Reality Check - Don't assume prices will go up

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notsobright
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Reality Check - Don't assume prices will go up

Post by notsobright »

Remember, that the price of the market as it stands at any moment is a reflection of everything we know in the past and all things we assume about the future.

People are making decisions with the assumption that things will ABSOLUTELY recover, but this is not an absolute.

I'll say this one more time, the market price now, is a reflection of what we all believe the things are worth even with all of us being able to see that the market has constantly gone up about 6 to 8% every year since it's invention.

I'm not saying it's a bad idea to buy or sell things to re-adjust your asset allocation. Doing so is still absolutely logical as this is your own special "sleep well at night" number. Do what you can to maintain that. But i implore you, do not have the mindset that buying things when they are down is buying things on "sale".

Nothing is on sale or nothing is expensive with the market.
Everything is priced exactly what it is worth in that point in time.

The market being worth 20% less now than it was just a few weeks ago means that we believe it is worth 20% less EVEN after we all recover from corona into some unknowable future.
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Schlabba
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Re: Reality Check - Don't assume prices will go up

Post by Schlabba »

notsobright wrote: Thu Mar 12, 2020 12:30 pm Remember, that the price of the market as it stands at any moment is a reflection of everything we know in the past and all things we assume about the future.

People are making decisions with the assumption that things will ABSOLUTELY recover, but this is not an absolute.

I'll say this one more time, the market price now, is a reflection of what we all believe the things are worth even with all of us being able to see that the market has constantly gone up about 6 to 8% every year since it's invention.

I'm not saying it's a bad idea to buy or sell things to re-adjust your asset allocation. Doing so is still absolutely logical as this is your own special "sleep well at night" number. Do what you can to maintain that. But i implore you, do not have the mindset that buying things when they are down is buying things on "sale".

Nothing is on sale or nothing is expensive with the market.
Everything is priced exactly what it is worth in that point in time.

The market being worth 20% less now than it was just a few weeks ago means that we believe it is worth 20% less EVEN after we all recover from corona into some unknowable future.
You are basically pretending speculation doesn't exist. So when tulips were the price of a house "nothing is expensive", or when the japanese markets were trading at insane P/E multiples... etc.
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marky2kk
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Re: Reality Check - Don't assume prices will go up

Post by marky2kk »

What kind of thread is this.

Of course we assume that prices go up, i.e., the expected return on stocks is positive. Or are you telling me that the expected return on stocks is zero from now on? Of course there is a risk to it.

The reason we are buying is that expected returns are high after a market crash because prices are low. Of course, higher expected return, higher risk. What's the risk with the countercyclical rebalancing? That some asset classes get whiped out and keep on falling. I am willing to take that risk, but yes, the market doesn't agree. Otherwise my rebalanced weights would be the market weights.
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Re: Reality Check - Don't assume prices will go up

Post by David Jay »

notsobright wrote: Thu Mar 12, 2020 12:30 pm ...but this is not an absolute.
In the financial world, what is?
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Re: Reality Check - Don't assume prices will go up

Post by watchnerd »

Well.....

No excess risk = no excess return

If prices were guaranteed to go up, the returns would be the same as the risk-free rate.
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hagridshut
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Re: Reality Check - Don't assume prices will go up

Post by hagridshut »

marky2kk wrote: Thu Mar 12, 2020 12:46 pm What kind of thread is this.
A sign that fear is close to taking over. Right now, there are a mix of fearful and hopeful threads on p.1 of this forum, but anxiety and fear is slowly taking over :shock:

We have topics like:

International is in meltdown
Is it Possible the Market Closes Permanently
The "everything rally" is turning into the "everything crash"
Total Bond Market Down >4%
What are the signs of passing the point of long term damage?

Once most of the topics are like this, I would say we are close to the bottom. Right now, there is still hope, so I don't think the bottom has been reached!
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Re: Reality Check - Don't assume prices will go up

Post by watchnerd »

hagridshut wrote: Thu Mar 12, 2020 12:52 pm
marky2kk wrote: Thu Mar 12, 2020 12:46 pm What kind of thread is this.
A sign that fear is close to taking over. Right now, there are a mix of fearful and hopeful threads on p.1 of this forum, but anxiety and fear is slowly taking over :shock:

We have topics like:

International is in meltdown
Is it Possible the Market Closes Permanently
The "everything rally" is turning into the "everything crash"
Total Bond Market Down >4%
What are the signs of passing the point of long term damage?

Once most of the topics are like this, I would say we are close to the bottom. Right now, there is still hope, so I don't think the bottom has been reached!

This is when all the people who didn't think they were taking much risk find out where their excess returns came from.

And what we really mean by "risk premium".
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elgob.bogle
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Re: Reality Check - Don't assume prices will go up

Post by elgob.bogle »

What about the price-earnings ratio. Right now, the price has gone down, apparently because of a supply crunch. That means the numerator has gone down while the denominator has basically remained the same, and the PE ratio is looking better (buy - buy -buy). What if the virus has long term effects on the demand side which dampens earnings and the PE ratio zooms back up without any change in price. We could be back where we started a month ago (sell - sell - sell)!

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Re: Reality Check - Don't assume prices will go up

Post by watchnerd »

elgob.bogle wrote: Thu Mar 12, 2020 1:35 pm What about the price-earnings ratio. Right now, the price has gone down, apparently because of a supply crunch. That means the numerator has gone down while the denominator has basically remained the same, and the PE ratio is looking better (buy - buy -buy). What if the virus has long term effects on the demand side which dampens earnings and the PE ratio zooms back up without any change in price. We could be back where we started a month ago (sell - sell - sell)!

elgob.bogle
The 'E' will get adjusted as earnings reports come out over this quarter and the next.

This could cause erosion of 'P' if 'E' is worse than expected, or 'P' to tick up if 'E' is not as bad as expected.
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Re: Reality Check - Don't assume prices will go up

Post by Ramjet »

Even if I buy at all time highs I expect the market to go up. It has historically gone up, what, 7-10% per year? If it didn't, I wouldn't invest in it
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Re: Reality Check - Don't assume prices will go up

Post by watchnerd »

Ramjet wrote: Thu Mar 12, 2020 1:46 pm Even if I buy at all time highs I expect the market to go up. It has historically gone up, what, 7-10% per year? If it didn't, I wouldn't invest in it
There are decade long periods where the market did not return 7-10% per year.
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Re: Reality Check - Don't assume prices will go up

Post by sasquatch12 »

If you believe the markets will not go back up or go to zero you might as well expect the collapse of civilization. Hoard your food, guns, etc as we will enter an apocalyptic world with no economy and no jobs. People will kill each other for food. I highly doubt that will happen, the markets will recover we just don’t know how long it will take. Chill.
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Re: Reality Check - Don't assume prices will go up

Post by rich126 »

I agree with you in the sense that too many people think this will end quickly and then a couple of months later prices will return to where they were prior to this event. That isn't going to happen. Companies have sustained losses that won't be made up overnight, some people will be reluctant to travel for an extended period of time, seasonal companies may lose an entire season, etc. Things will likely recover and prices hopefully will be higher but I think common sense would say that could take a year or two and not a month or two.

I certainly think there are some bargains out there but many, including myself, thought the market was already 20% or so overpriced. So that 2% real return some were talking about as a realistic future return may still be true but just from this lower level instead of the higher level. We'll only find out as time goes by.
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Re: Reality Check - Don't assume prices will go up

Post by VictoriaF »

notsobright wrote: Thu Mar 12, 2020 12:30 pm Remember, that the price of the market as it stands at any moment is a reflection of everything we know in the past and all things we assume about the future.
Good point. Thank you for making it.

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Re: Reality Check - Don't assume prices will go up

Post by minimalistmarc »

notsobright wrote: Thu Mar 12, 2020 12:30 pm Remember, that the price of the market as it stands at any moment is a reflection of everything we know in the past and all things we assume about the future.

People are making decisions with the assumption that things will ABSOLUTELY recover, but this is not an absolute.

I'll say this one more time, the market price now, is a reflection of what we all believe the things are worth even with all of us being able to see that the market has constantly gone up about 6 to 8% every year since it's invention.

I'm not saying it's a bad idea to buy or sell things to re-adjust your asset allocation. Doing so is still absolutely logical as this is your own special "sleep well at night" number. Do what you can to maintain that. But i implore you, do not have the mindset that buying things when they are down is buying things on "sale".

Nothing is on sale or nothing is expensive with the market.
Everything is priced exactly what it is worth in that point in time.

The market being worth 20% less now than it was just a few weeks ago means that we believe it is worth 20% less EVEN after we all recover from corona into some unknowable future.

Technically yes, but there is absolute panic out there and I am seeing irrational behaviour in day to day life ( like panic buying toilet roll) which I am guessing will translate into investing behaviour.
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Re: Reality Check - Don't assume prices will go up

Post by 7eight9 »

sasquatch12 wrote: Thu Mar 12, 2020 1:53 pm If you believe the markets will not go back up or go to zero you might as well expect the collapse of civilization. Hoard your food, guns, etc as we will enter an apocalyptic world with no economy and no jobs. People will kill each other for food. I highly doubt that will happen, the markets will recover we just don’t know how long it will take. Chill.
The Nikkei has not yet reclaimed its December 1989 level. The last time I was there Japan didn't look like Mad Max. :happy
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Re: Reality Check - Don't assume prices will go up

Post by watchnerd »

7eight9 wrote: Thu Mar 12, 2020 1:58 pm
The Nikkei has not yet reclaimed its December 1989 level. The last time I was there Japan didn't look like Mad Max. :happy
That's in USD.

If you look at the Nikkei in yen terms, given Japanese deflation, it looks different.

A flat line of near 0 growth can give real returns in a deflationary environment.
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Re: Reality Check - Don't assume prices will go up

Post by mrspock »

Oh did I miss the announcement that 2% inflation is no longer fed policy?

What a silly thread.
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Re: Reality Check - Don't assume prices will go up

Post by sasquatch12 »

7eight9 wrote: Thu Mar 12, 2020 1:58 pm
sasquatch12 wrote: Thu Mar 12, 2020 1:53 pm If you believe the markets will not go back up or go to zero you might as well expect the collapse of civilization. Hoard your food, guns, etc as we will enter an apocalyptic world with no economy and no jobs. People will kill each other for food. I highly doubt that will happen, the markets will recover we just don’t know how long it will take. Chill.
The Nikkei has not yet reclaimed its December 1989 level. The last time I was there Japan didn't look like Mad Max. :happy
Sorry I should clarify the post apocalyptic part is in response to some believing it might go to zero. If that happened it would be mad max. Markets will recover the virus won’t last forever, the question is how long till it does?
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Re: Reality Check - Don't assume prices will go up

Post by bligh »

All that being said, are you saying not to re-balance to your planned asset allocation? Because if that is what you are saying, then you are market timing out of fear. If you are adjusting your asset allocation based on this pandemic, then all you are doing is market timing.

Rebalance, hold your course as best you can. Don't panic, don't get greedy and hope this storm shall pass soon.
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Re: Reality Check - Don't assume prices will go up

Post by Teriyaki »

notsobright wrote: Thu Mar 12, 2020 12:30 pm Nothing is on sale or nothing is expensive with the market.
Everything is priced exactly what it is worth in that point in time.

The market being worth 20% less now than it was just a few weeks ago means that we believe it is worth 20% less EVEN after we all recover from corona into some unknowable future.
Theoretically yes, but there is reason to believe that the market is prone to overreactions.

However, if what you claim is true, then at every moment stocks are valued perfectly and so every moment is as good a time to be buying as any other. Well, that's fine with me as I'll just keep buying. :beer
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Re: Reality Check - Don't assume prices will go up

Post by Unladen_Swallow »

Not sure what your preachy point is. I can assure you that most here are smart enough to make decisions that are suited to them.

The market will ABSOLUTELY recover. I just don't know if it will be 6 months, 2 years, 5yrs or longer. I plan accordingly.

I purposely used the word absolute, because I believe it. I am not going to mumble my way into ambiguity and waffling just so I can pretend to buy into outcomes I think are unlikely. If I thought the market never goes up, I wouldn't invest at all. Investing is probabilities when it comes down to it.
Last edited by Unladen_Swallow on Thu Mar 12, 2020 2:42 pm, edited 1 time in total.
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Re: Reality Check - Don't assume prices will go up

Post by garlandwhizzer »

notsobright wrote:

Nothing is on sale or nothing is expensive with the market.
Everything is priced exactly what it is worth in that point in time.

The market being worth 20% less now than it was just a few weeks ago means that we believe it is worth 20% less EVEN after we all recover from corona into some unknowable future.
Each to his/her own opinion, but I totally disagree. Markets today are driven by overwhelming emotion, fear/uncertainty, rather than rational analysis IMO. When the market is driven by emotional herd behavior, a mad rush for the exits in bears or a greed rush to buy more stock in bulls, it has always in the past overshot reality in both directions. The optimal time to reduce risk is not during a bear market by panic selling but rather during a long running bull market by periodic rebalancing and building up a larger base of more stable fixed income assets for the inevitable bear market that will follow the bull.

I don't know how long this bear is going to last or how deep the losses will be. Neither do those who are rushing to sell now. What I do know is that selling stock into severe market weakness rather than strength has not played out well in the US for those who trade short term emotional balm for selling stock at fire sale prices. In the end after it's over, and make no mistake bear markets have always ended in the US (we're not Japan), the losses incurred by panic selling will impact the investor's bottom line in the long run. If you are sufficiently driven by fear, it is very likely you'll find something to be afraid of that justifies panic selling. That does not mean it's rational or wise to do so.

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Re: Reality Check - Don't assume prices will go up

Post by delamer »

Of course I assume prices will go up over the long term. I don’t just assume it, I absolutely believe it.

Why would I invest in stocks if I don’t believe it?
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Re: Reality Check - Don't assume prices will go up

Post by Unladen_Swallow »

delamer wrote: Thu Mar 12, 2020 2:40 pm Of course I assume prices will go up over the long term. I don’t just assume it, I absolutely believe it.

Why would I invest in stocks if I don’t believe it?
Thank you!
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Re: Reality Check - Don't assume prices will go up

Post by watchnerd »

delamer wrote: Thu Mar 12, 2020 2:40 pm Of course I assume prices will go up over the long term. I don’t just assume it, I absolutely believe it.

Why would I invest in stocks if I don’t believe it?
Because you expect a real return, which is an economic necessity for businesses to operate.

Real return does *not* require rising nominal prices in a deflationary scenario.
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Re: Reality Check - Don't assume prices will go up

Post by watchnerd »

mrspock wrote: Thu Mar 12, 2020 2:04 pm Oh did I miss the announcement that 2% inflation is no longer fed policy?

What a silly thread.
This is the correct framing.

Real returns will happen, nominal returns are dependent upon inflation / deflation.
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Re: Reality Check - Don't assume prices will go up

Post by delamer »

watchnerd wrote: Thu Mar 12, 2020 2:44 pm
delamer wrote: Thu Mar 12, 2020 2:40 pm Of course I assume prices will go up over the long term. I don’t just assume it, I absolutely believe it.

Why would I invest in stocks if I don’t believe it?
Because you expect a real return, which is an economic necessity for businesses to operate.

Real return does *not* require rising nominal prices in a deflationary scenario.
Temporary deflationary scenarios don’t figure into my decision making.
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Re: Reality Check - Don't assume prices will go up

Post by mrwalken »

The market always goes back up. Until it doesn't. Good thoughts.
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Re: Reality Check - Don't assume prices will go up

Post by BoggledHead2 »

notsobright wrote: Thu Mar 12, 2020 12:30 pm Remember, that the price of the market as it stands at any moment is a reflection of everything we know in the past and all things we assume about the future.

People are making decisions with the assumption that things will ABSOLUTELY recover, but this is not an absolute.

I'll say this one more time, the market price now, is a reflection of what we all believe the things are worth even with all of us being able to see that the market has constantly gone up about 6 to 8% every year since it's invention.

I'm not saying it's a bad idea to buy or sell things to re-adjust your asset allocation. Doing so is still absolutely logical as this is your own special "sleep well at night" number. Do what you can to maintain that. But i implore you, do not have the mindset that buying things when they are down is buying things on "sale".

Nothing is on sale or nothing is expensive with the market.
Everything is priced exactly what it is worth in that point in time.

The market being worth 20% less now than it was just a few weeks ago means that we believe it is worth 20% less EVEN after we all recover from corona into some unknowable future.
Reality check: It’s gone up despite 2 world wars, 2 depressions, Y2K, terrorism, natural disasters, and political discourse.

Let me guess, “This time is different”
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Re: Reality Check - Don't assume prices will go up

Post by watchnerd »

delamer wrote: Thu Mar 12, 2020 2:50 pm
watchnerd wrote: Thu Mar 12, 2020 2:44 pm
delamer wrote: Thu Mar 12, 2020 2:40 pm Of course I assume prices will go up over the long term. I don’t just assume it, I absolutely believe it.

Why would I invest in stocks if I don’t believe it?
Because you expect a real return, which is an economic necessity for businesses to operate.

Real return does *not* require rising nominal prices in a deflationary scenario.
Temporary deflationary scenarios don’t figure into my decision making.
The point isn't that it's temporary or not.

The point is that nominal returns don't matter.

7-10% per year would suck if inflation is 9%.

2% per year would be great if deflation is -2%.

Only real returns matter.
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Re: Reality Check - Don't assume prices will go up

Post by SimpleGift »

notsobright wrote: Thu Mar 12, 2020 12:30 pm I'll say this one more time, the market price now, is a reflection of what we all believe the things are worth even with all of us being able to see that the market has constantly gone up about 6 to 8% every year since it's invention.
Can't agree with this. At times of market panic, no one can accurately say what the "fair value" of U.S. market is. Emotions are currently driving this market selloff, not some rational assessment of future company earnings or cash flows. So it's not really correct to say that the market price now is a reflection of what the market is definitely worth. Just like irrational exuberance, irrational fear tends to obscure "fair value."

We'll need to see companies' upcoming revenue/earnings announcements, plus their dividend and buyback plans, before one can say anything rational about the market's fair value or prices.
Last edited by SimpleGift on Thu Mar 12, 2020 3:22 pm, edited 1 time in total.
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Re: Reality Check - Don't assume prices will go up

Post by Will do good »

notsobright wrote: Thu Mar 12, 2020 12:30 pm Remember, that the price of the market as it stands at any moment is a reflection of everything we know in the past and all things we assume about the future.

People are making decisions with the assumption that things will ABSOLUTELY recover, but this is not an absolute.

I'll say this one more time, the market price now, is a reflection of what we all believe the things are worth even with all of us being able to see that the market has constantly gone up about 6 to 8% every year since it's invention.

I'm not saying it's a bad idea to buy or sell things to re-adjust your asset allocation. Doing so is still absolutely logical as this is your own special "sleep well at night" number. Do what you can to maintain that. But i implore you, do not have the mindset that buying things when they are down is buying things on "sale".

Nothing is on sale or nothing is expensive with the market.
Everything is priced exactly what it is worth in that point in time.

The market being worth 20% less now than it was just a few weeks ago means that we believe it is worth 20% less EVEN after we all recover from corona into some unknowable future.
So, this time it's different?
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Re: Reality Check - Don't assume prices will go up

Post by bottlecap »

When things are priced in, it means the market is efficient and the information has been accounted for.

It doesn't mean that there are not under-reactions and over-reactions to information in the short term.

Stick to your IPS. Obviously there are no guarantees.

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Re: Reality Check - Don't assume prices will go up

Post by F150HD »

Reality Check - Don't assume prices will go up
if one doesn't assume prices will go up there'd be no reason for this board, yet you're here on an investment forum :confused

Sounds like you should go to all cash and walk away from stocks/markets forever. Good luck.
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Re: Reality Check - Don't assume prices will go up

Post by brcarls »

notsobright wrote: Thu Mar 12, 2020 12:30 pm Everything is priced exactly what it is worth in that point in time.
That is not true at all unless you are using "worth" as a short term tautology that things are worth what people are willing to pay.

If we think of "worth" as the underlying value and fundamentals, then, in the short term, the market often prices things based on fear, greed and other emotions which may prove to be irrational or wildly inaccurate in the long run. e.g. see 2016 when market prices temporarily reflected irrational emotional reactions to election results.
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Re: Reality Check - Don't assume prices will go up

Post by Darwin »

sasquatch12 wrote: Thu Mar 12, 2020 1:53 pm If you believe the markets will not go back up or go to zero you might as well expect the collapse of civilization. Hoard your food, guns, etc as we will enter an apocalyptic world with no economy and no jobs. People will kill each other for food. I highly doubt that will happen, the markets will recover we just don’t know how long it will take. Chill.
Agreed! Buy your 10-year toilet paper supply. Oh yeah, and maybe some food. After that: maybe follow your personal investment plan asset allocation?
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Re: Reality Check - Don't assume prices will go up

Post by Tommy »

Very good. When people begin to talk that market will never come back it means we are on the bottom. I want to see more postings like this :)
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Re: Reality Check - Don't assume prices will go up

Post by WS1 »

The Market is a perfect voting machine that accurately values companies + or - 50%
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Re: Reality Check - Don't assume prices will go up

Post by rascott »

notsobright wrote: Thu Mar 12, 2020 12:30 pm Remember, that the price of the market as it stands at any moment is a reflection of everything we know in the past and all things we assume about the future.

People are making decisions with the assumption that things will ABSOLUTELY recover, but this is not an absolute.

I'll say this one more time, the market price now, is a reflection of what we all believe the things are worth even with all of us being able to see that the market has constantly gone up about 6 to 8% every year since it's invention.

I'm not saying it's a bad idea to buy or sell things to re-adjust your asset allocation. Doing so is still absolutely logical as this is your own special "sleep well at night" number. Do what you can to maintain that. But i implore you, do not have the mindset that buying things when they are down is buying things on "sale".

Nothing is on sale or nothing is expensive with the market.
Everything is priced exactly what it is worth in that point in time.

The market being worth 20% less now than it was just a few weeks ago means that we believe it is worth 20% less EVEN after we all recover from corona into some unknowable future.


Nonsense. Nobody has the slightest clue what anything is worth right now.... as there is zero data on how this situation is going to impact profits. So typical price discovery is being thrown out the window in favor of overall de-risking.
Iridium
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Re: Reality Check - Don't assume prices will go up

Post by Iridium »

Your title unfortunately does not reflect the body of your message, but the diffetence is a subtle and a lot of posters are missing it.

Title: "Don't assume prices will go up" - Actually, it is nearly a requirement in order to invest to believe that companies will take actions that will lead to a positive return. It would break pretty close to everything if somehow companies were either not trying to make a profit or, on a capital weighted basis, failed at that goal more often than succeeded.

Body Paraphrased: "Don't assume stocks will quickly recover back to all time highs" - This touches on a point of debate here: are down markets frequently followed by stronger than usual up markets? The evidence seems to be mixed. I do believe it is true that the day after an extreme fall is frequently followed by a day of extreme gain. However, I have yet to see someone strictly define an investment approach that exploits this or any other 'gains after a fall' tendency in the market. There is also a strong psychological component to it: gamblers also believe that a hit is more likely after an unexpectedly large number of misses (called the gambler's fallacy). So, are we seeing a real recovery effect or are our brains tricking us into seeing an effect that doesn't exist? I do not believe there is any consensus on that point.

However, even in the absence of a recovery bounce, the markets will still eventually recover. It just means we have to wait for the 8%/year, or whatever the long run average return happens to be, to overcome the once-off loss. This could be longer than folks are used to.

Please do note one corellary to what you wrote: there is no reason to expect the market to fall further. Everything bad is already priced in. Yes, things could go worse than the market expects and that will hammer stocks further, but, on a weighted basis, things could just as easily go better than expected from here on out.
Last edited by Iridium on Thu Mar 12, 2020 7:24 pm, edited 1 time in total.
Cat Herder
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Re: Reality Check - Don't assume prices will go up

Post by Cat Herder »

sasquatch12 wrote: Thu Mar 12, 2020 1:53 pm If you believe the markets will not go back up or go to zero you might as well expect the collapse of civilization. Hoard your food, guns, etc as we will enter an apocalyptic world with no economy and no jobs. People will kill each other for food. I highly doubt that will happen, the markets will recover we just don’t know how long it will take. Chill.
I'm buying stocks (100% at this point to re-balance without selling any of my bond holdings), because I imagine that the market indeed will go up at some point in the future, presumably before I plan to retire in 20-30 years. If it doesn't, as stated, it's the least of my concerns. It would mean a fundamental shift in our way of life and my financial resources would be a lot less meaningful than other ones, such as my marketable skills, and yes my ammo fort. Whatever happens, I'll make the best of it, just as generations have before me. Worst case scenario I'm starting out in better health, with more knowledge than my ancestors.

I don't fully buy into the efficient market hypothesis as people often do not act in a logical, thoughtful manner. Much of the selling at this juncture is out of fear without an understanding of the true impact this will have. Sure, some people who have shorter time horizons and were taking more risk than they should've may rightfully be afraid. But it didn't take a rocket surgeon to recognize that with valuations where they were some (at least short term) losses were inevitable.

People feeling like they've lost a lot need a reality check, too, as basically the S&P 500 is back where it was in late December of 2018. I wager most of those folks if they had been investing in the years prior to that enjoyed huge gains. And assuming reinvestment of dividends along the way, one is still better off than in December of 2018.

I do agree however it is important to temper one's expectations and realize that in the short term there may be even bigger losses, and in the long run gains much more modest than seen previously. Of course anything is possible.
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villars
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Re: Reality Check - Don't assume prices will go up

Post by villars »

Agree with the OP . His statement is basically the Efficient Market hypothesis which states that the price of stocks takes into account all known information including the fact that stocks recovered after every single crash in the past .

Having said that, there is such a thing as panic selling and some people have short time horizons so they have to sell even if they know the market will recover .

I am not changing my asset allocation but I am not rebalancing for a couple months either, till all these gyrations stop.
drk
Posts: 1924
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Location: Seattle

Re: Reality Check - Don't assume prices will go up

Post by drk »

mrspock wrote: Thu Mar 12, 2020 2:04 pm Oh did I miss the announcement that 2% inflation is no longer fed policy?

What a silly thread.
Maybe coming out of this crash the Fed will even learn to stop treating 2% as an upper-bound.
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Mactheriverrat
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Re: Reality Check - Don't assume prices will go up

Post by Mactheriverrat »

notsobright wrote: Thu Mar 12, 2020 12:30 pm Remember, that the price of the market as it stands at any moment is a reflection of everything we know in the past and all things we assume about the future.

People are making decisions with the assumption that things will ABSOLUTELY recover, but this is not an absolute.

I'll say this one more time, the market price now, is a reflection of what we all believe the things are worth even with all of us being able to see that the market has constantly gone up about 6 to 8% every year since it's invention.

I'm not saying it's a bad idea to buy or sell things to re-adjust your asset allocation. Doing so is still absolutely logical as this is your own special "sleep well at night" number. Do what you can to maintain that. But i implore you, do not have the mindset that buying things when they are down is buying things on "sale".

Nothing is on sale or nothing is expensive with the market.
Everything is priced exactly what it is worth in that point in time.

The market being worth 20% less now than it was just a few weeks ago means that we believe it is worth 20% less EVEN after we all recover from corona into some unknowable future.
notsobright!
Everything evolves. | May Every Sunrise Bring You Hope. May Every Sunset Bring you Peace.
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