no where to run?

Post by Mr.BB » Sat Sep 29, 2018 4:00 pm

yohac wrote:
Sat Sep 29, 2018 11:15 am
I've been investing for over 30 years, and every single day some expert says it's a horrible time to invest and disaster is imminent.

Although I've never tried to calculate it, I have no doubt that my wife's long term investment returns beat mine. She couldn't tell you the difference between a Roth and a traditional IRA. Nor could she ballpark her balances within low 6 figures, because she never checks. Her only rule is that I put her money in a reasonable place and then don't EVER mess with it.
You have a very smart wife.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

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Re: Should we stay in Crazytown because there's no where to run?

Post by HomerJ » Sat Sep 29, 2018 4:14 pm

CULater wrote:
Sat Sep 29, 2018 9:03 am
U.S. stocks are nuts. Shiller CAPE now stands at 33.36 and the only time in history it was higher was Feb, 1998 to Mar 2001 which would have been a wild ride. If you had gotten out of stocks in Feb 1998 you could have stayed out for 12 years and gotten back in at the price you sold, meanwhile making about 50% on safe 5-year treasuries. Should we really just hold our noses and wait? How do you manage this psychologically? Feels like standing on the train track watching the light coming toward you getting bigger. Are we just staying in Crazytown because other places, like bonds, seem even crazier? Tough times for the buy-and-hold crowd. Anyone starting to flinch? I am.
(1) You were flinching a while ago. If you got out then, you'd have less.
(2) CAPE 8 is 5 points lower. 2008-2009 were serious outliers. Those will roll off CAPE10 soon.
(3) You can't get 50% on safe 5-year treasuries anymore.

Look, I say one should ALWAYS have a Asset Allocation assuming the market could start a 50% drop tomorrow. Because it might. The risk is never zero.

For young people, that might still mean 100% stocks. For people close to retirement, it probably means a more conservative allocation.

If you're always prepared for a crash, then you can ignore crash predictions. You running in here and telling me that due to "this signal", the chance for a crash is higher, doesn't matter to me, because I was already prepared.

It's like carrying around a umbrella around all the time. You running in and saying "Oh no, the chance of rain today has increased from yesterday!!" means nothing to me, because I'm already carrying an umbrella.
The J stands for Jay

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Re: Should we stay in Crazytown because there's no where to run?

Post by garlandwhizzer » Sat Sep 29, 2018 5:03 pm

Timing market tops in bulls and bottoms in bears is notoriously difficult. I am at present less optimistic about the market's future over the next year or two than I have been at any time during this current 9+ year bull market. I believe that sometime over the next year or two, a correction or bear market is likely, but I do not have sufficient certainty in this belief to alter my allocation to equity. Bond funds and cash are not producing positive real returns at present so if the market keeps going up you pay an opportunity cost for safety. Many in recent years have moved from equity to bonds/cash in anticipation of bad things to come. So far they have missed out on the upside of an ongoing bull market. Picking market tops and bottoms is only reliably done in hindsight. My concerns at present are not actionable.

Garland Whizzer

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Re: Should we stay in Crazytown because there's no where to run?

Post by KlangFool » Sat Sep 29, 2018 5:16 pm

CULater wrote:
Sat Sep 29, 2018 9:03 am
U.S. stocks are nuts. Shiller CAPE now stands at 33.36 and the only time in history it was higher was Feb, 1998 to Mar 2001 which would have been a wild ride. If you had gotten out of stocks in Feb 1998 you could have stayed out for 12 years and gotten back in at the price you sold, meanwhile making about 50% on safe 5-year treasuries. Should we really just hold our noses and wait? How do you manage this psychologically? Feels like standing on the train track watching the light coming toward you getting bigger. Are we just staying in Crazytown because other places, like bonds, seem even crazier? Tough times for the buy-and-hold crowd. Anyone starting to flinch? I am.
CULater,

My family member worked in the financial industry over 30+ years. His annual salary and bonus are in the 7 figures range. He has a master degree in economics from the University of Chicago. I lost 50% of my whole life savings during Telecom Bust. He lost 10 million during Telecom bust.

Are you smarter than my family member?

My AA is 60/40. I know that I know nothing. How about you?

KlangFool

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Re: Should we stay in Crazytown because there's no where to run?

Post by marcopolo » Sat Sep 29, 2018 5:20 pm

CULater wrote:
Sat Sep 29, 2018 9:03 am
U.S. stocks are nuts. Shiller CAPE now stands at 33.36 and the only time in history it was higher was Feb, 1998 to Mar 2001 which would have been a wild ride. If you had gotten out of stocks in Feb 1998 you could have stayed out for 12 years and gotten back in at the price you sold, meanwhile making about 50% on safe 5-year treasuries. Should we really just hold our noses and wait? How do you manage this psychologically? Feels like standing on the train track watching the light coming toward you getting bigger. Are we just staying in Crazytown because other places, like bonds, seem even crazier? Tough times for the buy-and-hold crowd. Anyone starting to flinch? I am.
You seem to have asked this same question in somewhat different way several times now. Are you hoping to get different answers?
It is not clear if you are trying to convince people hear to act on your beliefs, or asking people here to validate your proposed actions?

I doubt you will get too much support for either. There are many here that believe we will see lower returns going forward due to high valuations, but even most of them, i think are not advocating using that as a short term market-timing trigger.

Markets have been increasing for sometime, hopefully you have been rebalancing some along the way to maintain an AA you are comfortable with, also nothing wrong with slight adjustments to your AA as you get closer to retirement, but i suspect you are not going to find too much support here for wholesale changes based on market valuation being high.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: Should we stay in Crazytown because there's no where to run?

Post by tooluser » Sat Sep 29, 2018 5:43 pm

What precisely are you worried is going to happen? Lay out some scenarios and see their effect, and what you might change to avoid the worst. That is prudent planning. If you can't foresee the details, then perhaps there is no reasonable avoidance scheme, or you need more information. Your gut feel may be right or wrong.

Buy and hold has worked tremendously well over the past decade, two decades, and three decades. (Although 2000-2009 did not look so good.) What exactly is the problem you are seeing with buy and hold? There are always infinitely better strategies in hindsight.
"A calm and modest life brings more happiness than the pursuit of success combined with constant restlessness." -- Albert Einstein, just before he won the Nobel Prize.

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Re: Should we stay in Crazytown because there's no where to run?

Post by 2pedals » Sat Sep 29, 2018 6:18 pm

OP
On a previous post you said you were retired. What is your asset allocation? Do you have a liability matching portfolio? Are you using a SWR, VPR or something else? How are you planning to draw down your savings? Do you have reasons leave a large amount for legacy concerns? Are you waiting to 70 to take SS? Have you "won the game" as some here would say?

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Re: Should we stay in Crazytown because there's no where to run?

Post by UpperNwGuy » Sat Sep 29, 2018 7:25 pm

Crazytown? That's a crazy notion. I have a 60/40 portfolio, and I know that there is a risk that the stock portion might take a 50% dive if we have another really big crash. I won't like it, but I understand that it might happen. Why do you want me to go into panic mode?

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Re: Should we stay in Crazytown because there's no where to run?

Post by Dottie57 » Sat Sep 29, 2018 7:51 pm

OP

I am retired as of this year. Moved to a retirement pre-SS allocation of 50/50. Slowly buying CDs to cover an 8 year period. I’ll rebalance every year as I spend down. The CDs cover my most financially vulnerable period.

This is my strategy for market down turn until SS is in play.

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Re: Should we stay in Crazytown because there's no where to run?

Post by VictoriaF » Sat Sep 29, 2018 7:55 pm

The market collapse is like death. You know that it's coming, but you don't know when. After taking some obvious precautions, you don't think about it and just go about your daily business.

In fact, the market is better than death, because after it goes down it (usually) goes up.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

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Re: Should we stay in Crazytown because there's no where to run?

Post by KlangFool » Sat Sep 29, 2018 8:02 pm

OP,

Are you prepared? If the stock market crashes 50% and stays down for 5 years, 10 years, could you survive? If not, why aren't you doing something now?

If you are worry enough, be prepared. If you are not, why are you posting here?

I am prepared for 5 years with my AA of 60/40. Hence, I do not need to care what happened next.

KlangFool

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HomerJ
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Re: Should we stay in Crazytown because there's no where to run?

Post by HomerJ » Sat Sep 29, 2018 9:29 pm

KlangFool wrote:
Sat Sep 29, 2018 8:02 pm
OP,

Are you prepared? If the stock market crashes 50% and stays down for 5 years, 10 years, could you survive? If not, why aren't you doing something now?

If you are worry enough, be prepared. If you are not, why are you posting here?
This. You should always be prepared. CULater, if you're already prepared, why the angst? If you're not prepared, get prepared.
The J stands for Jay

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