“Market Always Goes Up” defense without past performance

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blacksmith4
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“Market Always Goes Up” defense without past performance

Post by blacksmith4 »

Virtually all of the advice here seems to be based on past performance. “You should have just done Sp500 instead of tried to time the market, since that did better.” Looking at the Nikkei 255 for instance, it seems evident to me that markets do not in fact always go up. And so I’m struggling to understand how the Bogleheads/Efficient Markets philosophy is in fact any better than “bet on the 6 horse since it won the last race.”

Said differently, this site would have a lot less traffic if US US stocks didn’t go up so much since 2009.

Can anyone point me to some reading that justifies blind investing in us equities that does NOT rely primarily on “look at how much money you would have made” type arguments? Worst offenders to me are articles like “if you invested prior to each crash, you’d still be up!” since this is true only due to extremely recent market developments. Is there some actual reason that US equities are so wonderful and that we should just ignore all other fundamental/economic indicators when making investment decisions?
Thesaints
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Re: “Market Always Goes Up” defense without past performance

Post by Thesaints »

Actually, the old saying is that "markets eventually go up".

There are also another couple of misunderstandings in your post. No one, at least no one who understand how things work, is saying that US stocks are the best of all. In fact, Vanguard just published their annual report showing lower expected returns for domestic stocks.
Nor is anyone advising you to invest in US stocks and discard all the others. In fact, Vanguard has been constantly increasing the share of foreign stocks they advise to hold for the past 15 years.
I'm using Vanguard's example because their reports are easy to find and they reflect the general informed consensus.

you are perfectly right in that it could very well be that you invest in stocks and end up losing money. Yet, what are the alternatives ? Holding cash you will slowly lose to inflation and investment-grade bonds these days are only slightly more performing than cash. Maybe you'll get 1% over inflation, maybe not.
On the other hand, because of your personal financial objectives, you might be in need of higher returns. They can only come though stocks investing and the price to pay is taking on the extra risk.
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blacksmith4
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Re: “Market Always Goes Up” defense without past performance

Post by blacksmith4 »

To me, the alternative to “don’t time the market, just buy equities” would be “buy equities when you feel that market conditions are favorable and the market isn’t overvalued.”

In response to this proposition though, it’s my understanding that most would say, “that’s impossible. Based on past performance, people who have tried to time the market have lost.”

My question is whether I’m missing some nuance there?
If not, I feel like that argument is not particularly compelling. And it would still be better to avoid buying equities if you personally believe that market conditions are not favorable.
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Re: “Market Always Goes Up” defense without past performance

Post by nisiprius »

Regardless of whether or not equities are wonderful, there is a completely separate question, which is whether or not you can improve on blind buy-and-hold by explicit market timing or gentle market timing or tactical asset allocation or "opportunistic rebalancing" or buying the dips or value averaging or what have you.

Or, to put it in your words, what is your evidence that you can actually improve on buying and holding the total market by taking into account fundamental/economic indicators when making investment decisions?

By the way, this forum had plenty of traffic during 2008-2009.
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Re: “Market Always Goes Up” defense without past performance

Post by Taylor Larimore »

blacksmith4 wrote:
Can anyone point me to some reading that justifies blind investing in us equities that does NOT rely primarily on “look at how much money you would have made” type arguments? Worst offenders to me are articles like “if you invested prior to each crash, you’d still be up!” since this is true only due to extremely recent market developments. Is there some actual reason that US equities are so wonderful and that we should just ignore all other fundamental/economic indicators when making investment decisions?
blacksmith4:

This post explains why I invest in a total U.S. stock market index fund. It has nothing to do with "past performance."

viewtopic.php?f=10&t=272757&p=4383221&h ... y#p4378283

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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blacksmith4
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Re: “Market Always Goes Up” defense without past performance

Post by blacksmith4 »

nisiprius wrote: Thu Feb 28, 2019 9:00 pm Regardless of whether or not equities are wonderful, there is a completely separate question, which is whether or not you can improve on blind buy-and-hold by explicit market timing or gentle market timing or tactical asset allocation or "opportunistic rebalancing" or buying the dips or value averaging or what have you.

Or, to put it in your words, what is your evidence that you can actually improve on buying and holding the total market by taking into account fundamental/economic indicators when making investment decisions?

By the way, this forum had plenty of traffic during 2008-2009.
I don’t have any evidence. And I’m basically just trying to educate myself here and become more convinced of the “blind buy your AA” strategy. Because from my lay perspective, it just seems INSANE to be buying equities today when global trade is slowing, [OT comment removed by admin LadyGeek], and assets are significantly more expensive than they were 4 years ago.
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Re: “Market Always Goes Up” defense without past performance

Post by Thesaints »

blacksmith4 wrote: Thu Feb 28, 2019 8:59 pm To me, the alternative to “don’t time the market, just buy equities” would be “buy equities when you feel that market conditions are favorable and the market isn’t overvalued.”

In response to this proposition though, it’s my understanding that most would say, “that’s impossible. Based on past performance, people who have tried to time the market have lost.”
It is not just the past performance, but the fact that everyone else sees what you see. In a sense the market is always correctly valued and can become overvalued only ex-post, when it is too late to act on the information.
My question is whether I’m missing some nuance there?
If not, I feel like that argument is not particularly compelling. And it would still be better to avoid buying equities if you personally believe that market conditions are not favorable.
Would you have bought in October 2007 ? What about March 2009 ? The sad truth is that you don't actually know when conditions are favorable or unfavorable and when you think you know everybody else thinks the same.
blacksmith4 wrote: Thu Feb 28, 2019 9:07 pm Because from my lay perspective, it just seems INSANE to be buying equities today when global trade is slowing, [OT comment removed by admin LadyGeek], and assets are significantly more expensive than they were 4 years ago.
Assets are a lot more expensive than they were 10 years ago. Yet, if even under this dire conditions people continue to buy, just imagine how much higher will the market go when things get better.
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Re: “Market Always Goes Up” defense without past performance

Post by blacksmith4 »

Thesaints wrote: Thu Feb 28, 2019 9:08 pm Assets are a lot more expensive than they were 10 years ago. Yet, if even under this dire conditions people continue to buy, just imagine how much higher will the market go when things get better.
This is how people talk before bubbles burst, right?
fwellimort
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Re: “Market Always Goes Up” defense without past performance

Post by fwellimort »

Markets don't always go up.
Look at Japan, Greece, Spain, Italy, etc. etc. So many first world countries around the globe evidenced otherwise in a relatively long period of time. Some nations like Japan even experienced higher quality of living which is evidence that stock market is not an accurate assessment of the economy.
Though to be fair, like the later reply states, if you keep "zooming out", the stock market does have a relatively upward momentum. (And even in these countries, if you periodically invested throughout your working career, you would have been far far ahead in comparison to 'cash under the bed').

You can argue all day that "the economics situation was different" and "it was obvious that the market was overpriced" to those very countries.
Obvious?
It was obvious that 2008 bubble was a mile away and the public didn't really know until it hit. I mean let's be honest. Mortgage backed securities? Even an average american would have understood such concept would be detrimental to the economy.

But there are few things that is helpful in the US stock market.
* The USD is the global currency. In other words, USD overall is a stable currency since it is supported worldwide. If the USD begins to tumble within the US, the rest of the world will do its best to stabilize the USD.
* There is "controlled inflation" in the USD. You see, even if the stock market does crash, every year, inflation of about 0.6~3.4% creeps in to the market. Historically for past 30 years, around 3.22% so after 40+ years, even if the market is worth much less, inflation would have "filled the gap". Of course, this is a questionable argument in itself since your actual purchasing power did not go up. But in terms of principal value, stock market does in some degree have insurance due to controlled inflation.
* If more people invest, then companies grow. If companies grow, stock market long term shows that growth. It's a self perpetuating cycle. As long as people believe in the market, people will constantly invest to the market. Due to this, companies can then use that extra cash to improve and get better as if companies don't, new companies would replace them. That growth then gets shown to the stock market long term. Capitalism in a nutshell. Fortunately, capitalism should be natural long term because if we are animals and Darwin's theory of evolution applies, people will keep trying to find new ways to better their own lives --> innovation --> growth in market long term.
* If you consistently lump sum periodically, over time, you would have invested both the downs and ups. That means, if the market follows inflation long run, your periodic investments of ups/downs will average out somewhere in-between the low and high point of those years. And if capitalism allows for innovation (since money is constantly sent back to re-invest to the market), the market will also reflect that leading to a general overall net positive value if an investor invests consistently for long periods of time.

in that aspect, market will generally "eventually" go up (like the previous OP says) if the country is healthy.
Now, can it go down? Of course. Even the greatest empires at the time like Roman Empire fell.
But like previous OP states, what other choice do we have? Cash loses to inflation. Government bonds barely follow inflation and probably after-tax, you might lose to inflation. Heck, and if after 40+ years of consistent periodic investment (adjusted to inflation) investors face negative growth, then it means there's something dreadfully wrong with the country. And if such is the case, how can investors trust government bonds? In that case, there's then really no investments investors can partake to outperform inflation (especially post tax).
Insurances/Speculations like gold has historically been shown to be horrible at following inflation. And cash always loses to inflation long term. Real Estate requires a huge capital from the start and there's far more risks involved (as the investor is now taking regional risks instead of country risk). So.. that leaves really the stock market for the average investor.

It's not that market always goes up, it's that investors hope markets eventually goes up because there's really no other fair asset to invest in that beats inflation post-tax.
Plus, if the market only went down your entire lifetime, do you really think your country is stable enough to retire in? 'Retirement' then becomes a luxury. So if after 40+ years of consistent investment to the market, the market only goes down, it means you would lose either way: staying in cash (since cash is backed by "full faith of the government"), stock market. But on the other hand, with cash you always lose long term to inflation but with stocks, of course not. The upside probability is far in your favor.
(plus, if the market only goes down your entire lifetime, doesn't that mean your job is also at jeopardy anyways? Since your "bread on table" is linked to the health of the nation, not trusting stock market in your lifespan is pretty much stating you won't have food on the table and life is a battle royale. Doesn't help that it also implies there's no foreseeable future and that life is pointless.)
Last edited by fwellimort on Thu Feb 28, 2019 9:30 pm, edited 12 times in total.
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Kenkat
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Re: “Market Always Goes Up” defense without past performance

Post by Kenkat »

My experience is that when you feel market conditions are favorable is probably not such a good time to buy stocks. When you feel market conditions are uncertain or bad is a better time to buy stocks. When the thought of dumping more money into the pit of despair that used to be your equity position makes you feel physically ill - that’s actually a pretty good time to buy equities.

There is a certain leap of faith required to invest in equities. You are correct that there are no guarantees - none. That said, the idea that you can sit back and see the big picture and manuveur in and out? I haven’t seen it. Your instincts will lead you in the wrong direction more than not. When things are bad, they are bad for a reason. I just take the emotion out of it and stay invested. The odds, while not guaranteed, are generally in your favor. Even the Nikkei 225 has always gone up if you go back far enough.
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Watty
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Re: “Market Always Goes Up” defense without past performance

Post by Watty »

blacksmith4 wrote: Thu Feb 28, 2019 8:42 pm Is there some actual reason that US equities are so wonderful and that we should just ignore all other fundamental/economic indicators when making investment decisions?
A couple of things to think about.

1) The reason that equities(not just US equities) are expected to go up over the long term is that most companies will make a profit and they can basically do three things with the profit;
a) Pay a dividend
b) Reinvest the money intelligently so that they are likely to make even more money in the future even if there are some risks.
c) Buy back shares of their stock so that the remaining shares are worth more
d) Squander the money.

This is oversimplified and when companies have a profit they may do some combination of these but that is why companies are expected(hoped ?) to become more valuable in the future.

2) The problem with trying to invest other fundamental/economic indicators is that usually everyone else knows at least as much as about these so at least in theory these are already priced in the market. For example a good argument can be made that interest rates will probably go up, but everyone knows that.
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Re: “Market Always Goes Up” defense without past performance

Post by harvestbook »

It's better to be an optimist, all things considered. I look at it is I am buying shares in the world's public corporations and so I have a share of all the profits. If all of them stopped making profits, I'd have much bigger worries than whatever monetary value was assigned to those shares.

Aside from your assertion that certain terrible things are bound to happen, I always remember Warren Buffett saying he bought his first shares when the US was losing the war to Japan in the early 40s. That turned out okay.
I'm not smart enough to know, and I can't afford to guess.
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Re: “Market Always Goes Up” defense without past performance

Post by blacksmith4 »

Watty wrote: Thu Feb 28, 2019 9:24 pm
blacksmith4 wrote: Thu Feb 28, 2019 8:42 pm Is there some actual reason that US equities are so wonderful and that we should just ignore all other fundamental/economic indicators when making investment decisions?
A couple of things to think about.

1) The reason that equities(not just US equities) are expected to go up over the long term is that most companies will make a profit and they can basically do three things with the profit;
a) Pay a dividend
b) Reinvest the money intelligently so that they are likely to make even more money in the future even if there are some risks.
c) Buy back shares of their stock so that the remaining shares are worth more
d) Squander the money.

This is oversimplified and when companies have a profit they may do some combination of these but that is why companies are expected(hoped ?) to become more valuable in the future.

2) The problem with trying to invest other fundamental/economic indicators is that usually everyone else knows at least as much as about these so at least in theory these are already priced in the market. For example a good argument can be made that interest rates will probably go up, but everyone knows that.
1. Even if every company is making profits, it seems absurd to pay any price whatsoever for those profits. But i suppose I’m starting to understand why Total Stock makes sense

2. But the market crashed over the course of several days when we were told interest rates were going to go up. And then it began climbing again when Powell said nevermind. Is it reasonable to say, “blind buy Total Stocks after the chop settles following a major market shaker?”
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Re: “Market Always Goes Up” defense without past performance

Post by Olemiss540 »

blacksmith4 wrote: Thu Feb 28, 2019 8:42 pm Virtually all of the advice here seems to be based on past performance. “You should have just done Sp500 instead of tried to time the market, since that did better.” Looking at the Nikkei 255 for instance, it seems evident to me that markets do not in fact always go up. And so I’m struggling to understand how the Bogleheads/Efficient Markets philosophy is in fact any better than “bet on the 6 horse since it won the last race.”

Said differently, this site would have a lot less traffic if US US stocks didn’t go up so much since 2009.

Can anyone point me to some reading that justifies blind investing in us equities that does NOT rely primarily on “look at how much money you would have made” type arguments? Worst offenders to me are articles like “if you invested prior to each crash, you’d still be up!” since this is true only due to extremely recent market developments. Is there some actual reason that US equities are so wonderful and that we should just ignore all other fundamental/economic indicators when making investment decisions?
What is your investment strategy for the Nikkei 255 scenario and how is it going to beat my buy and hold portfolio?

There are only two free lunches in investing. Low costs and broad diversification. I recommend instead of challenging a peer group that all have a shared belief based around a simple low cost strategy, you take the effort to hang around and read. Go through the wiki and read some of the recommended book.

The enemy of a good portfolio is the best portfolio....... There is a reason why some of the highest performing portfolios are those of the deceased.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
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Re: “Market Always Goes Up” defense without past performance

Post by David Jay »

At some point, you either believe in the US economic system or you don’t. For instance, when I hold the S&P 500, I own a piece of the companies that:

Produce the electricity to light my home (AEP, Alliant)
Produce the natural gas to heat my home (Apache, Anadarko)
Make or distribute the food and drink I consume (ADM, Brown-Forman)
Sell me a car and keep it running (AutoNation, Auto Zone)
Run hospitals and provide health insurance (Anthem, Aetna)
Create new drugs that extend and improve quality of life (Abbot, Bristol-Myers)
Run the banking system so my checks and ATM card function (Bank of America, Bank of New York)
Make my cool smartphone and the network that makes it work (Apple, ATT)
Make the components that go into all my electronic gadgets (Analog Devices, Broadcom)
Allow me to access virtually the sum knowledge of the planet (Alphabet)
Allows me buy almost everything (Amazon, Bed, Bath & Beyond, Best Buy)
Make and operate the airplanes I ride on to go see the grandkids (Boeing, American, Alaska)

And I only got through the company names that start with “A” and “B”. Short of global catastrophe (on the level of an extinction-level meteor strike), will these great companies continue to deliver these goods and services (and generate earnings for me, the owner)?
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Re: “Market Always Goes Up” defense without past performance

Post by blacksmith4 »

Olemiss540 wrote: Thu Feb 28, 2019 9:38 pm
blacksmith4 wrote: Thu Feb 28, 2019 8:42 pm Virtually all of the advice here seems to be based on past performance. “You should have just done Sp500 instead of tried to time the market, since that did better.” Looking at the Nikkei 255 for instance, it seems evident to me that markets do not in fact always go up. And so I’m struggling to understand how the Bogleheads/Efficient Markets philosophy is in fact any better than “bet on the 6 horse since it won the last race.”

Said differently, this site would have a lot less traffic if US US stocks didn’t go up so much since 2009.

Can anyone point me to some reading that justifies blind investing in us equities that does NOT rely primarily on “look at how much money you would have made” type arguments? Worst offenders to me are articles like “if you invested prior to each crash, you’d still be up!” since this is true only due to extremely recent market developments. Is there some actual reason that US equities are so wonderful and that we should just ignore all other fundamental/economic indicators when making investment decisions?
What is your investment strategy for the Nikkei 255 scenario and how is it going to beat my buy and hold portfolio?

There are only two free lunches in investing. Low costs and broad diversification. I recommend instead of challenging a peer group that all have a shared belief based around a simple low cost strategy, you take the effort to hang around and read. Go through the wiki and read some of the recommended book.

The enemy of a good portfolio is the best portfolio....... There is a reason why some of the highest performing portfolios are those of the deceased.
Some of the responses in here have been excellent. I particularly like the point below about trusting the US economy in general. However, I very obviously AM looking for reading material and ideas to help me better understand this core belief. I’ve seen LOTS of posts on this site to articles that emphasize past performance —and all I was doing was asking for recommendations and ideas that do not rely on that. I apologize if I offended you or believe I inappropriately challenged you. However, your conclusory remarks that “some of the best portfolios” are unmanaged/decreased is exactly what i was seeking to avoid.
Last edited by blacksmith4 on Thu Feb 28, 2019 9:47 pm, edited 2 times in total.
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Re: “Market Always Goes Up” defense without past performance

Post by mhadden1 »

I think markets went up the past, and still do, because people and their companies are always learning and building and striving and overall producing more with less. That means passive investors that take market returns figure they will end up getting more and more. Markets definitely have a lot of local maxima and minima though. Anyway, for me while saving for retirement the market was the only game in town. I did not want to work for the man until I died so I had to invest. "Invest you must" Luckily that worked out ok so far.

Regarding market timing I don't have any confidence that I could do it. I guess a lot of people do, so, I wish them the best.
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.
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blacksmith4
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Re: “Market Always Goes Up” defense without past performance

Post by blacksmith4 »

mhadden1 wrote: Thu Feb 28, 2019 9:46 pm I think markets went up the past, and still do, because people and their companies are always learning and building and striving and overall producing more with less. That means passive investors that take market returns figure they will end up getting more and more. Markets definitely have a lot of local maxima and minima though. Anyway, for me while saving for retirement the market was the only game in town. I did not want to work for the man until I died so I had to invest. "Invest you must" Luckily that worked out ok so far.

Regarding market timing I don't have any confidence that I could do it. I guess a lot of people do, so, I wish them the best.
Clearly though, you wouldn’t pay infinite money for a company’s profits if those profits were small. Profitability can’t be the sole justification for buying stocks at any price. There’s an opportunity cost to that strategy if you could buy a more profitable company for less money.

Perhaps my question then is best asked as: how can we be confident that we haven’t already overbought the Total Stock fund? Is it because that if that were so, we’d expect much smarter and bigger investors to have sold it off and we are riding their coattails? Is that really a reasonable presumption though when so many people are now subscribed to the Bogle Head philosophy?
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Re: “Market Always Goes Up” defense without past performance

Post by aspiringboglehead »

blacksmith4 wrote: Thu Feb 28, 2019 9:07 pm Because from my lay perspective, it just seems INSANE to be buying equities today when global trade is slowing
I think an important recognition is at the core of your question. On one hand, we reject strategies to time the market based on past performance. On the other, we use the past performance of different asset classes to inform decisions about asset allocation (and, in some cases, to tilt toward small-cap stocks, value stocks, and so on). It's not a fully consistent view of the proper role of past performance in making decisions about an uncertain future.

I think most people here have accepted the mild theoretical inconsistency because it's not clear that any other approach can do better, and it's clear from many people's personal experience that many other approaches can do worse. Particularly for people with a need to take risk to fund retirement, taking a risk in an asset class that has performed well over long periods of time by passively investing in it has seemed to be an optimal approach. Yes, that's based on a casual, intuitive view of "past performance" just as much as is a view that you shouldn't buy when things are "overvalued." Neither has a comprehensive, satisfying theoretical justification; that is just a problem that results from making decisions under conditions of uncertainty. But most people, with most psychologies, abilities, etc., have tended to do much better with passive investing, by a very wide margin. The pitfalls of trusting your intuition about whether anything is "overvalued" when the market sets a price for it are just too great.

Remember, buyers have heard your feeling that prices are too high; that's not news to them, and they're buying anyway. Of course, that characterizes bubbles, but it also characterizes situations that are not bubbles. Views of even expert analysts as to pricing are commonly wrong. And to time the market successfully, you have to figure out both when to buy and when to sell; messing up either of those decisions can lead you to underperform the market dramatically.

All that said, while like most here I'm convinced of the superiority of index-based investing, my own feeling is that persistent stock allocations are too high. I don't think it's "INSANE" to be holding (which is the same thing as saying "buying," because the future performance of the market, and your future wealth, don't depend on what price you paid but only on future prices) stocks today, but I do think there's a lot of complacency in very high asset allocations to stocks in general, regardless of timing. (I'm amazed that people describe a portfolio of 40% or 50% -- or even 60% -- stocks as "conservative," but then I don't have much need for risk, personally.) And surely the performance of stocks over the last 20 years has increased that complacency, so I think you're right to that extent. In other words, some people with an 90% allocation to stocks may be "timing" the market (in the sense of making a speculative bet based on recent past performance) even if they don't realize it, because surely there would be fewer people doing that if the last few decades of the US equity markets had looked like Japan's.
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Re: “Market Always Goes Up” defense without past performance

Post by Watty »

blacksmith4 wrote: Thu Feb 28, 2019 9:37 pm 2. But the market crashed over the course of several days when we were told interest rates were going to go up. And then it began climbing again when Powell said nevermind. Is it reasonable to say, “blind buy Total Stocks after the chop settles following a major market shaker?”
That is one of the advantages of dollar cost averaging that you will be buying more shares of stock when they are down.

https://www.bogleheads.org/wiki/Dollar_cost_averaging

If you are investing in something like a 401k then you are investing some every two weeks when you get your paycheck.
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Re: “Market Always Goes Up” defense without past performance

Post by blacksmith4 »

aspiringboglehead wrote: Thu Feb 28, 2019 9:57 pm
blacksmith4 wrote: Thu Feb 28, 2019 9:07 pm Because from my lay perspective, it just seems INSANE to be buying equities today when global trade is slowing
I think an important recognition is at the core of your question. On one hand, we reject strategies to time the market based on past performance. On the other, we use the past performance of different asset classes to inform decisions about asset allocation (and, in some cases, to tilt toward small-cap stocks, value stocks, and so on). It's not a fully consistent view of the proper role of past performance in making decisions about an uncertain future.

I think most people here have accepted the mild theoretical inconsistency because it's not clear that any other approach can do better, and it's clear from many people's personal experience that many other approaches can do worse. Particularly for people with a need to take risk to fund retirement, taking a risk in an asset class that has performed well over long periods of time by passively investing in it has seemed to be an optimal approach. Yes, that's based on a casual, intuitive view of "past performance" just as much as is a view that you shouldn't buy when things are "overvalued." Neither has a comprehensive, satisfying theoretical justification; that is just a problem that results from making decisions under conditions of uncertainty. But most people, with most psychologies, abilities, etc., have tended to do much better with passive investing, by a very wide margin. The pitfalls of trusting your intuition about whether anything is "overvalued" when the market sets a price for it are just too great.

Remember, buyers have heard your feeling that prices are too high; that's not news to them, and they're buying anyway. Of course, that characterizes bubbles, but it also characterizes situations that are not bubbles. Views of even expert analysts as to pricing are commonly wrong. And to time the market successfully, you have to figure out both when to buy and when to sell; messing up either of those decisions can lead you to underperform the market dramatically.

All that said, while like most here I'm convinced of the superiority of index-based investing, my own feeling is that persistent stock allocations are too high. I don't think it's "INSANE" to be holding (which is the same thing as saying "buying," because the future performance of the market, and your future wealth, don't depend on what price you paid but only on future prices) stocks today, but I do think there's a lot of complacency in very high asset allocations to stocks in general, regardless of timing. (I'm amazed that people describe a portfolio of 40% or 50% -- or even 60% -- stocks as "conservative," but then I don't have much need for risk, personally.) And surely the performance of stocks over the last 20 years has increased that complacency, so I think you're right to that extent. In other words, some people with an 90% allocation to stocks may be "timing" the market (in the sense of making a speculative bet based on recent past performance) even if they don't realize it, because surely there would be fewer people doing that if the last few decades of the US equity markets had looked like Japan's.
This is excellent, thank you.
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Re: “Market Always Goes Up” defense without past performance

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I removed an off-topic comment. As a reminder, this is a strict "no politics" forum. See: Politics and Religion
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Re: “Market Always Goes Up” defense without past performance

Post by DonIce »

The real (above inflation) returns of the total market are comprised of three things:

1) The growth of the economy (GDP), which will probably average ~2% in developed countries in the future barring major disruptions to human civilization as a whole
2) The payout of dividends from earnings, which will probably also average ~2% in the future
3) The change in the relative portion of GDP that is represented in publicly traded companies (this can change over long timescales but fundamentally is bounded on both sides so contributes no net long term effect)

Why? Companies can't grow any faster than the overall economy forever (though in the short term they can, hence the 3rd factor above). Therefore the overall limit on the growth in the market cap of equities is the growth rate of the economy. Any earnings that companies can't meaningfully reinvest into growth will eventually be paid out as dividends (or, nearly equivalently, share buybacks).

Why should growth continue at 2% in the future rather than stagnating to zero (or negative) permanently? Because growth is driven by two things: population growth and productivity growth. Even if population growth comes to a halt (as many project it will), productivity growth depends on capital investment (which will continue to be done over time as it generates a profit) and technological progress (which will continue, barring civilizational collapse, as we are nowhere near the end of science and technology).

The stock markets of any one country might stagnate if it loses its relative place among world economies (as Japan has), but the overall growth and progress of human civilization is not something I would bet against.
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Re: “Market Alwweays Goes Up” defense without past performance

Post by jbranx »

The return on equity for the S&P 500 and even the Dow has been a remarkably consistent 12-13% over the past few decades. So consistent that a younger Warren Buffet in the 1970's wrote several articles calling that ROE a "bond without a stated coupon or maturity date." In other words, if you can stand the ride, higher returns eventually await, dates totally uncertain. You have to buy at book value to get all that return, and book value is about 3X on the indices now, so simple math under the Buffet formula today says about 4.3% return. Over time one would get a much higher return than that as book value grows. Thus, we have historical returns in the neighborhood of 10%, 7% of that real. A better perspective may be that returns globally in developed markets have shown a pretty consistent 5-6% real returns after inflation.

Book value isn't what it used to be--Buffet dropped it as the measure of Berkshire's return this year--but it's one rough guide in a galaxy of rough guides. Book value today dramatically understates the "monopoly" power of many giant corporations, which may explain why we have returns higher than the formula would normally predict. Of course, valuations are high today in the view of many forecasters, but past history--another rough guide in that galaxy--suggests ROE and profits will continue to rise with population growth, GDP growth, and productivity growth. So, just guessing like people smarter than me, that 4.3% coupon above could be a low estimate and those who take it now and invest like BH'ers suggest, will eventually get a better "coupon" and a good harvest at some undefined "maturity date," probably retirement.
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Re: “Market Always Goes Up” defense without past performance

Post by Thesaints »

aspiringboglehead wrote: Thu Feb 28, 2019 9:57 pm I think an important recognition is at the core of your question. On one hand, we reject strategies to time the market based on past performance. On the other, we use the past performance of different asset classes to inform decisions about asset allocation (and, in some cases, to tilt toward small-cap stocks, value stocks, and so on). It's not a fully consistent view of the proper role of past performance in making decisions about an uncertain future.
I don’t see any inconsistency. Timing the market does not work, but assessing the market’s statistical properties by judiciously looking at its history does.
Clearly, only a fool tries to forecast the next roulette wheel spin, but it is perfectly ok to derive the chances of winning by looking at a sufficiently large number of past spins (assuming one is not guaranteed that the wheel is balanced).
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Re: “Market Always Goes Up” defense without past performance

Post by H-Town »

blacksmith4 wrote: Thu Feb 28, 2019 8:42 pm Virtually all of the advice here seems to be based on past performance. “You should have just done Sp500 instead of tried to time the market, since that did better.” Looking at the Nikkei 255 for instance, it seems evident to me that markets do not in fact always go up. And so I’m struggling to understand how the Bogleheads/Efficient Markets philosophy is in fact any better than “bet on the 6 horse since it won the last race.”

Said differently, this site would have a lot less traffic if US US stocks didn’t go up so much since 2009.

Can anyone point me to some reading that justifies blind investing in us equities that does NOT rely primarily on “look at how much money you would have made” type arguments? Worst offenders to me are articles like “if you invested prior to each crash, you’d still be up!” since this is true only due to extremely recent market developments. Is there some actual reason that US equities are so wonderful and that we should just ignore all other fundamental/economic indicators when making investment decisions?
It's the basic premise of why we invest. Capitalism and productivity create values for modern society. Innovation and technology breakthrough come in bursts but show no sign of stopping. I didn't live in the 1900's but from history books, human have come a long way.

Money makes money (so you don't have to).
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Re: “Market Always Goes Up” defense without past performance

Post by aspiringboglehead »

Thesaints wrote: Fri Mar 01, 2019 1:25 am I don’t see any inconsistency. Timing the market does not work, but assessing the market’s statistical properties by judiciously looking at its history does.
Clearly, only a fool tries to forecast the next roulette wheel spin, but it is perfectly ok to derive the chances of winning by looking at a sufficiently large number of past spins (assuming one is not guaranteed that the wheel is balanced).
In machine learning and statistics, the problem is conceived as a matter of "underfitting" and "overfitting" a model to historical data. There's not a "rational" or neutral way to decide the level of generality at which we analyze past performance in order to develop a plan for the future. Someone who wants to time the market could just as easily say "I'm deriving my changes of winning by looking at a sufficiently large number of past spins"; they are just defining "sufficiently large," or conceiving the collection of relevant historical data, differently from the way we do.

Most of us would reject the idea that we should bias our equity allocation toward the highest performing 10% of public stocks over the last 80 years. But we use the performance of the whole stock market over the last 80 years to inform our allocation to equities as a group. I don't think "reason" alone explains the difference. We can motion toward the idea that the "best" 10% of stocks changes over different periods, but over different periods the performance of stocks compared to other asset classes changes too. I think this precise tension -- this intuitive and fundamentally arbitrary choice -- explains why some people tilt toward "small value" and some don't, or why some people make different assumptions from others about the expected return and volatility of equity (and thus, say, the "safe" withdrawal rate) over the next 30 years.
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Re: “Market Always Goes Up” defense without past performance

Post by Thesaints »

Well, timing necessarily contains a forecast of when something happens.
Looking back at past market results I’m not trying to extract any information about any specific time in the future.
Nor I simply assume that things will continue to work the same as they worked in the past.
In fact, today we say that the expected real return for the US stock market over the next decade is around 4% annual, its historical return of 7% notwithstanding. But that estimate was made looking at past results, not simply to translate them to our days, but to understand how the system works.

I cannot speak for why other people do what they do, but if they make mistakes it is not my fault. Not all market strategies have the same dignity.
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Re: “Market Always Goes Up” defense without past performance

Post by aspiringboglehead »

Thesaints wrote: Fri Mar 01, 2019 1:52 am Looking back at past market results I’m not trying to extract any information about any specific time in the future.
I think we can't avoid doing that completely because of our limited personal investment horizons. At least for personal investment plans (compared to those on behalf of charitable giving or long-term organizations), any commitment of money to an asset class involves a prediction that it will help us, at the very least, at some point in our lifetimes.

True, that is not as "specific" as someone buying today and aiming to sell in September as a matter of short-term speculation, but the difference is just one of degree. ("Market timers" include those who buy today with an aim of selling in eight years if certain market or economic conditions are met.) If we didn't believe stocks tend to rise over 30-year periods, we wouldn't commit so much money to them.
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Re: “Market Always Goes Up” defense without past performance

Post by Ferdinand2014 »

blacksmith4 wrote: Thu Feb 28, 2019 8:42 pm Virtually all of the advice here seems to be based on past performance. “You should have just done Sp500 instead of tried to time the market, since that did better.” Looking at the Nikkei 255 for instance, it seems evident to me that markets do not in fact always go up. And so I’m struggling to understand how the Bogleheads/Efficient Markets philosophy is in fact any better than “bet on the 6 horse since it won the last race.”

Said differently, this site would have a lot less traffic if US US stocks didn’t go up so much since 2009.

Can anyone point me to some reading that justifies blind investing in us equities that does NOT rely primarily on “look at how much money you would have made” type arguments? Worst offenders to me are articles like “if you invested prior to each crash, you’d still be up!” since this is true only due to extremely recent market developments. Is there some actual reason that US equities are so wonderful and that we should just ignore all other fundamental/economic indicators when making investment decisions?
I think there are 2 questions you are asking, first about investing with equities in general and wether market timing based on your analysis of the economic data can beat a simple index and secondly what's special about U.S. equities. I think if you were to read both Jack Bogle's 'Common Sense Investing' and Jeremy Seigel's book noted below, might get you closer to your answer if you are looking for hard data and a deeper understanding.


Jeremy Siegel 'Stocks for the long run' has data going back to 1802 for U.S. stocks and data references for foreign equities going back at least that far. His conclusion is that U.S. equities have never had negative returns over every single 30 year return sequence. The average real return was 6.6% over the entire history and bonds exceeded stocks only twice in all of the 30 year returns and over almost every 20 year period. He backs up all of his data with references. He also goes into great detail about the how and why's.

https://www.amazon.com/gp/product/00718 ... bl_vppi_i0
His brief bio:

'Jeremy J. Siegel is a professor of finance at the Wharton School of the University of Pennsylvania. Professor Siegel received his Ph.D. from M.I.T. and taught for four years at the University of Chicago before joining the Wharton faculty in 1976. He has written and lectured extensively about the economy and financial markets, monetary policy and interest rates, and stock and bond returns.'

Jack Bogle has similar data going back 114 years in his book 'Common Sense Investing'. He of course needs no introduction as he is the basis of this site.

This is not to say devastating country and world events can't happen.

Nobody can predict the future of course.

Although I only invest directly in the U.S., most on this site advocates a total international market cap weighting of all equities to in theory reduce certain rare events that are country specific.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett
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Re: “Market Always Goes Up” defense without past performance

Post by goingup »

blacksmith4-
Frankly, if you're 40 and have this attitude toward equities/stock market then don't fight your nature. Your conviction seems deep. Make your plan to save in CDs, Treasury bonds or high yield money market funds.

Groucho Marx was once asked how he invested and he answered Treasury bonds. Someone pointed out that bonds didn't pay much and he famously said, "They do when you have a lot of them!".

So if you don't invest in stocks/stock funds you'll have to save more. That's the price you pay for holding low risk assets.
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Re: “Market Always Goes Up” defense without past performance

Post by -ryan- »

David Jay wrote: Thu Feb 28, 2019 9:39 pm At some point, you either believe in the US economic system or you don’t. For instance, when I hold the S&P 500, I own a piece of the companies that:

Produce the electricity to light my home (AEP, Alliant)
Produce the natural gas to heat my home (Apache, Anadarko)
Make or distribute the food and drink I consume (ADM, Brown-Forman)
Sell me a car and keep it running (AutoNation, Auto Zone)
Run hospitals and provide health insurance (Anthem, Aetna)
Create new drugs that extend and improve quality of life (Abbot, Bristol-Myers)
Run the banking system so my checks and ATM card function (Bank of America, Bank of New York)
Make my cool smartphone and the network that makes it work (Apple, ATT)
Make the components that go into all my electronic gadgets (Analog Devices, Broadcom)
Allow me to access virtually the sum knowledge of the planet (Alphabet)
Allows me buy almost everything (Amazon, Bed, Bath & Beyond, Best Buy)
Make and operate the airplanes I ride on to go see the grandkids (Boeing, American, Alaska)

And I only got through the company names that start with “A” and “B”. Short of global catastrophe (on the level of an extinction-level meteor strike), will these great companies continue to deliver these goods and services (and generate earnings for me, the owner)?
I agree 100%, and I also would like to point out that we need to remember that our investments aren't just numbers. We discuss market stagnation or decline in terms of our investments and forget that the underlying implication is that innovation, production and services will be stagnant or on the decline, and that means everything from the quality of our medical care, our infrastructure, our nourishment is at risk, not just our portfolios. It is considered an outside risk, but it is a real risk, just like the risk that you'll die in a car accident on your way home from work. I handle both risks roughly the same way.

In terms of past performance, I use it in evaluating all of my decisions, from selecting investments, to which car to purchase, which home I live in and which computer I am typing this on. I have not yet found a way to predict what may happen in the future without using past events, and I don't believe it is possible to do so, but I am open to suggestions.
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Re: “Market Always Goes Up” defense without past performance

Post by lostdog »

Greed is always present in the human condition. Why not invest and take advantage of it.
Last edited by lostdog on Fri Mar 01, 2019 5:24 pm, edited 1 time in total.
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Re: “Market Always Goes Up” defense without past performance

Post by -ryan- »

blacksmith4 wrote: Thu Feb 28, 2019 9:37 pm
Watty wrote: Thu Feb 28, 2019 9:24 pm
blacksmith4 wrote: Thu Feb 28, 2019 8:42 pm Is there some actual reason that US equities are so wonderful and that we should just ignore all other fundamental/economic indicators when making investment decisions?
A couple of things to think about.

1) The reason that equities(not just US equities) are expected to go up over the long term is that most companies will make a profit and they can basically do three things with the profit;
a) Pay a dividend
b) Reinvest the money intelligently so that they are likely to make even more money in the future even if there are some risks.
c) Buy back shares of their stock so that the remaining shares are worth more
d) Squander the money.

This is oversimplified and when companies have a profit they may do some combination of these but that is why companies are expected(hoped ?) to become more valuable in the future.

2) The problem with trying to invest other fundamental/economic indicators is that usually everyone else knows at least as much as about these so at least in theory these are already priced in the market. For example a good argument can be made that interest rates will probably go up, but everyone knows that.
1. Even if every company is making profits, it seems absurd to pay any price whatsoever for those profits. But i suppose I’m starting to understand why Total Stock makes sense

2. But the market crashed over the course of several days when we were told interest rates were going to go up. And then it began climbing again when Powell said nevermind. Is it reasonable to say, “blind buy Total Stocks after the chop settles following a major market shaker?”

It's important to consider that PE ratios are also based on recent past performance (coupled with current stock prices), and we can just as easily make the argument that a company's past earnings performance is not indicative of what they will produce in the future. So far there has been such an extreme disconnect between PE ratios at the time of purchasing my investments and my actual investment results that I have been comfortable ignoring them. That could very likely be a case of the turkey scenario described by Taleb, but Benjamin Graham recommended in the early 70's that it wasn't a good time to invest in equities. He was right in the very short term, but wrong in the long term. For the record, both Graham and Taleb have some great books out that, while not directly related to index investing, are very interesting and helped fill in some gaps in my understanding of investing.
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Re: “Market Always Goes Up” defense without past performance

Post by gmaynardkrebs »

blacksmith4 wrote: Thu Feb 28, 2019 8:42 pm Virtually all of the advice here seems to be based on past performance. “You should have just done Sp500 instead of tried to time the market, since that did better.” Looking at the Nikkei 255 for instance, it seems evident to me that markets do not in fact always go up. And so I’m struggling to understand how the Bogleheads/Efficient Markets philosophy is in fact any better than “bet on the 6 horse since it won the last race.”

Said differently, this site would have a lot less traffic if US US stocks didn’t go up so much since 2009.

Can anyone point me to some reading that justifies blind investing in us equities that does NOT rely primarily on “look at how much money you would have made” type arguments? Worst offenders to me are articles like “if you invested prior to each crash, you’d still be up!” since this is true only due to extremely recent market developments. Is there some actual reason that US equities are so wonderful and that we should just ignore all other fundamental/economic indicators when making investment decisions?
Robert Shiller's work has greatly influenced me, and I think what you say echoes many of the general themes explored his books, particularly Irrational Exuberance. People are much influenced by narratives about investing, and you have hit on some of the most popular investing narratives of our time. While I think many here do act on these highly optimistic narratives (Stay the Course!), others do not, or do so only partially. What impresses me about the latter group is that rather than abandon the market entirely in exasperation, they come with plans that incorporate equities into their portfolios, but with a large grain of salt. I totally agree with you that if the last 20 years had not worked out so well for equity investors, the tenor of the discussion here would be far less confident. However, many of the people here are extremely smart and extremely rational, and I have gained a lot by seeing how they handle today's investing options, with full recognition that stocks are not destined to go up by any law of nature or theory of economics.
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Re: “Market Always Goes Up” defense without past performance

Post by acegolfer »

blacksmith4 wrote: Thu Feb 28, 2019 8:42 pm Can anyone point me to some reading that justifies blind investing in us equities that does NOT rely primarily on “look at how much money you would have made” type arguments?
Read
"Modern Portfolio Theory"
"Mean variance analysis"
"Efficient frontier"
"Capital Market Line"

The above are pure economic theories, which do NOT rely on past performance.

Note that the conclusion is "Market has the highest expected return per risk than any other asset".
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Re: “Market Always Goes Up” defense without past performance

Post by gmaynardkrebs »

acegolfer wrote: Fri Mar 01, 2019 10:31 am
blacksmith4 wrote: Thu Feb 28, 2019 8:42 pm Can anyone point me to some reading that justifies blind investing in us equities that does NOT rely primarily on “look at how much money you would have made” type arguments?
Read
"Modern Portfolio Theory"
"Mean variance analysis"
"Efficient frontier"
"Capital Market Line"

The above are pure economic theories, which do NOT rely on past performance.

Note that the conclusion is "Market has the highest expected return per risk than any other asset".
Bear in mind, "If all the economists were laid end to end, they'd never reach a conclusion." - George Bernard Shaw.
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Re: “Market Always Goes Up” defense without past performance

Post by Ged »

blacksmith4 wrote: Thu Feb 28, 2019 9:45 pm Some of the responses in here have been excellent. I particularly like the point below about trusting the US economy in general.
It isn't a matter of just the US economy. Most of us are invested more widely than that. It's a matter of believing that mankind will continue to make progress.

There is a million year track record supporting that.
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Post by gmaynardkrebs »

delete
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Re: “Market Always Goes Up” defense without past performance

Post by acegolfer »

gmaynardkrebs wrote: Fri Mar 01, 2019 10:40 am Bear in mind, "If all the economists were laid end to end, they'd never reach a conclusion." - George Bernard Shaw.
If there were no economist, then we wouldn't have an index fund.
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Re: “Market Always Goes Up” defense without past performance

Post by asif408 »

blacksmith4 wrote: Thu Feb 28, 2019 9:56 pmPerhaps my question then is best asked as: how can we be confident that we haven’t already overbought the Total Stock fund? Is it because that if that were so, we’d expect much smarter and bigger investors to have sold it off and we are riding their coattails? Is that really a reasonable presumption though when so many people are now subscribed to the Bogle Head philosophy?
You can't. The only actionable takeaway I can give you is that not all Bogleheads invest among equities the same, and Bogleheads are a small percentage of the population. For example, almost no one here holds more than 50% of their equities in foreign stocks, and even smaller percentages in emerging markets, or tilts significantly to sectors that have performed very poorly over the last decade. I imagine outside of here the numbers are even smaller.

Developed ex-US and emerging markets have done very poorly compared to US stocks since 2011, and expectations of earnings growth are much lower there. So if you fear "stocks" are overbought in the US, just invest more where stocks could be underbought and expectations are lower. For instance, you could put 1/3 of your money in emerging markets, 1/3 in developed ex-US, 1/3 in energy and precious metals stocks. I can assure you will not have many followers duplicating your strategy.
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Re: “Market Always Goes Up” defense without past performance

Post by David Jay »

blacksmith4 wrote: Thu Feb 28, 2019 9:56 pmPerhaps my question then is best asked as: how can we be confident that we haven’t already overbought the Total Stock fund? Is it because that if that were so, we’d expect much smarter and bigger investors to have sold it off and we are riding their coattails? Is that really a reasonable presumption though when so many people are now subscribed to the Bogle Head philosophy?
If you are investing for the next 40 years, why does it matter whether or not Total Stock is overbought? This seems to be your sticking point and I think it comes from a short term view.

If you are buying $18,000 of Total Stock every year (maxing out your 401K) over 30 years, does it matter that there is a 30% correction in any given year? It is going to happen. Stocks are risky. Live with it or invest some other asset class.

[note the second quote in my signature line]
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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Re: “Market Always Goes Up” defense without past performance

Post by KlangFool »

OP,

1) I buy the whole world. Not only the US Total Market. So, if the whole world is not doing well, then, I am doing as well or as bad as the whole world.

2) My AA is 60/40. it is not 100% stock.

3) Even if the market does not eventually go up, I am not doing as bad as the average. I am aiming to be average and that is good enough for me.

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Re: “Market Always Goes Up” defense without past performance

Post by LiterallyIronic »

I don't invest in stocks because they went up in the past. I invest in stocks because it's the only realistic option. I own a piece of companies that are actively trying to make money, which makes me money if they're successful.

What are the other options? Invest in gold, which just sits there doing nothing, and hope there's a greater fool behind me that will buy it for more? No thanks. Invest in real estate and deal with the maintenance, landlording, etc? No thanks. Gambling and hope to be the lucky winner who got it off of pure chance? No thanks.

I'll invest in the thing that's literally trying to make me money.
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Re: “Market Always Goes Up” defense without past performance

Post by visualguy »

LiterallyIronic wrote: Fri Mar 01, 2019 3:25 pm Invest in real estate and deal with the maintenance, landlording, etc? No thanks.
I think investing at least part of your wealth in direct real estate is the wise thing to do. Yes, it requires some work, but not as much extra work as you would need to do if your stock/bond portfolio seriously disappointed and that's all you had.
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Re: “Market Always Goes Up” defense without past performance

Post by gmaynardkrebs »

LiterallyIronic wrote: Fri Mar 01, 2019 3:25 pm I don't invest in stocks because they went up in the past. I invest in stocks because it's the only realistic option. I own a piece of companies that are actively trying to make money, which makes me money if they're successful.

What are the other options? Invest in gold, which just sits there doing nothing, and hope there's a greater fool behind me that will buy it for more? No thanks. Invest in real estate and deal with the maintenance, landlording, etc? No thanks. Gambling and hope to be the lucky winner who got it off of pure chance? No thanks.

I'll invest in the thing that's literally trying to make me money.
With stocks, the only question is whether you are paying too much for whatever future earnings/cashflows you receive. A company may be making zillions, and doing its best to pass those zillions onto its shareholders, but if you are paying more for your small slice of those zillions than you receive, you may well be better off with other assets.There is nothing magical about stocks, bonds, real estate or gold in this regard. The point is, for me it's all a black box, and all I care about is how much cash in, for how much cash out later. I feel that I would be paying too much for stocks now, due to the elevated valuations. That brilliant insight and $2.75 will get you on the NYC subway, but it's just the way I look at it myself.
Jags4186
Posts: 5351
Joined: Wed Jun 18, 2014 7:12 pm

Re: “Market Always Goes Up” defense without past performance

Post by Jags4186 »

blacksmith4 wrote: Thu Feb 28, 2019 8:42 pm Virtually all of the advice here seems to be based on past performance. “You should have just done Sp500 instead of tried to time the market, since that did better.” Looking at the Nikkei 255 for instance, it seems evident to me that markets do not in fact always go up. And so I’m struggling to understand how the Bogleheads/Efficient Markets philosophy is in fact any better than “bet on the 6 horse since it won the last race.”

Said differently, this site would have a lot less traffic if US US stocks didn’t go up so much since 2009.

Can anyone point me to some reading that justifies blind investing in us equities that does NOT rely primarily on “look at how much money you would have made” type arguments? Worst offenders to me are articles like “if you invested prior to each crash, you’d still be up!” since this is true only due to extremely recent market developments. Is there some actual reason that US equities are so wonderful and that we should just ignore all other fundamental/economic indicators when making investment decisions?
While there are people who invest solely in US equities, the Bogleheads portfolio of choice includes international equities. This way if 1 sector or country performs poorly while others perform well you capture some of the good returns.

While it’s not certain it could never happen, there are systemic and cultural issues around why Japan’s stock market has been stagnant while the US’s isn’t. I’m not saying it couldn’t happen here, but even with our recent decline on the world stage (or should I say the rest of the world’s resurgence) the US is still the most largest, wealthiest, most powerful economic force in the world buoyed by the most powerful military which we have been shown to use to protect our interests.

All of that said, if you can find and point to a reasonable alternative that can meet your goals please share here. There are many roads to Dublin, equities is just a well travelled one. Certainly people invest in real estate, private equity, etc. etc. There is also the ability to simply to earn enough to save your way there. Suze Orman famously declared she doesn’t invest in the stock market, besides a token $1million she could care less if she loses, because she has made so much money she has never needed to get a great return beyond what AAA rated municipal bonds pay her.
H-Town
Posts: 3182
Joined: Sun Feb 26, 2017 2:08 pm

Re: “Market Always Goes Up” defense without past performance

Post by H-Town »

Jags4186 wrote: Fri Mar 01, 2019 4:03 pm
blacksmith4 wrote: Thu Feb 28, 2019 8:42 pm Virtually all of the advice here seems to be based on past performance. “You should have just done Sp500 instead of tried to time the market, since that did better.” Looking at the Nikkei 255 for instance, it seems evident to me that markets do not in fact always go up. And so I’m struggling to understand how the Bogleheads/Efficient Markets philosophy is in fact any better than “bet on the 6 horse since it won the last race.”

Said differently, this site would have a lot less traffic if US US stocks didn’t go up so much since 2009.

Can anyone point me to some reading that justifies blind investing in us equities that does NOT rely primarily on “look at how much money you would have made” type arguments? Worst offenders to me are articles like “if you invested prior to each crash, you’d still be up!” since this is true only due to extremely recent market developments. Is there some actual reason that US equities are so wonderful and that we should just ignore all other fundamental/economic indicators when making investment decisions?
While there are people who invest solely in US equities, the Bogleheads portfolio of choice includes international equities. This way if 1 sector or country performs poorly while others perform well you capture some of the good returns.

While it’s not certain it could never happen, there are systemic and cultural issues around why Japan’s stock market has been stagnant while the US’s isn’t. I’m not saying it couldn’t happen here, but even with our recent decline on the world stage (or should I say the rest of the world’s resurgence) the US is still the most largest, wealthiest, most powerful economic force in the world buoyed by the most powerful military which we have been shown to use to protect our interests.

All of that said, if you can find and point to a reasonable alternative that can meet your goals please share here. There are many roads to Dublin, equities is just a well travelled one. Certainly people invest in real estate, private equity, etc. etc. There is also the ability to simply to earn enough to save your way there. Suze Orman famously declared she doesn’t invest in the stock market, besides a token $1million she could care less if she loses, because she has made so much money she has never needed to get a great return beyond what AAA rated municipal bonds pay her.
Just a reminder, the U.S. have not been always the most largest, wealthiest, most powerful economic force in the world buoyed by the most powerful military.

Every great nation rises and falls. We just don't live long enough to witness the whole process.
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gmaynardkrebs
Posts: 2135
Joined: Sun Feb 10, 2008 11:48 am

Re: “Market Always Goes Up” defense without past performance

Post by gmaynardkrebs »

Jags4186 wrote: Fri Mar 01, 2019 4:03 pm
blacksmith4 wrote: Thu Feb 28, 2019 8:42 pm Virtually all of the advice here seems to be based on past performance. “You should have just done Sp500 instead of tried to time the market, since that did better.” Looking at the Nikkei 255 for instance, it seems evident to me that markets do not in fact always go up. And so I’m struggling to understand how the Bogleheads/Efficient Markets philosophy is in fact any better than “bet on the 6 horse since it won the last race.”

Said differently, this site would have a lot less traffic if US US stocks didn’t go up so much since 2009.

Can anyone point me to some reading that justifies blind investing in us equities that does NOT rely primarily on “look at how much money you would have made” type arguments? Worst offenders to me are articles like “if you invested prior to each crash, you’d still be up!” since this is true only due to extremely recent market developments. Is there some actual reason that US equities are so wonderful and that we should just ignore all other fundamental/economic indicators when making investment decisions?
While there are people who invest solely in US equities, the Bogleheads portfolio of choice includes international equities. This way if 1 sector or country performs poorly while others perform well you capture some of the good returns.

While it’s not certain it could never happen, there are systemic and cultural issues around why Japan’s stock market has been stagnant while the US’s isn’t. I’m not saying it couldn’t happen here, but even with our recent decline on the world stage (or should I say the rest of the world’s resurgence) the US is still the most largest, wealthiest, most powerful economic force in the world buoyed by the most powerful military which we have been shown to use to protect our interests.

All of that said, if you can find and point to a reasonable alternative that can meet your goals please share here. There are many roads to Dublin, equities is just a well travelled one. Certainly people invest in real estate, private equity, etc. etc. There is also the ability to simply to earn enough to save your way there.
My concern is that too many people think that stocks will allow them have a safe and secure retirement if they dress it up with a lot of MC simulations and SWR theories, so they spend every other dime they have. I admit I'm a curmudgeon, but I think that's a load of malarkey.
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blacksmith4
Posts: 41
Joined: Wed Feb 27, 2019 5:30 pm

Re: “Market Always Goes Up” defense without past performance

Post by blacksmith4 »

H-Town wrote: Fri Mar 01, 2019 4:10 pm Just a reminder, the U.S. have not been always the most largest, wealthiest, most powerful economic force in the world buoyed by the most powerful military.

Every great nation rises and falls. We just don't live long enough to witness the whole process.
This is another good point. The mantra of “don’t time, just blind buy your AA” would obviously need to be modified if there were Visigoths sacking the Capitol. Presumably then, there could be other market indicators that should prompt us to wait to buy—right?
If so, what would those be?
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