Bear Cub Smells Bubble

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BogleFan510
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Re: Bear Cub Smells Bubble

Post by BogleFan510 »

nisiprius wrote: Wed Aug 26, 2020 8:54 am
mak1277 wrote: Wed Aug 26, 2020 8:48 am I came here to find a link of an actual bear cub chasing an actual bubble...and I'm now disappointed.
Enjoy. Animated, not real--sorry.
My vote for best post of the day.
UpperNwGuy
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Re: Bear Cub Smells Bubble

Post by UpperNwGuy »

Kenkat wrote: Wed Aug 26, 2020 9:30 am
Grt2bOutdoors wrote: Wed Aug 26, 2020 9:20 am If you look at the daily percentage change in NAV, international has been gaining more than total stock market. I’m waiting for small value to start playing catch-up, eventually.
Yes, I have noticed that they have been closing the gap a bit since earlier in the year.
I don't know what numbers you guys are using, but I just checked Google and Vanguard, and Total Stock leads Total International over the last 3 months, 6 months, and year to date.
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Re: Bear Cub Smells Bubble

Post by Savermom »

I have had all the same thoughts as you have. I think the market direction also depends on the election results.

My current AA is 80/20. I am planning to follow this AA at least for now. Since I don’t need my money for years, I will be ok if we have another correction.

I have to say that I see how bubbles are created. My dad (a performance chaser) sees how much the nasdaq is up and says buy QQQ! He sold an ETF of blue chip stocks to buy QQQ. So I do think w some stocks this is fear of missing out?
Last edited by Savermom on Wed Aug 26, 2020 1:01 pm, edited 3 times in total.
striker79
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Re: Bear Cub Smells Bubble

Post by striker79 »

Of course theres a bubble. Lots of money is made with bubbles. Keep riding the bubble or jump on now and then when it starts to pop, you jump right off. If tesla drops 10% tomorrow, I am dumping all tesla stock...I will not wait or ride it out. If VOO drops 10% tomorrow, I will ride it out, no good place to put money right now with 0% rates. General market is artificially propped up by low rates for the past decade, but its not a bubble unless we start getting normal rates like 5% ever again.

Tesla is 100% a bubble. General stock market has been propped up by easy money and the fed. What would make me jump ship on the general stock market? Fed starts to raise interest rates. Is Nasdaq a bubble? I don't think so yet, we have the beginning makings of a bubble due to coronavirus making people extra play the tech sector.

If I want to be greedy, I can buy tesla stock now and ride the bubble, with an automatic sell as soon as it drops 10% for when the bubble pops.
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Re: Bear Cub Smells Bubble

Post by nigel_ht »

nisiprius wrote: Wed Aug 26, 2020 6:26 am We underestimate the precision in timing needed to realize improvements from timing maneuvers.
Not really. You sit 60/40 till the market plummets 20% and go "Hey, it's a good time to rebalance". When it hits -40% you go "I guess it's time to go 70/30" and when you get to -60% you can go 80/20. At -80% go all in 100% UPRO.

When it hits -100% you're broke...but man was it a ride.

I hope you bought a bunker and some bullets back when you had a portfolio if that happens.
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Re: Bear Cub Smells Bubble

Post by Elysium »

I was just checking the long running returns of our various accounts, the ones that are still open for the longest periods are two Roth IRA's. That means they haven't had changes for the longest period. It is instructive that the returns were also highest for those accounts.

Since 2003 when I started tracing XIRR:
Roth IRA 1: 10.02%
Roth IRA 2: 9.37%

They match very closely to the returns of Market Indexes.

In between there was the 2008 GFC, 2020 March, and a few other pullbacks which I don't remember now. Other accounts where I liquidated 401(k) plans and moved into IRA's all combined have lower returns, because they either didn't have proper investment choices or made me do changes when transferring/merging.

The point is, our returns are mostly determined by our ability to stay the course for the longest periods without impacting our AA.
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Re: Bear Cub Smells Bubble

Post by knpstr »

Where are you finding the data to make statements 6 and 7?

It seems more people are piling into stocks ever since pensions have been going the way of the dodo.
I don't doubt that at anytime people are day trading, but how do you know it is more so than usual?

Ultimately interest rates and valuations are intertwined. And with the historic low interest rates we have today we should see historic high valuations.
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Re: Bear Cub Smells Bubble

Post by TheTimeLord »

Rowan Oak wrote: Wed Aug 26, 2020 12:30 pm
TheTimeLord wrote: Wed Aug 26, 2020 9:31 am After the last 3 months my mind seems to alternate between wanting to cash it all in (0/100) and moving to 100/0. That is why conviction and discipline is so important when trying to cut through the fog of emotion.
Sounds like a perfect reason to make your asset allocation 50/50 permanently.
Could be, I am a fan of splitting the baby. But I think what is playing out now is a classic battle between "Need to take risk" and "Ability to take risk". So far "Ability to take risk" has been winning but while the last 3 months have been excellent, the last 3 days have been near insane which is something that always makes me take a step back and reflect.
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Re: Bear Cub Smells Bubble

Post by drk »

000 wrote: Wed Aug 26, 2020 12:00 am 5. Berkshire Hathaway has succumbed to holding huge portions of AAPL.
Apple is a classic Buffett holding: high margins, huge moat, top-notch operations.
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Re: Bear Cub Smells Bubble

Post by Robot Monster »

striker79 wrote: Wed Aug 26, 2020 12:50 pm Of course theres a bubble. Lots of money is made with bubbles. Keep riding the bubble or jump on now and then when it starts to pop, you jump right off. If tesla drops 10% tomorrow, I am dumping all tesla stock...I will not wait or ride it out. If VOO drops 10% tomorrow, I will ride it out, no good place to put money right now with 0% rates.
Thanks for reminding me that the hot stocks and sectors, that people are going to bail out of if things get rough, are exactly what I want to avoid. I'm buy-and-hold.
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Re: Bear Cub Smells Bubble

Post by Robot Monster »

drk wrote: Wed Aug 26, 2020 1:12 pm
000 wrote: Wed Aug 26, 2020 12:00 am 5. Berkshire Hathaway has succumbed to holding huge portions of AAPL.
Apple is a classic Buffett holding: high margins, huge moat, top-notch operations.
Warren Buffett calls Apple ‘probably the best business I know in the world’
https://www.cnbc.com/2020/02/24/warren- ... world.html
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Re: Bear Cub Smells Bubble

Post by nisiprius »

Rowan Oak wrote: Wed Aug 26, 2020 12:30 pm
TheTimeLord wrote: Wed Aug 26, 2020 9:31 am After the last 3 months my mind seems to alternate between wanting to cash it all in (0/100) and moving to 100/0. That is why conviction and discipline is so important when trying to cut through the fog of emotion.
Sounds like a perfect reason to make your asset allocation 50/50 permanently.
+1
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Re: Bear Cub Smells Bubble

Post by Kenkat »

UpperNwGuy wrote: Wed Aug 26, 2020 12:45 pm
Kenkat wrote: Wed Aug 26, 2020 9:30 am
Grt2bOutdoors wrote: Wed Aug 26, 2020 9:20 am If you look at the daily percentage change in NAV, international has been gaining more than total stock market. I’m waiting for small value to start playing catch-up, eventually.
Yes, I have noticed that they have been closing the gap a bit since earlier in the year.
I don't know what numbers you guys are using, but I just checked Google and Vanguard, and Total Stock leads Total International over the last 3 months, 6 months, and year to date.
I am showing last 3 months:

Total International: +18.88%
Total Stock: +17.39%
Actin
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Re: Bear Cub Smells Bubble

Post by Actin »

rascott wrote: Wed Aug 26, 2020 12:41 am
DonIce wrote: Wed Aug 26, 2020 12:31 am
rascott wrote: Wed Aug 26, 2020 12:15 am TSLA isn't a tech stock.

I quit reading after that
Of course it is. "Tech" is more than just the companies that serve you ads.
It makes cars. I'm not interested in debating it further.
Tesla makes very few cars
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Steve Reading
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Re: Bear Cub Smells Bubble

Post by Steve Reading »

knpstr wrote: Wed Aug 26, 2020 1:06 pm Ultimately interest rates and valuations are intertwined. And with the historic low interest rates we have today we should see historic high valuations.
Literally this +10000.
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WillRetire
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Re: Bear Cub Smells Bubble

Post by WillRetire »

Bubble or not, I know what I will do when the next 10%+ drop happens. Meanwhile, I keep watch on the ol' AA and rebalance when it is off-kilter.

P.S. I just assumed a 10% or greater downturn will happen before the end of the year. It almost always does, and usually around October.
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Re: Bear Cub Smells Bubble

Post by JimmyJammy »

My opinion is if you have the time and enjoy trading / market timing, there's nothing wrong with doing some of it when volatility is up. Just don't mess around with more than 10-20% of your portfolio.

Furthermore, there's nothing wrong with taking some profits on this monster Fed-fueled rally, as we enter September, with so many companies facing so much uncertainty.

I'm in my mid-40s and currently furloughed from my job. I'm at 79% stock, 12% bond and 9% cash. I likely won't return to work until spring 2021 so it's nice having that cash cushion.

And I think when the market is this volatile it's ok to be a bit of an active manager -- especially when you're furloughed and have some free time (lol).

Most of my assets are in typical index funds. But, my small amount of swing trading with individual stocks is working out so far this year. I'm up 14% vs my benchmark (VFORX - target ret. 2040) which is up 4.17% . That said, with some stocks (FB, AAPL) I sold way too early. But, I'm glad I'm holding AMZN, MSFT, GOOGL and intend to keep holding them even through a tech bubble pop.
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Re: Bear Cub Smells Bubble

Post by bog007 »

as long as market is above 200 day moving average (blue line) :dollar

http://schrts.co/qFNRHbyt
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Re: Bear Cub Smells Bubble

Post by nisiprius »

People can make their own private sector and industry definitions if they like, but if the purpose is to communicate with other investors, it is wise to accept the GICS classification:

Image

The developers of the GICS classification, MSCI and S&P Dow Jones, think Tesla is in the automobile industry, and the Consumer Discretionary sector.

And it's in the Vanguard' Consumer Discretionary ETF.

Image

Anyone know how the transistor count in a Tesla compares with the transistor count in a Toyota Corolla? Is it that much higher?
Last edited by nisiprius on Wed Aug 26, 2020 2:52 pm, edited 2 times in total.
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2pedals
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Re: Bear Cub Smells Bubble

Post by 2pedals »

In 2000, we had the dot-com bubble. In 2007, we had the housing bubble.

We are having different kind of bubbles all the time. But what happens if we have three big bubbles meet at the same place? You get something that looks like 000
Last edited by 2pedals on Wed Aug 26, 2020 3:04 pm, edited 1 time in total.
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Re: Bear Cub Smells Bubble

Post by HomerJ »

nigel_ht wrote: Wed Aug 26, 2020 12:51 pm
nisiprius wrote: Wed Aug 26, 2020 6:26 am We underestimate the precision in timing needed to realize improvements from timing maneuvers.
Not really. You sit 60/40 till the market plummets 20% and go "Hey, it's a good time to rebalance". When it hits -40% you go "I guess it's time to go 70/30" and when you get to -60% you can go 80/20. At -80% go all in 100% UPRO.

When it hits -100% you're broke...but man was it a ride.

I hope you bought a bunker and some bullets back when you had a portfolio if that happens.
Heh...

Actually it only has to hit -87% or so for you to be basically broke if you go 100% UPRO (3x leveraged) at -80%, and we DID drop -89% at one point in the Great Depression, so you can't say it's impossible.
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Re: Bear Cub Smells Bubble

Post by anon_investor »

BogleFan510 wrote: Wed Aug 26, 2020 12:44 pm
nisiprius wrote: Wed Aug 26, 2020 8:54 am
mak1277 wrote: Wed Aug 26, 2020 8:48 am I came here to find a link of an actual bear cub chasing an actual bubble...and I'm now disappointed.
Enjoy. Animated, not real--sorry.
My vote for best post of the day.
+1
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Re: Bear Cub Smells Bubble

Post by 000 »

Lots of great replies upthread. Thanks.

I will note that nothing in my OP discusses market timing or -- shudder -- shorting the market. I suppose one might choose to do those things in response to a bubble, but one might also choose to get, or stay, diversified across asset classes, geography, and/or factors.
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Re: Bear Cub Smells Bubble

Post by 000 »

langlands wrote: Wed Aug 26, 2020 12:50 am Certainly stocks (and in particular tech stocks) have had a good run, but I have to disagree with 2 which is really the most important point in that list. Bond ETFs have had net positive inflows throughout the last few months (and in fact during most of the bull run of the past decade). Gold has been shooting up, and even Berkshire is buying gold. So I certainly don't see "gold is gross" being a popular take (except on Bogleheads, whose opinion really doesn't matter :twisted: since passive money doesn't move markets). The fact of the matter is that everything is expensive because of the perpetual monetary and fiscal stimulus. If stocks are in a bubble, I don't even know what to call the current bond market. TINA is real because really what is the alternative? If the stock market starts selling off, what are people going to buy? Paradoxically, despite all the stimulus, one of the most feared scenarios is in fact deflation, not inflation. So even TIPS aren't safe.

You could say that the stock market is in a bubble, but I think it's more accurate to say that the entire state of the market is extremely unusual (or at least unprecedented). What I mean is that this isn't at all like the 2000 Nasdaq bubble in which stocks were clearly extremely richly priced compared to bonds. In today's market, a case can be made for any asset class (including cash) to be overpriced. That means nothing is clear, and in particular it's not obvious at all that you should sell stocks unless you know what underpriced asset you're going to hold in its stead.
Forester wrote: Wed Aug 26, 2020 3:28 am I think some could make the case that bonds are more expensive. A US 30/70 might be more precarious than a more global portfolio with a value tilt. The consensus among the bears I listen to, is that US stocks will be flat or a lose a little and bonds will lose 1/3 to 2/5 in real terms, over the next decade or decade and a half.
Yes, these are good points. A few thoughts:

First, it is difficult to reconcile the pessimism in the fixed income market (investors accepting 0% real yields) and the flight to metal with the optimism in the stock market. Bond yields and gold price suggest stock returns will be underwhelming in years to come, yet stocks continue to be bid up.

Second, it is difficult to tell how much of the run up in stocks and gold is due to expansion of the money supply versus other factors.

Third, yes it seems we have entered an unprecedented area in the markets, which suggests old models may have to be thrown out.
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Re: Bear Cub Smells Bubble

Post by pokebowl »

000 wrote: Wed Aug 26, 2020 12:00 am
8. Some are leaving good jobs in their 30s to live off stocks passively for 50+ years.
I feel attacked here :mrgreen:.

On a serious note, I'll probably still work part time, but it will be in a job I want and on my terms. However the traditional career gig of 9-5 will most likely end for me in my late 30s based on my current projections on future expenses and portfolio.
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Re: Bear Cub Smells Bubble

Post by 000 »

DonIce wrote: Wed Aug 26, 2020 12:42 am Seems like a good time to spend money rather than saving it and investing in negative real yielding bonds or bubbly stocks. The fed has been rapidly inflating financial assets for over a decade while inflation outside of financial assets has been low. Real goods and services are cheaper than they've ever been relative to stocks and bonds. Buy goods and services that will save you time or money in the long run.
I tend to agree.
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Re: Bear Cub Smells Bubble

Post by 000 »

phantom0308 wrote: Wed Aug 26, 2020 12:06 am OTOH, does it really make sense to fight the fed or expect them to allow the market to drop in the event of a shock? What has happened previously when this argument has been made? How many people lost their shirts shorting the bubble in the run up?
I don't have the conviction to short the market.

As far as fighting the fed, sometimes it seems the fed is losing the battle against those fighting it, e.g. QE has failed to achieve the desired stimulus and people are still gobbling up bonds. Maybe negative yields will get more consumer spending or investing in growth areas.
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Re: Bear Cub Smells Bubble

Post by 000 »

finite_difference wrote: Wed Aug 26, 2020 10:31 am I agree with most of your list except that gold is also rising.
Yes. But the short term price movements are driven by active traders and I think most still view Gold as gross.
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Re: Bear Cub Smells Bubble

Post by asif408 »

knpstr wrote: Wed Aug 26, 2020 1:06 pm Ultimately interest rates and valuations are intertwined. And with the historic low interest rates we have today we should see historic high valuations.
Except for Europe and Japan and much of the rest of the developed world markets, where interest are as low or lower than US rates, yet valuations are 1/3 to 1/2 those of US stocks.
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Re: Bear Cub Smells Bubble

Post by burritoLover »

Serious question: when has "this time is different" or "this is the new normal" ever turned out to be true for a market?
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Re: Bear Cub Smells Bubble

Post by 000 »

mrspock wrote: Wed Aug 26, 2020 12:26 am You could have said this exact list in 2017, 2018, and 2019. Last I checked the market is up quite a bit from 2017.
I did not see 1, 3, 5, 7, and 9 in 2017. And all the other points have become much more pronounced.
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Re: Bear Cub Smells Bubble

Post by 000 »

columbia wrote: Wed Aug 26, 2020 6:17 am Right now, I think cash is king.
For any upcoming spending in the short term, I absolutely agree.
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Re: Bear Cub Smells Bubble

Post by 000 »

asif408 wrote: Wed Aug 26, 2020 9:45 am Just curious if bear cub smells a bubble or euphoria in any of the following:

1) Energy stocks
2) Foreign developed and emerging markets stocks
3) Small cap value stocks worldwide

I haven't talked to anyone who is particularly excited about the investments above, seems like a lot of the investors in the above already have or are considering abandoning ship.
I haven't smelled any bubble or euphoria in those. Of course they can keep on keepin' on with their underperformance irrespective of what I think :twisted:

In fact, I was going to include "Whispers of capitulation in SCV land" as a point in my list, but forgot.
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Re: Bear Cub Smells Bubble

Post by 000 »

Robot Monster wrote: Wed Aug 26, 2020 8:13 am If you're asking about US stocks, Vanguard says, "no".
Has Vanguard ever said US stocks are overvalued?
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Re: Bear Cub Smells Bubble

Post by 000 »

BogleFan510 wrote: Wed Aug 26, 2020 12:38 pm As I read the OP, a few ideas came to my mind that I am sharing to try to keep minds open to a different way of looking at market valuations for companies like Apple.

[...]

Just my thoughts as I read OP. My personal opinion is that bubbles are the new normal. I also believe that financial capital may not be a scarce thing in the future, so it may not matter as much as it has been in the past, which could be bad news for investors, but there will be a lot of wealth created for consumers, so we all should be ok. A lot depends on if the future' big winners' use public markets to finance their companies or not. That said, no other game in town to play.
Great post. I do agree that tech deserves a higher P/E than the traditional value models would suggest.

And your last paragraph resonates deeply with me. As public capital markets get both more money thrown at them and more of safety net, it seems returns may be underwhelming compared to a historic backtest.
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Re: Bear Cub Smells Bubble

Post by Orbuculum Nongata »

000 wrote: Wed Aug 26, 2020 12:00 am 1. Tech stocks are priced to perfection. TSLA, AAPL come to mind.
2. 100% stock portfolios are all the rage. Bonds are bad. Cash is trash. Gold is gross.
3. The mainstream is pushing TINA (There Is No Alternative to stocks) as well.
4. Almost everyone is either euphoric about stocks or has succumbed to TINA.
5. Berkshire Hathaway has succumbed to holding huge portions of AAPL.
6. People who would never have owned (as much in) stocks in the past are piling in.
7. Some are day trading their stimulus checks or student loans.
8. Some are leaving good jobs in their 30s to live off stocks passively for 50+ years.
9. I have seen discussions about the stock market in non-investment contexts.

Are stocks in a bubble? Or have they reached a permanently high plateau? Or do I need a dose of optimism? :mrgreen:
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Re: Bear Cub Smells Bubble

Post by 000 »

burritoLover wrote: Wed Aug 26, 2020 3:26 pm Serious question: when has "this time is different" or "this is the new normal" ever turned out to be true for a market?
Well it's always different. All the bubbles and crashes have been different from one another.

As far as catastrophic losses in stock markets, they certainly have happened. Usually because a war, civil or otherwise, is lost.
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Re: Bear Cub Smells Bubble

Post by burritoLover »

000 wrote: Wed Aug 26, 2020 3:38 pm
burritoLover wrote: Wed Aug 26, 2020 3:26 pm Serious question: when has "this time is different" or "this is the new normal" ever turned out to be true for a market?
Well it's always different. All the bubbles and crashes have been different from one another.

As far as catastrophic losses in stock markets, they certainly have happened. Usually because a war, civil or otherwise, is lost.
What I mean is, when has the market fundamentally changed in the past where warning signs of a bubble are no longer relevant since "this time is different"?
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Re: Bear Cub Smells Bubble

Post by asif408 »

000 wrote: Wed Aug 26, 2020 3:30 pm
asif408 wrote: Wed Aug 26, 2020 9:45 am Just curious if bear cub smells a bubble or euphoria in any of the following:

1) Energy stocks
2) Foreign developed and emerging markets stocks
3) Small cap value stocks worldwide

I haven't talked to anyone who is particularly excited about the investments above, seems like a lot of the investors in the above already have or are considering abandoning ship.
I haven't smelled any bubble or euphoria in those. Of course they can keep on keepin' on with their underperformance irrespective of what I think :twisted:

In fact, I was going to include "Whispers of capitulation in SCV land" as a point in my list, but forgot.
Good to hear, as most of my money is in those 3 categories. Seems like dysphoria if anything among these.
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Re: Bear Cub Smells Bubble

Post by 000 »

burritoLover wrote: Wed Aug 26, 2020 3:44 pm What I mean is, when has the market fundamentally changed in the past where warning signs of a bubble are no longer relevant since "this time is different"?
I would say US Large Cap Growth recently, but that story hasn't finished yet.

I think there have been many times when bears were flashing warning signs, bulls were saying "this time is different", and the bulls were right. Except that there was no fundamental change, both sides were just inflating their cases out of proportion.
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Re: Bear Cub Smells Bubble

Post by tdmp »

striker79 wrote: Wed Aug 26, 2020 12:50 pm Of course theres a bubble. Lots of money is made with bubbles. Keep riding the bubble or jump on now and then when it starts to pop, you jump right off. If tesla drops 10% tomorrow, I am dumping all tesla stock...I will not wait or ride it out. If VOO drops 10% tomorrow, I will ride it out, no good place to put money right now with 0% rates. General market is artificially propped up by low rates for the past decade, but its not a bubble unless we start getting normal rates like 5% ever again.

Tesla is 100% a bubble. General stock market has been propped up by easy money and the fed. What would make me jump ship on the general stock market? Fed starts to raise interest rates. Is Nasdaq a bubble? I don't think so yet, we have the beginning makings of a bubble due to coronavirus making people extra play the tech sector.

If I want to be greedy, I can buy tesla stock now and ride the bubble, with an automatic sell as soon as it drops 10% for when the bubble pops.
Why do you think Tesla is 100% bubble? Institutional investors don't seem to think so. Jeffries analyst raised price target to $2500 (market cap > $450 billion).
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Re: Bear Cub Smells Bubble

Post by Robot Monster »

000 wrote: Wed Aug 26, 2020 3:31 pm
Robot Monster wrote: Wed Aug 26, 2020 8:13 am If you're asking about US stocks, Vanguard says, "no".
Has Vanguard ever said US stocks are overvalued?
I'll rephrase. Vanguard's fair value CAPE framework indicates US stocks are not in a bubble. You do bring up a good point, however. Just what was Vanguard saying about stock in the late 90's?

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000
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Re: Bear Cub Smells Bubble

Post by 000 »

knpstr wrote: Wed Aug 26, 2020 1:06 pm Where are you finding the data to make statements 6 and 7?
  • News organizations have reported a large increase in newly opened brokerage accounts over the last six months
  • Anecdotal reports online
burritoLover
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Re: Bear Cub Smells Bubble

Post by burritoLover »

Robot Monster wrote: Wed Aug 26, 2020 5:28 pm I'll rephrase. Vanguard's fair value CAPE framework indicates US stocks are not in a bubble. You do bring up a good point, however. Just what was Vanguard saying about stock in the late 90's?
May 21, 1998
"Irrespective of what the future holds, however, it seems to me that equities should remain the investment of choice for the long-term investor. Those who believe the market’s incredible momentum and cash flow will continue, and accept the thesis that we are indeed in a new era of global growth, will hold the line in their equity allocation. But those who believe—as I do—that fundamentals such as earnings and dividends matter (I’ll discuss that in a moment) and that, in the fullness of time, historic norms will prevail, should consider at least some leaning against the powerful wind which is driving the high returns in this great bull market. There is no way to be certain whether or not we are now experiencing an asset-price bubble. (The Economist says yes; The New York Times—and implicitly the Federal Reserve—says no.) But in the financial markets it is always wise to expect the unexpected." - John C. Bogle
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
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Re: Bear Cub Smells Bubble

Post by alfaspider »

burritoLover wrote: Wed Aug 26, 2020 3:44 pm
000 wrote: Wed Aug 26, 2020 3:38 pm
burritoLover wrote: Wed Aug 26, 2020 3:26 pm Serious question: when has "this time is different" or "this is the new normal" ever turned out to be true for a market?
Well it's always different. All the bubbles and crashes have been different from one another.

As far as catastrophic losses in stock markets, they certainly have happened. Usually because a war, civil or otherwise, is lost.
What I mean is, when has the market fundamentally changed in the past where warning signs of a bubble are no longer relevant since "this time is different"?
Well, p/e ratios have steadily increased over a period of decades, to the point people have argued over whether we are in a generational bubble or whether something fundamental has happened regarding how stocks are valued. I've been hearing about bubbles for the last decade, usually based on p/e or concerns about sentiment. The problem is that there is no objective "warning sign" of a bubble that has consistently called it.

Besides, it's not really actionable. Market timing isn't reliable- you have to call the rebound too, which is a lot harder than identifying the bubble. The long and the short of it is if the U.S. (and to a lesser extent the global) economy continues to grow over the coming decades, investing in a broad spectrum of equities will likely yield positive returns over that time period. No doubt there will be plenty of ups and downs along the way.

If we get decades of economic decline, I wouldn't depend on fancy investment footwork to save you.
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Re: Bear Cub Smells Bubble

Post by JackoC »

rascott wrote: Wed Aug 26, 2020 10:19 am
S4C5 wrote: Wed Aug 26, 2020 9:50 am
TheTimeLord wrote: Wed Aug 26, 2020 9:44 am
S4C5 wrote: Wed Aug 26, 2020 9:34 am
TheTimeLord wrote: Wed Aug 26, 2020 9:23 am
I also am confused by the strategy but assume they are selling cash covered puts since they have "large amounts of cash" in their brokerage.
Yes, when you sell a put option, you are writing the contract. If I sell 5 contracts of MSFT that expire two months from now at $4, then this generates an immediate profit of $2000 (since each contract is for 100 shares of stock). Suppose that I wrote the contract with a strike price of $190, and MSFT is currently trading at $200.
Thanks, my problem wasn't that I don't understand how options work
I prefer 2 months to get the optimum option return and potential discount on the stock price.
How is this any different than the Put Write index? Wisdom Tree has an ETF that does this (PUTW).
PutWrite is a related simpler 'whole market' version of the general idea. You write puts monthly at-the-money on S&P. I wasn't clear if the strategy originally mentioned was at-the-money, and it seems to be 2 month options, and the standard BH approach would be the index not single stocks. Also selling options on a bunch of different single stocks is a different play on correlation among stocks than is selling options on the index.

In a simple mean/variance world and efficient market, PutWrite should have lower return, lower std dev of return and equal Sharpe Ratio to holding SPY. Lower std deviation of return because receipt the premium damps out the negative return in bad months. Lower return because the efficient market should recognize the lower risk and price it at lower return.

See these two page describing the index with additional links to research papers, by CBOE. As of the research paper in first link PutWrite had total return for 32 yrs from inception in 1986 9.54% v 9.8% for S&P Total Return, but std dev of return 9.95% v 14.93%, 2/3's the std dev of return, so Sharpe Ratio considerably higher, .65 v .49. And PutWrite has less negative skew because of the receipt of the option premium damps the very bad down months.
https://www.cboe.com/micro/buywrite/bon ... w-2019.pdf
http://www.cboe.com/products/strategy-b ... -index-put

To update, though cutting off the first couple of years (since I don't have SPTR data not available before June 1988), from Jun 1 '88 to yesterday S&P widened its return lead over PutWrite to 1.18% pa (10.65 v 9.47) but std dev of return of PutWrite is still only about 2/3's as great.

So PutWrite is interesting, but is certainly not a 'cannot lose' strategy. In the same notional amount as S&P it should give lower return for lower risk. Historically it often gave higher return for the same total risk, by doing somewhat more of it than S&P, but the risk/return characteristics can obviously change over time.

The problem with PUTW is similar to almost all 'idea' ETF's: the 0.44% ER, compared to near zero for generic S&P ETF's, is likely to kill whatever risk/return advantage there is in the strategy. On a DIY basis PutWrite might be worth considering, if you can make it work tax-wise. In taxable it's inefficient since you receive the return for tax purposes as you go and with generally ordinary income treatment. In an IRA a broker might impose impractical market requirements. The theoretically very simular BXM index (own S&P, write monthly at-the-money call) has fairly consistently under performed PutWrite for technical reasons explained in one of the papers in the second link. Although, one factor often favorable for PutWrite not included in CBOE's calcs is that a lot of the cash could be put in bank accounts often earning significantly more than the 3 mo T-Bill rate assumed in their calculation.
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Re: Bear Cub Smells Bubble

Post by Robot Monster »

burritoLover wrote: Wed Aug 26, 2020 5:38 pm
Robot Monster wrote: Wed Aug 26, 2020 5:28 pm I'll rephrase. Vanguard's fair value CAPE framework indicates US stocks are not in a bubble. You do bring up a good point, however. Just what was Vanguard saying about stock in the late 90's?
May 21, 1998
"Irrespective of what the future holds, however, it seems to me that equities should remain the investment of choice for the long-term investor. Those who believe the market’s incredible momentum and cash flow will continue, and accept the thesis that we are indeed in a new era of global growth, will hold the line in their equity allocation. But those who believe—as I do—that fundamentals such as earnings and dividends matter (I’ll discuss that in a moment) and that, in the fullness of time, historic norms will prevail, should consider at least some leaning against the powerful wind which is driving the high returns in this great bull market. There is no way to be certain whether or not we are now experiencing an asset-price bubble. (The Economist says yes; The New York Times—and implicitly the Federal Reserve—says no.) But in the financial markets it is always wise to expect the unexpected." - John C. Bogle
That's a prize quote. Thank you for that, oh lover of burritos! I see the Shiller PE Ratio was somewhere between 36.95 and 38.26 on that date.

Source:
https://www.multpl.com/shiller-pe/table/by-month
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Re: Bear Cub Smells Bubble

Post by 000 »

burritoLover wrote: Wed Aug 26, 2020 5:38 pm
Robot Monster wrote: Wed Aug 26, 2020 5:28 pm I'll rephrase. Vanguard's fair value CAPE framework indicates US stocks are not in a bubble. You do bring up a good point, however. Just what was Vanguard saying about stock in the late 90's?
May 21, 1998
"Irrespective of what the future holds, however, it seems to me that equities should remain the investment of choice for the long-term investor. Those who believe the market’s incredible momentum and cash flow will continue, and accept the thesis that we are indeed in a new era of global growth, will hold the line in their equity allocation. But those who believe—as I do—that fundamentals such as earnings and dividends matter (I’ll discuss that in a moment) and that, in the fullness of time, historic norms will prevail, should consider at least some leaning against the powerful wind which is driving the high returns in this great bull market. There is no way to be certain whether or not we are now experiencing an asset-price bubble. (The Economist says yes; The New York Times—and implicitly the Federal Reserve—says no.) But in the financial markets it is always wise to expect the unexpected." - John C. Bogle
Worth noting that it was about this time that Bogle reduced his stock allocation by 30%+ based on valuations and bond yields.
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Re: Bear Cub Smells Bubble

Post by anoop »

TINA + FOMO -> BUY BUY BUY -> FANGMAN + BLK

In most 401(k)'s, you have to settle for whatever crumbs of the above fall to into the S&P500 index.

(Sell when the fed says that things are going so well that they are going to be less accommodative.)
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Re: Bear Cub Smells Bubble

Post by nisiprius »

000 wrote: Wed Aug 26, 2020 3:31 pm
Robot Monster wrote: Wed Aug 26, 2020 8:13 am If you're asking about US stocks, Vanguard says, "no".
Has Vanguard ever said US stocks are overvalued?
In 1999, John C. Bogle's "chairman's letter" in the fund annual or semiannual reports had something weasel-worded that perhaps could have been interpreted that way... and in 1999, Bogle saying something was almost the same as Vanguard saying something. Ah, here it is, p. 102 of The House that Bogle Built:
In the chairman's letter to shareholders of the S&P 500 index fund in March of 1999, John C. Bogle wrote:Just as the returns provided by stocks--particularly large-cap stocks-were well about average in 1998, so were the returns over the past decade. That is sure to change. We are not forecasting a sharp pullback, though one may well occur.... That's why it's imperative for investors to build an investment program upon realistic expectations of future returns rather than on an extrapolation of the extraordinary returns of the recent past. This is especially true when it comes to expectations for the S&P 500 Index. At year-end the index stood at a historically high price level relative to earnings and several other important measures. However, it cannot--and will not--continue to rise forever. Investors who ignore this truism of investing do so at their own peril.
OK, that isn't quite "US stocks are overvalued."

But in my opinion, saying that in 1999 was clearer, more timely, and more admirable than Greenspan asking a question, "But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?" in 1996.
Last edited by nisiprius on Wed Aug 26, 2020 7:59 pm, edited 4 times in total.
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