A lot of us expected a US stock "pull back" is this it?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Topic Author
TheBogleWay
Posts: 261
Joined: Mon Dec 05, 2016 9:04 pm

A lot of us expected a US stock "pull back" is this it?

Post by TheBogleWay »

I still consider myself a new-ish investor, been doing it ~7-8 years.

Majority of stock is in the US total stock market. Down a pretty decent amount the last few months.

Is this the pull back? Because this doesn't feel that bad at all. Lol. (knock on wood)

Also, yes I'm aware this is somewhat of a crystal ball question but asking your for your gut feeling on the state of the US market.
Uniballer
Posts: 294
Joined: Thu Apr 20, 2017 9:55 am

Re: A lot of us expected a US stock "pull back" is this it?

Post by Uniballer »

Not yet. It will happen, but nobody knows when.
User avatar
oldcomputerguy
Moderator
Posts: 9182
Joined: Sun Nov 22, 2015 6:50 am
Location: In the middle of five acres of woods in East Tennessee

Re: A lot of us expected a US stock "pull back" is this it?

Post by oldcomputerguy »

Nobody knows. So far it barely qualifies as what they call a “correction” (a 10% pullback). Those historically have happened pretty frequently. It might turn around from here, or it could go on to become a full “bear market” (20% drop), or even lower.
"I’ve come around to this: If you’re dumb, surround yourself with smart people; and if you’re smart, surround yourself with smart people who disagree with you." (Aaron Sorkin)
User avatar
warner25
Posts: 519
Joined: Wed Oct 29, 2014 4:38 pm

Re: A lot of us expected a US stock "pull back" is this it?

Post by warner25 »

The S&P 500 is still up from 1 year ago, corporate earnings are at all-time highs and still rising, and PE10 is still at about 30. To me, what's happened in the past couple of months is not even worth talking about. If anyone thinks this is testing their ability to stay-the-course, they're in way too deep with their asset allocation.
Snowjob
Posts: 1634
Joined: Sun Jun 28, 2009 10:53 pm

Re: A lot of us expected a US stock "pull back" is this it?

Post by Snowjob »

part of the issue of not feeling it is you've only been investing for the last 7-8 years. You've had it easy by all accounts. the US total market has earned 15% annualized returns and what you have in your investment accounts probably dwarfs what you've put in. I'm pretty sure it would take a drop of more than 30% for you to even notice due to the heavy gains you've seen out the gate imo. Obviously this is awesome, not trying to knock you but for folks who have been nervous about puttin their money in and then finally got the courage after the big run up through 2017, this feels very very very painful. they missed the massive gains on the way up and see what was once safe cash start to erode. its all individual perspective. Im guessing the majority of the country has been riding high on the gains for some years now and a 10% drop will probably need to be 20% for them to feel it.
The Wizard
Posts: 13356
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: A lot of us expected a US stock "pull back" is this it?

Post by The Wizard »

Yes!
This is the beginning of the pull back, as you call it...
Attempted new signature...
User avatar
tennisplyr
Posts: 2685
Joined: Tue Jan 28, 2014 1:53 pm
Location: Sarasota, FL

Re: A lot of us expected a US stock "pull back" is this it?

Post by tennisplyr »

warner25 wrote: Thu Nov 22, 2018 7:02 am The S&P 500 is still up from 1 year ago, corporate earnings are at all-time highs and still rising, and PE10 is still at about 30. To me, what's happened in the past couple of months is not even worth talking about. If anyone thinks this is testing their ability to stay-the-course, they're in way too deep with their asset allocation.
+1
Those who move forward with a happy spirit will find that things always work out.
dkturner
Posts: 1608
Joined: Sun Feb 25, 2007 7:58 pm

Re: A lot of us expected a US stock "pull back" is this it?

Post by dkturner »

This is A pullback, but not necessarily THE pullback you are expecting, although it may be the beginning of The Big One. Stay tuned, we’ll all find out together.
User avatar
midareff
Posts: 7138
Joined: Mon Nov 29, 2010 10:43 am
Location: Biscayne Bay, South Florida

Re: A lot of us expected a US stock "pull back" is this it?

Post by midareff »

Well, it might be a pullback, then again it might be just some daily, weekly, monthly "noise". Then again, it might not be. Methinks it has been well proven that nobody knows what the market will do next, historical long term trends notwithstanding. It's already shown to be the longest, or certainly one of the longest, bull markets on record. As you look around, which is what you are doing, you will find as many nays as yeahs. Half of them must be wrong so I'll take the surely right path with I don't know. Also, FWIW, it simply doesn't matter. Structure your portfolio in accordance with your need, ability and willingness to take risk and put a bobbing head on your dashboard to remind you that doing nothing is an intelligent course of action.
markcoop
Posts: 1179
Joined: Fri Mar 02, 2007 8:36 am

Re: A lot of us expected a US stock "pull back" is this it?

Post by markcoop »

I fully expect a pull back. However the shape of the pull back is unknown in advance. It may take the shape of a big drop over a short period of time or it may take the shape of no gains over the next decade. What's also unknown is what will happen after the pullback. Maybe we'll bounce back quickly or maybe we'll have decade of slightly above average returns. Given all that, hard to make any investing decisions other than keep to your AA. Having said all that, when I have a strong feeling about the direction of the market, I may nibble a bit by overbalancing a small amount within my re-balancing bands.
Mark
User avatar
Alexa9
Posts: 1872
Joined: Tue Aug 30, 2016 9:41 am

Re: A lot of us expected a US stock "pull back" is this it?

Post by Alexa9 »

Ignore the noise, stay the course.
It's a "buying opportunity."
Stocks are "on sale."
Invest you must. Time is your friend. Impulse is your enemy.
Whatever mantra keeps you from panicking.
Write down your plan and stick to it.
User avatar
jeffyscott
Posts: 9140
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: A lot of us expected a US stock "pull back" is this it?

Post by jeffyscott »

TheBogleWay wrote: Thu Nov 22, 2018 6:13 amIs this the pull back? Because this doesn't feel that bad at all. Lol. (knock on wood)
Yeah, that's because this is nothing.

You can read this to try to get a feel for what it was like, when it was bad:
viewtopic.php?f=10&t=25126
The two greatest enemies of the equity fund investor are expenses and emotions. ― John C. Bogle
TVD
Posts: 52
Joined: Sun Jul 15, 2018 8:31 pm

Re: A lot of us expected a US stock "pull back" is this it?

Post by TVD »

Personally, I think this is just getting started. The equity markets could drop 50% and still be overvalued by historical norms. I don't know whats worse, a market that corrects to fair value or keeps going parabolic. Either way, financial assets may not be a full reflection of the reality on the ground. Just my cheery point of view.
MotoTrojan
Posts: 10650
Joined: Wed Feb 01, 2017 8:39 pm

Re: A lot of us expected a US stock "pull back" is this it?

Post by MotoTrojan »

TVD wrote: Thu Nov 22, 2018 9:45 am Personally, I think this is just getting started. The equity markets could drop 50% and still be overvalued by historical norms. I don't know whats worse, a market that corrects to fair value or keeps going parabolic. Either way, financial assets may not be a full reflection of the reality on the ground. Just my cheery point of view.
What norm is that?
User avatar
nedsaid
Posts: 13808
Joined: Fri Nov 23, 2012 12:33 pm

Re: A lot of us expected a US stock "pull back" is this it?

Post by nedsaid »

TheBogleWay wrote: Thu Nov 22, 2018 6:13 am I still consider myself a new-ish investor, been doing it ~7-8 years.

Majority of stock is in the US total stock market. Down a pretty decent amount the last few months.

Is this the pull back? Because this doesn't feel that bad at all. Lol. (knock on wood)

Also, yes I'm aware this is somewhat of a crystal ball question but asking your for your gut feeling on the state of the US market.
Yes, this is. Problem is we don't know how far down this will go or low long it will last. Corrections of 10% or more are pretty common and if memory serves me correctly you get one a year. We have had two in 2018. True bear markets, with losses of 20% or more will happen two, maybe three times in a decade. Most are what I call garden variety bear markets and you get to new highs within something like 18 months. Again going from memory here. What is really scary are the 50% or more down bear markets. Those come around usually about once or twice during an investors lifetime. We saw this during the 1930's, 1973-74, 2000-2002, and 2008-2009.
A fool and his money are good for business.
TVD
Posts: 52
Joined: Sun Jul 15, 2018 8:31 pm

Re: A lot of us expected a US stock "pull back" is this it?

Post by TVD »

MotoTrojan wrote: Thu Nov 22, 2018 11:31 am
TVD wrote: Thu Nov 22, 2018 9:45 am Personally, I think this is just getting started. The equity markets could drop 50% and still be overvalued by historical norms. I don't know whats worse, a market that corrects to fair value or keeps going parabolic. Either way, financial assets may not be a full reflection of the reality on the ground. Just my cheery point of view.
What norm is that?
Long term average of P/E10 or CAPE of about 14 (but to be exact I'd have to look it up, the pre-1990s CAPE). Some have argued that an this CAPE should be higher like around 17-18 but I think that is just due to the last 20-30 years with the baby boomers in the work force. Such a large percentage of workers putting away for retirement should have increased the bid on stocks. Now that they are retiring I think we go back to the long term average of CAPE or even lower. I'm personally hoping for a CAPE of 5-7 when all this is over, but rarely do I every get what I ask for.
User avatar
Phineas J. Whoopee
Posts: 9675
Joined: Sun Dec 18, 2011 6:18 pm

Re: A lot of us expected a US stock "pull back" is this it?

Post by Phineas J. Whoopee »

We don't and can't know unless and until this already was it.

The question is not actionable.

PJW
tibbitts
Posts: 11851
Joined: Tue Feb 27, 2007 6:50 pm

Re: A lot of us expected a US stock "pull back" is this it?

Post by tibbitts »

TheBogleWay wrote: Thu Nov 22, 2018 6:13 am I still consider myself a new-ish investor, been doing it ~7-8 years.

Majority of stock is in the US total stock market. Down a pretty decent amount the last few months.

Is this the pull back? Because this doesn't feel that bad at all. Lol. (knock on wood)

Also, yes I'm aware this is somewhat of a crystal ball question but asking your for your gut feeling on the state of the US market.
My gut is that we'll get zero real return for the rest of our lives from any reasonable global asset allocation - and that applies no matter your age. And before someone suggests TIPS, I mean zero for our actual personal inflation rates, not the any of the various CPI measures.

Of course I invest if various assets hoping for more.

Maybe you don't feel this because you still have a job without any immediate prospects for losing it or needing to sell assets at depressed prices for income?
User avatar
jeffyscott
Posts: 9140
Joined: Tue Feb 27, 2007 9:12 am
Location: Wisconsin

Re: A lot of us expected a US stock "pull back" is this it?

Post by jeffyscott »

TVD wrote: Thu Nov 22, 2018 12:08 pmSome have argued that an this CAPE should be higher like around 17-18 but I think that is just due to the last 20-30 years with the baby boomers in the work force. Such a large percentage of workers putting away for retirement should have increased the bid on stocks. Now that they are retiring I think we go back to the long term average of CAPE or even lower.
Most "baby boomers" have saved little for retirement. Most stock is held by a very small number of very wealthy people, who are not selling to fund retirement.

Image
https://www.fool.com/retirement/2016/12 ... ement.aspx
The two greatest enemies of the equity fund investor are expenses and emotions. ― John C. Bogle
User avatar
nisiprius
Advisory Board
Posts: 41942
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: A lot of us expected a US stock "pull back" is this it?

Post by nisiprius »

TheBogleWay wrote: Thu Nov 22, 2018 6:13 am...Majority of stock is in the US total stock market. Down a pretty decent amount the last few months.

Is this the pull back? Because this doesn't feel that bad at all. Lol. (knock on wood)

Also, yes I'm aware this is somewhat of a crystal ball question but asking your for your gut feeling on the state of the US market...
My gut feeling is that I really don't know. Boy, is that ever unpleasant. I'd really feel more comfortable kidding myself into thinking I knew, either way.

I'd suggest that you work on cultivating the same gut feeling. I'm going to leave this as an exercise for you instead of doing it myself. Take a look at the behavior of the stock market over the last six months. Now look at the behavior of the stock market long-term.

I'll bet you can find a six-month period that really looks a lot like the last six months that was followed by a sharp pullback. And I'll bet you can find a six-month period that really looks a lot like the last six months that was followed by gratifying growth.

One of John C. Bogle's sayings is "Time is your friend, impulse is your enemy." So the next thing is: since you should not act on your impulses--your gut feelings--why even try to decide how you feel? Better not to.

I have a pretty low stock allocation. I accept the risks of stocks. I don't kid myself that stocks are risky for everybody else, but that I can get the risk premium without really taking the risk. I'm taking the risk. I'm staying the course. If stocks drop a lot, I'll get hurt. I'll feel really depressed about it. I'll wish I'd gotten out. I'll convince myself after the fact that I "knew" it was going to happen before the fact. But I'm convinced that acting on gut feelings about the major movements in the markets--and that includes reading the conflicting forecasts of gurus and selectively paying attention to the ones that confirm my gut feelings--won't help, and probably will hurt.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
User avatar
JoeRetire
Posts: 5740
Joined: Tue Jan 16, 2018 2:44 pm

Re: A lot of us expected a US stock "pull back" is this it?

Post by JoeRetire »

TheBogleWay wrote: Thu Nov 22, 2018 6:13 am Is this the pull back?
Yup, that was it.

From here on it's just smooth sailing all the way...

... until it isn't.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
AlphaLess
Posts: 2679
Joined: Fri Sep 29, 2017 11:38 pm
Location: Kentucky

Re: A lot of us expected a US stock "pull back" is this it?

Post by AlphaLess »

TheBogleWay wrote: Thu Nov 22, 2018 6:13 am Is this the pull back? Because this doesn't feel that bad at all. Lol. (knock on wood)
Wait until stocks are down 30% from the September tops.
"A Republic, if you can keep it". Benjamin Franklin. 1787. | Party affiliation: Vanguard. Religion: low-cost investing.
AlphaLess
Posts: 2679
Joined: Fri Sep 29, 2017 11:38 pm
Location: Kentucky

Re: A lot of us expected a US stock "pull back" is this it?

Post by AlphaLess »

JoeRetire wrote: Thu Nov 22, 2018 7:48 pm From here on it's just smooth sailing all the way...
... until it isn't.
Nah, it's always smooth sailing. But sometimes winds are tailwinds and at other times, they are headwinds.

Always smooth sailing. 100%
"A Republic, if you can keep it". Benjamin Franklin. 1787. | Party affiliation: Vanguard. Religion: low-cost investing.
AlphaLess
Posts: 2679
Joined: Fri Sep 29, 2017 11:38 pm
Location: Kentucky

Re: A lot of us expected a US stock "pull back" is this it?

Post by AlphaLess »

jeffyscott wrote: Thu Nov 22, 2018 1:00 pm Most "baby boomers" have saved little for retirement. Most stock is held by a very small number of very wealthy people, who are not selling to fund retirement.
I have a theory. In competitive markets, most people can not afford retirement.
This has nothing to do with income levels, savings rates, etc.

It has to do with market efficiency.

If people saved more, on average; then stock market would return less, on average. Why? Because consumption fuels stock gains.

If everyone earned 20% more, then it would be a wash, as everything would cost 20% more.

There is a utopian world in which *MOST* people don't have to work (that much or that hard), and a combination of a few people working and automation would supply the needed resources for all humankind. But in that world, most of the wealth would be concentrated in the hands of the rich.

Retirement has nothing to do with financial independence. It has to do with resources available to live off. Housing, utilities, food, other basic needs.

100% of the population of the US can have that as there is so much production capacity.

However, in todays economic system, that is not possible. Because production capacity sits idle when there is no one paying for goods and services.

Even lower middle class people today live better than kings 500 years ago. So the benefit of the modern economic system to the vast majority population is increased living standards, not necessarily financial independence.
"A Republic, if you can keep it". Benjamin Franklin. 1787. | Party affiliation: Vanguard. Religion: low-cost investing.
TVD
Posts: 52
Joined: Sun Jul 15, 2018 8:31 pm

Re: A lot of us expected a US stock "pull back" is this it?

Post by TVD »

jeffyscott wrote: Thu Nov 22, 2018 1:00 pm
TVD wrote: Thu Nov 22, 2018 12:08 pmSome have argued that an this CAPE should be higher like around 17-18 but I think that is just due to the last 20-30 years with the baby boomers in the work force. Such a large percentage of workers putting away for retirement should have increased the bid on stocks. Now that they are retiring I think we go back to the long term average of CAPE or even lower.
Most "baby boomers" have saved little for retirement. Most stock is held by a very small number of very wealthy people, who are not selling to fund retirement.

Image
https://www.fool.com/retirement/2016/12 ... ement.aspx
Thanks. Original point was that stocks were at least 2x overvalued by historical norms using the long term average of the pre-1990s CAPE or a current CAPE. I think the slightly increased long term average of CAPE over the last 2 to 3 decades is due to the boomers in the work force rather than the valuations just drifting higher for other reasons not apparent to me. Maybe I am wrong. But for all intensive purposes, if valuation still matters then eventually stock prices will correct or we will have tremendous economic growth (I don't have much faith in the latter).

I don't think it is the percent of baby boomers who own stocks is as important as the percent of stocks (or market cap) owned by baby boomers. Here are two discussions on the role of boomers on future returns: https://www.youtube.com/watch?v=5OFaZcC0lRU&t=2454s
http://www.mauldineconomics.com/editori ... ll-set-off#
Even in 1929, it was something like 2% of Americans owned stocks.

When they are retiring en mass there isn't as much of a backstop during a market downturn and they will be more likely to sell early than lose it all. At the very least, if working age boomers were a major driver of the stock market growth over the last few decades then, to me, it is not unreasonable that they will have a large and opposite impact as they leave the workforce. But,who can predict the future in the end.
User avatar
Random Musings
Posts: 5788
Joined: Thu Feb 22, 2007 4:24 pm
Location: Pennsylvania

Re: A lot of us expected a US stock "pull back" is this it?

Post by Random Musings »

Since 2000, we have seen pullbacks (or whatever you want to call them) up to 80% (NASDAQ 2000-2002 bear), 60% or so in the S&P 500 during the 2008 bear market and so on. During the 2008 bear, I recalled when the REIT's were moving 5% a day and even 10% a couple of times. The 1987 crash was an eye opener for us investors as well when a lot of market value was lost in one day. The furthest that I can remember (that meant anything to me financially) was the 73 -74 bear that was another take no equity asset classes prisoner bear. I didn't know about investments during the 68 bear, but I knew all about my favorite baseball players.

However, the choice is to stay the course and stick to your written investment plan or realize that your willingness to take risk isn't as high as you thought which means to cut back equity exposure.

Bull and bear markets come and go but neither last forever.

RM
Last edited by Random Musings on Thu Nov 22, 2018 9:16 pm, edited 1 time in total.
I figure the odds be fifty-fifty I just might have something to say. FZ
PFInterest
Posts: 2684
Joined: Sun Jan 08, 2017 12:25 pm

Re: A lot of us expected a US stock "pull back" is this it?

Post by PFInterest »

TheBogleWay wrote: Thu Nov 22, 2018 6:13 am I still consider myself a new-ish investor, been doing it ~7-8 years.

Majority of stock is in the US total stock market. Down a pretty decent amount the last few months.

Is this the pull back? Because this doesn't feel that bad at all. Lol. (knock on wood)

Also, yes I'm aware this is somewhat of a crystal ball question but asking your for your gut feeling on the state of the US market.
total US is still positive for the year.....so no....not even close....like at all.
wolf359
Posts: 2194
Joined: Sun Mar 15, 2015 8:47 am

Re: A lot of us expected a US stock "pull back" is this it?

Post by wolf359 »

TheBogleWay wrote: Thu Nov 22, 2018 6:13 am I still consider myself a new-ish investor, been doing it ~7-8 years.

Majority of stock is in the US total stock market. Down a pretty decent amount the last few months.

Is this the pull back? Because this doesn't feel that bad at all. Lol. (knock on wood)

Also, yes I'm aware this is somewhat of a crystal ball question but asking your for your gut feeling on the state of the US market.
I recommend you read "The Great Depression - A Diary" by Benjamin Roth. He was a lawyer who was interested in investing, and kept a diary of his experiences.

It's a birds eye view of what it was like to invest during that time.

One insight was that the Great Crash of 1929 wasn't actually a single crash. It was a series of crashes and recoveries and more crashes. Sometimes the market crashed, people bought the dip, then it crashed again.

The lesson is that even if this is THE pullback, it doesn't mean there can't be another one right behind it. The market is unpredictable. You have to be prepared for the market to go either direction, even at the bottom. Be ready for the worst case, but invest like the best case will occur.

Specifically, keep an emergency fund, keep a bond position sufficient to ensure you won't get wiped out, and invest in broadbased low cost index funds (not individual stocks). Make sure your asset allocation is correct for your risk tolerance, and that you can hold it in any market conditions. (It's hard to hold bonds during a bull market, and hard to hold stocks in a bear market. You're always going to be unhappy with one part of your portfolio. If you're not -- you might not be properly diversified.)
User avatar
CyclingDuo
Posts: 3660
Joined: Fri Jan 06, 2017 9:07 am

Re: A lot of us expected a US stock "pull back" is this it?

Post by CyclingDuo »

TheBogleWay wrote: Thu Nov 22, 2018 6:13 am I still consider myself a new-ish investor, been doing it ~7-8 years.

Majority of stock is in the US total stock market. Down a pretty decent amount the last few months.

Is this the pull back? Because this doesn't feel that bad at all. Lol. (knock on wood)

Also, yes I'm aware this is somewhat of a crystal ball question but asking your for your gut feeling on the state of the US market.
Interesting read here:

"I have a hard time making the case that we're in a bear market for stocks when the trendline in the broad market is still pointing up and to the right."

https://www.thestreet.com/investing/are ... t-14788990

Image
"Save like a pessimist, invest like an optimist." - Morgan Housel
Dottie57
Posts: 9164
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: A lot of us expected a US stock "pull back" is this it?

Post by Dottie57 »

No. Stocks are just being volatile.

2008 and 2009 was bad.
User avatar
willthrill81
Posts: 20817
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: A lot of us expected a US stock "pull back" is this it?

Post by willthrill81 »

TVD wrote: Thu Nov 22, 2018 12:08 pm
MotoTrojan wrote: Thu Nov 22, 2018 11:31 am
TVD wrote: Thu Nov 22, 2018 9:45 am Personally, I think this is just getting started. The equity markets could drop 50% and still be overvalued by historical norms. I don't know whats worse, a market that corrects to fair value or keeps going parabolic. Either way, financial assets may not be a full reflection of the reality on the ground. Just my cheery point of view.
What norm is that?
Long term average of P/E10 or CAPE of about 14 (but to be exact I'd have to look it up, the pre-1990s CAPE). Some have argued that an this CAPE should be higher like around 17-18 but I think that is just due to the last 20-30 years with the baby boomers in the work force. Such a large percentage of workers putting away for retirement should have increased the bid on stocks. Now that they are retiring I think we go back to the long term average of CAPE or even lower. I'm personally hoping for a CAPE of 5-7 when all this is over, but rarely do I every get what I ask for.
U.S. stocks have been above the 'long-term' CAPE average since 1992 with only a very brief interlude in the last recession. Yet since 1992, the real return of stocks has been above the long-term average, so I wouldn't worry too much about CAPE. Besides, you shouldn't be investing for only the next ten years, and Kitces found that the highest quintile of historic CAPE values only reduced returns by about 1% annually over the subsequent 30 years. You should never be expecting 'average' returns anyway.

We haven't seen a CAPE of <7 for U.S. stocks since 1922, so you're not likely to get your wish. Sorry to burst your bubble.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
dimbmw
Posts: 66
Joined: Mon Dec 23, 2013 11:24 pm

Re: A lot of us expected a US stock "pull back" is this it?

Post by dimbmw »

TVD wrote: Thu Nov 22, 2018 12:08 pm
MotoTrojan wrote: Thu Nov 22, 2018 11:31 am
TVD wrote: Thu Nov 22, 2018 9:45 am Personally, I think this is just getting started. The equity markets could drop 50% and still be overvalued by historical norms. I don't know whats worse, a market that corrects to fair value or keeps going parabolic. Either way, financial assets may not be a full reflection of the reality on the ground. Just my cheery point of view.
What norm is that?
Long term average of P/E10 or CAPE of about 14 (but to be exact I'd have to look it up, the pre-1990s CAPE). Some have argued that an this CAPE should be higher like around 17-18 but I think that is just due to the last 20-30 years with the baby boomers in the work force. Such a large percentage of workers putting away for retirement should have increased the bid on stocks. Now that they are retiring I think we go back to the long term average of CAPE or even lower. I'm personally hoping for a CAPE of 5-7 when all this is over, but rarely do I every get what I ask for.

Great post.
I always think about it this way: how much would I want to pay for a small business? like restaurant or similar. And I answer myself, that I don’t want to pay more than 6 yearly profits. Why would I want to pay more for publically traded companies? It is the same thing.
User avatar
Random Musings
Posts: 5788
Joined: Thu Feb 22, 2007 4:24 pm
Location: Pennsylvania

Re: A lot of us expected a US stock "pull back" is this it?

Post by Random Musings »

willthrill81 wrote: Thu Nov 22, 2018 11:37 pm
TVD wrote: Thu Nov 22, 2018 12:08 pm
MotoTrojan wrote: Thu Nov 22, 2018 11:31 am
TVD wrote: Thu Nov 22, 2018 9:45 am Personally, I think this is just getting started. The equity markets could drop 50% and still be overvalued by historical norms. I don't know whats worse, a market that corrects to fair value or keeps going parabolic. Either way, financial assets may not be a full reflection of the reality on the ground. Just my cheery point of view.
What norm is that?
Long term average of P/E10 or CAPE of about 14 (but to be exact I'd have to look it up, the pre-1990s CAPE). Some have argued that an this CAPE should be higher like around 17-18 but I think that is just due to the last 20-30 years with the baby boomers in the work force. Such a large percentage of workers putting away for retirement should have increased the bid on stocks. Now that they are retiring I think we go back to the long term average of CAPE or even lower. I'm personally hoping for a CAPE of 5-7 when all this is over, but rarely do I every get what I ask for.
U.S. stocks have been above the 'long-term' CAPE average since 1992 with only a very brief interlude in the last recession. Yet since 1992, the real return of stocks has been above the long-term average, so I wouldn't worry too much about CAPE. Besides, you shouldn't be investing for only the next ten years, and Kitces found that the highest quintile of historic CAPE values only reduced returns by about 1% annually over the subsequent 30 years. You should never be expecting 'average' returns anyway.

We haven't seen a CAPE of <7 for U.S. stocks since 1922, so you're not likely to get your wish. Sorry to burst your bubble.
I read the Kitices article and the comments were also made that there was a bit more correlation in the CAPE and market returns when looking at more intermediate timeframes of 8 years for nominal and 18 years for real returns. Not saying they are actionable, but he did comment on that. Also more interesting later on in the article was the correlation look at SWR and CAPE. The author seemed to convey to the reader that CAPE may have some use there. All in all, a mixed bag.

RM
I figure the odds be fifty-fifty I just might have something to say. FZ
User avatar
willthrill81
Posts: 20817
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: A lot of us expected a US stock "pull back" is this it?

Post by willthrill81 »

Random Musings wrote: Fri Nov 23, 2018 12:03 am
willthrill81 wrote: Thu Nov 22, 2018 11:37 pm
TVD wrote: Thu Nov 22, 2018 12:08 pm
MotoTrojan wrote: Thu Nov 22, 2018 11:31 am
TVD wrote: Thu Nov 22, 2018 9:45 am Personally, I think this is just getting started. The equity markets could drop 50% and still be overvalued by historical norms. I don't know whats worse, a market that corrects to fair value or keeps going parabolic. Either way, financial assets may not be a full reflection of the reality on the ground. Just my cheery point of view.
What norm is that?
Long term average of P/E10 or CAPE of about 14 (but to be exact I'd have to look it up, the pre-1990s CAPE). Some have argued that an this CAPE should be higher like around 17-18 but I think that is just due to the last 20-30 years with the baby boomers in the work force. Such a large percentage of workers putting away for retirement should have increased the bid on stocks. Now that they are retiring I think we go back to the long term average of CAPE or even lower. I'm personally hoping for a CAPE of 5-7 when all this is over, but rarely do I every get what I ask for.
U.S. stocks have been above the 'long-term' CAPE average since 1992 with only a very brief interlude in the last recession. Yet since 1992, the real return of stocks has been above the long-term average, so I wouldn't worry too much about CAPE. Besides, you shouldn't be investing for only the next ten years, and Kitces found that the highest quintile of historic CAPE values only reduced returns by about 1% annually over the subsequent 30 years. You should never be expecting 'average' returns anyway.

We haven't seen a CAPE of <7 for U.S. stocks since 1922, so you're not likely to get your wish. Sorry to burst your bubble.
I read the Kitices article and the comments were also made that there was a bit more correlation in the CAPE and market returns when looking at more intermediate timeframes of 8 years for nominal and 18 years for real returns. Not saying they are actionable, but he did comment on that. Also more interesting later on in the article was the correlation look at SWR and CAPE. The author seemed to convey to the reader that CAPE may have some use there. All in all, a mixed bag.

RM
Right. I didn't say that CAPE is meaningless. But it's only one factor among a great many. Yes, CAPE has had the highest correlations with market returns over varying time frames, depending on whether nominal or real returns or used, but as a market timing tool, it's been abysmal. This is because valuations are not reliably mean reverting. They can remain 'high' or 'low' for a long time. As I noted, CAPE has been 'high' for U.S. equities for nearly 27 years. Some nations have had single digit CAPE values for years and still had poor returns.

CAPE definitely seems to have had a stronger relationship with safe withdrawal rates than stock returns. But that's beyond the scope of the OP's question.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
CurlyDave
Posts: 1968
Joined: Thu Jul 28, 2016 11:37 am

Re: A lot of us expected a US stock "pull back" is this it?

Post by CurlyDave »

dimbmw wrote: Thu Nov 22, 2018 11:45 pm
...I always think about it this way: how much would I want to pay for a small business? like restaurant or similar. And I answer myself, that I don’t want to pay more than 6 yearly profits. Why would I want to pay more for publically traded companies? It is the same thing.
I am not so sure it is the same thing. A restaurant or similar has a lot of competition, both real and potential. Barriers to entry into this business are comparatively low. Contrast that with some of the tech companies. Would-be Apple competitors have a lot of barriers to entry. Not that it can't be done, but nobody is going to start out in their garage directly competing with Apple or Microsoft. So, they are worth more 6 yearly profits.

I am not sure how much more, but definitely more.

All publicly traded companies are not worth the same multiple of profits.
User avatar
mhadden1
Posts: 729
Joined: Tue Mar 25, 2014 8:14 pm
Location: North Alabama

Re: A lot of us expected a US stock "pull back" is this it?

Post by mhadden1 »

Random Musings wrote: Thu Nov 22, 2018 9:07 pm I didn't know about investments during the 68 bear, but I knew all about my favorite baseball players.
Hank Aaron.

And yes, "It's the big one, Elizabeth! I'm coming to join you honey!"
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.
TVD
Posts: 52
Joined: Sun Jul 15, 2018 8:31 pm

Re: A lot of us expected a US stock "pull back" is this it?

Post by TVD »

willthrill81 wrote: Thu Nov 22, 2018 11:37 pm
TVD wrote: Thu Nov 22, 2018 12:08 pm
Long term average of P/E10 or CAPE of about 14 (but to be exact I'd have to look it up, the pre-1990s CAPE). Some have argued that an this CAPE should be higher like around 17-18 but I think that is just due to the last 20-30 years with the baby boomers in the work force. Such a large percentage of workers putting away for retirement should have increased the bid on stocks. Now that they are retiring I think we go back to the long term average of CAPE or even lower. I'm personally hoping for a CAPE of 5-7 when all this is over, but rarely do I every get what I ask for.
U.S. stocks have been above the 'long-term' CAPE average since 1992 with only a very brief interlude in the last recession. Yet since 1992, the real return of stocks has been above the long-term average, so I wouldn't worry too much about CAPE. Besides, you shouldn't be investing for only the next ten years, and Kitces found that the highest quintile of historic CAPE values only reduced returns by about 1% annually over the subsequent 30 years. You should never be expecting 'average' returns anyway.

We haven't seen a CAPE of <7 for U.S. stocks since 1922, so you're not likely to get your wish. Sorry to burst your bubble.
[/quote]

Danke. Original point was that if the US stock market was cut in half, we would still not be undervalued. Completely agree that CAPE has been above the long term average since 1992, I alluded to as much. Again, I think it's due in large part to the boomers and as they now leave the work force and rely on their savings (i.e. stocks and bonds) and decrease spending to survive it will be interesting to see what happens next. These valuation metrics give an idea of what to expect in the medium term future but I wouldn't use them to time entry and exit points. It is not just CAPE but multiple metrics show the equity market is overvalued and we are not just in the top 20% but in the top 1% of overvaluation some of which show the highest valuation of all time.

Of note, even reducing returns by 1% annual can have a major impact (~20-40%) on total return.

CAPE was < 7 for a good part of 1982 and ~5 for a good number of days in 1982. Stocks were a buy of a lifetime back then. Don't know how anyone/Schiler can reliably calculate a CAPE in 1922. The CRSP goes back to the late 1920s and before that it's likely they had to rely on old newspaper clippings.
User avatar
willthrill81
Posts: 20817
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: A lot of us expected a US stock "pull back" is this it?

Post by willthrill81 »

TVD wrote: Fri Nov 23, 2018 9:53 amDanke. Original point was that if the US stock market was cut in half, we would still not be undervalued. Completely agree that CAPE has been above the long term average since 1992, I alluded to as much. Again, I think it's due in large part to the boomers and as they now leave the work force and rely on their savings (i.e. stocks and bonds) and decrease spending to survive it will be interesting to see what happens next. These valuation metrics give an idea of what to expect in the medium term future but I wouldn't use them to time entry and exit points. It is not just CAPE but multiple metrics show the equity market is overvalued and we are not just in the top 20% but in the top 1% of overvaluation some of which show the highest valuation of all time.
If we agree then that valuations are not an effective market timing tool, then how are they actionable? I think they are actionable when it comes to withdrawal strategies (e.g. SWR) but not investment strategies.
TVD wrote: Fri Nov 23, 2018 9:53 amOf note, even reducing returns by 1% annual can have a major impact (~20-40%) on total return.
Yes, but what can you do about it?
TVD wrote: Fri Nov 23, 2018 9:53 amCAPE was < 7 for a good part of 1982 and ~5 for a good number of days in 1982. Stocks were a buy of a lifetime back then. Don't know how anyone/Schiler can reliably calculate a CAPE in 1922. The CRSP goes back to the late 1920s and before that it's likely they had to rely on old newspaper clippings.
You may have to wait a generation for CAPE to go below 10, much less 7, and it may never reach those levels again in your lifetime. Larry Swedroe has made some solid arguments as to why CAPE should be higher today than in the past.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
Call_Me_Op
Posts: 7976
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: A lot of us expected a US stock "pull back" is this it?

Post by Call_Me_Op »

Alexa9 wrote: Thu Nov 22, 2018 9:28 am Ignore the noise, stay the course.
It's a "buying opportunity."
Stocks are "on sale."
Non-US - especially EM stocks - are really on sale.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
cutehumor
Posts: 120
Joined: Mon Oct 31, 2016 4:57 pm

Re: A lot of us expected a US stock "pull back" is this it?

Post by cutehumor »

I agree. I have bought all total international and emering market index funds all year in my 401k. Lately, I was questioning my decision, but since US stocks dropped. I feel better. Lol. It looks like I made the right decision and buying international stocks on sale!
staythecourse
Posts: 6993
Joined: Mon Jan 03, 2011 9:40 am

Re: A lot of us expected a US stock "pull back" is this it?

Post by staythecourse »

Who knows and who cares is my answer. With all the time I have spent on investing I have learned only 2 things...

1. Market goes up, down, and sideways all the time.
2. No one knows when any of the above will happen or why.

Accepting the above is what has made me an excellent investor.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
cutehumor
Posts: 120
Joined: Mon Oct 31, 2016 4:57 pm

Re: A lot of us expected a US stock "pull back" is this it?

Post by cutehumor »

The forecast for 3 percent returns in US stocks for the next decade is starting to look accurate. Interest rates going back to normal is crushing the stock market. The federal reserve can't leave it at 0 forever. It's interesting we are at record low unemployment, still lowish interest rates, and corporate tax cuts. The us stock market has not made anything year to date. What happened to corporate buybacks increase share price?
User avatar
willthrill81
Posts: 20817
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: A lot of us expected a US stock "pull back" is this it?

Post by willthrill81 »

cutehumor wrote: Sat Nov 24, 2018 9:38 am The forecast for 3 percent returns in US stocks for the next decade is starting to look accurate. Interest rates going back to normal is crushing the stock market. The federal reserve can't leave it at 0 forever. It's interesting we are at record low unemployment, still lowish interest rates, and corporate tax cuts. The us stock market has not made anything year to date. What happened to corporate buybacks increase share price?
A lot of the currently good economic conditions were expected by the market last year, which is why it zoomed last year. Apparently, conditions are no better than what was expected last year, hence the flat returns this year.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
3funder
Posts: 1447
Joined: Sun Oct 15, 2017 9:35 pm

Re: A lot of us expected a US stock "pull back" is this it?

Post by 3funder »

Alexa9 wrote: Thu Nov 22, 2018 9:28 am Ignore the noise, stay the course.
It's a "buying opportunity."
Stocks are "on sale."
Invest you must. Time is your friend. Impulse is your enemy.
Whatever mantra keeps you from panicking.
Write down your plan and stick to it.
Oh, come on...US stocks are merely less expensive than they were a few months ago. They are nowhere near on sale; they're still quite expensive.
columbia
Posts: 2924
Joined: Tue Aug 27, 2013 5:30 am

Re: A lot of us expected a US stock "pull back" is this it?

Post by columbia »

Is there a (reputable) website, which publishes monthly estimates of the equity risk premium?
User avatar
willthrill81
Posts: 20817
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: A lot of us expected a US stock "pull back" is this it?

Post by willthrill81 »

3funder wrote: Sat Nov 24, 2018 2:37 pm
Alexa9 wrote: Thu Nov 22, 2018 9:28 am Ignore the noise, stay the course.
It's a "buying opportunity."
Stocks are "on sale."
Invest you must. Time is your friend. Impulse is your enemy.
Whatever mantra keeps you from panicking.
Write down your plan and stick to it.
Oh, come on...US stocks are merely less expensive than they were a few months ago. They are nowhere near on sale; they're still quite expensive.
What do you believe qualifies as "on sale?"
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
3funder
Posts: 1447
Joined: Sun Oct 15, 2017 9:35 pm

Re: A lot of us expected a US stock "pull back" is this it?

Post by 3funder »

willthrill81 wrote: Sat Nov 24, 2018 2:43 pm
3funder wrote: Sat Nov 24, 2018 2:37 pm
Alexa9 wrote: Thu Nov 22, 2018 9:28 am Ignore the noise, stay the course.
It's a "buying opportunity."
Stocks are "on sale."
Invest you must. Time is your friend. Impulse is your enemy.
Whatever mantra keeps you from panicking.
Write down your plan and stick to it.
Oh, come on...US stocks are merely less expensive than they were a few months ago. They are nowhere near on sale; they're still quite expensive.
What do you believe qualifies as "on sale?"
Honestly, I won't go there, as I don't have a great answer for you. What I do know is that when the S&P 500 is 3.5x higher than it was at the trough of the most recent crash, and CAPE 10 is at 30 after the most recent correction, US stocks are most definitely not "on sale".
AlphaLess
Posts: 2679
Joined: Fri Sep 29, 2017 11:38 pm
Location: Kentucky

Re: A lot of us expected a US stock "pull back" is this it?

Post by AlphaLess »

willthrill81 wrote: Sat Nov 24, 2018 2:43 pm What do you believe qualifies as "on sale?"
30% of from the top of the market in Aug.2018 would be a sale!
"A Republic, if you can keep it". Benjamin Franklin. 1787. | Party affiliation: Vanguard. Religion: low-cost investing.
User avatar
Earl Lemongrab
Posts: 7270
Joined: Tue Jun 10, 2014 1:14 am

Re: A lot of us expected a US stock "pull back" is this it?

Post by Earl Lemongrab »

This "pullback" has brought the S&P 500 to where it was at the end of October, and early May, and early April, and is higher than early February when the 10% drop from the January high occurred. It's been a choppy year. It's not clear why anyone thinks this is particularly different (not to say that it isn't, just no one knows).

Stop trying to time the market. It's not much of a strategy. Make a plan that is good for all market conditions and execute it. Then you don't need to worry about stuff like this.
User avatar
SeeMoe
Posts: 1081
Joined: Sat Jul 18, 2015 11:30 am
Location: Near Philly..

Re: A lot of us expected a US stock "pull back" is this it?

Post by SeeMoe »

Yes, this is it! It feels like the beginning of a moderate market pullback to me. How do I know this? I dunno, it is just a gut feeling is all. Caution: my gut feelings have a 50/50 record, and have never been spot on when the shift will occur. Sometimes off by a year or more my records so indicate....

SeeMoe.. :twisted:
"By gnawing through a dike, even a Rat can destroy a nation ." {Edmund Burke}
Post Reply