The bubble that wasn't?

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scot
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The bubble that wasn't?

Post by scot »

I'm new to the investment game and in my first three years in the market there have been some interesting situations going on. There are multiple posts here and on other forums recently about the bubble that is bound to pop any day. Dry powder ready folks etc.


So my question for the veterans is, can you provide insight to some bubbles that weren't actual bubbles and the market kept on trucking its 7% average?
sailaway
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Re: The bubble that wasn't?

Post by sailaway »

scot wrote: Thu Oct 07, 2021 4:08 pm I'm new to the investment game and in my first three years in the market there have been some interesting situations going on. There are multiple posts here and on other forums recently about the bubble that is bound to pop any day. Dry powder ready folks etc.


So my question for the veterans is, can you provide insight to some bubbles that weren't actual bubbles and the market kept on trucking its 7% average?
No one knows anything. I was convinced that there was a housing bubble at least back to 2005. If anyone had acted on that so long before the actual burst, they would probably have been quite sad.
SnowBog
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Re: The bubble that wasn't?

Post by SnowBog »

The market will eventually crash. No one can tell you if that will be tomorrow, next money, next year, or many years from now.

So you want to tune out the noise and focus on the long term. And over the long term, a well balanced investment will do just fine - even if the market crashes.

If it helps, meet Bob - the worlds worst market timer - who only invested right at the peak of the markets before they plummeted in prior crashes. https://thereformedbroker.com/2020/12/2 ... ket-timer/ They came through just fine - and if you can stay the course - you will as well.
GoldenFinch
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Re: The bubble that wasn't?

Post by GoldenFinch »

Talk about bubbles is noise. Bogleheads are supposed to ignore noise. There is always noise and people like to try and predict the future.They’re usually bad at it.
dboeger1
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Re: The bubble that wasn't?

Post by dboeger1 »

For starters, I don't know where you're getting your 7% average figure from, but be aware that the stock market can be very volatile, and those average figures often include both good and bad years sprinkled throughout a very long window of time. So just because you might invest at the worst possible time before a crash doesn't necessarily mean you won't recover long-term, especially if you continue buying steadily while the market is down. So I would say the way you framed your question sounds a bit presumptuous, as if the average is highly likely any given year. It's not.

I technically started investing in 2013 at the start of my career, but didn't really understand or track my investments until about a year later in 2014. Back then, literally all the same things being said now were being said with the exact same confidence, and the veteran investors before me all said the same things were being said long before I started. I had friends who were convinced the market was going to crash, oil was going to skyrocket because it had fallen so much, there's no way housing could get more expensive, interest rates couldn't get lower, it was time to save up dry powder, etc. Tuning out the noise has served me and other Bogleheads well in that time.

I have no idea what tomorrow will bring in the markets, but I can tell you with great certainty that nobody else does either, because nobody else has in the past 8 years, and the people I trust say nobody knew before then either. The factors that influence market prices are complex and unpredictable. That the financial press likes to explain trends with simple headlines is almost inherently an oxymoron. The single most impactful thing in my time as an investor was the pandemic, and nobody knew until it was too late when exactly it would happen, it took months for many of the medium-term economic impacts to become apparent, and long-term, the story is far from over (it's absolutely possible the pandemic could still cause a global economic depression next year, despite all the stimulus and government intervention).

Simply put, whatever you think is important today probably isn't because it's public knowledge already priced into the market. The most important events and changes that will dictate your investment returns are most likely unknown at this time; their impact is directly attributable to the fact that they're not priced into the market yet.
Lee_WSP
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Re: The bubble that wasn't?

Post by Lee_WSP »

While Jack Bogle believed in reversion to the mean, his advice was to only tack a little into the wind. He also is not a big bubble person.

Schiller has been predicting the next big crash for a few years now.

The problem with bubbles is that you can't know it's a bubble until after it bursts.
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Re: The bubble that wasn't?

Post by z3r0c00l »

Yes, the bond bubble has been projected to implode yearly since at least 2012. Interest rates were so low they couldn't possibly go lower. Once they go up it will be a disaster. Interest rates did go up for a little while, then they went even lower. Meanwhile bond funds did pretty well through it all.
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Hyperchicken
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Re: The bubble that wasn't?

Post by Hyperchicken »

"Bubble" is just a metaphor. People like the notion of a bubble bursting.

Market goes up and it goes down. It is human nature to see patterns in the noise, and some of the market movements are labelled a "bubble" in hindsight.
GP813
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Re: The bubble that wasn't?

Post by GP813 »

The market can remain irrational longer than you can remain solvent.

You can be right about something and be too early or too late. You could also be totally wrong and be self-serving and claim some special foresight when an outside observer would only see your errors.
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Re: The bubble that wasn't?

Post by 000 »

We are (probably) in an everything bubble and have been for some time, but we don't know when it will pop or even what the catalyst will be.
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Re: The bubble that wasn't?

Post by azanon »

scot wrote: Thu Oct 07, 2021 4:08 pm I'm new to the investment game and in my first three years in the market there have been some interesting situations going on. There are multiple posts here and on other forums recently about the bubble that is bound to pop any day. Dry powder ready folks etc.


So my question for the veterans is, can you provide insight to some bubbles that weren't actual bubbles and the market kept on trucking its 7% average?
It's not either/or. There can be a bubble and a market can just ignore if for a long time. The best example I can think of is the Japanese market exceeded CAPE 100 before starting a 20 year slide after that.

I think of overvaluation as less about "bound to pop," and more just a higher risk level at that time if you buy or own stocks. If that risk is realized, maybe it will "pop" (drop suddenly), maybe go flat for years, or maybe just do a 20 year downward slide like Japan.

I don't agree with the few that posed about "bond bubbles." Yeah maybe if you're holding really long duration bonds or Zeros you have some "bubble" risk, but if you're holding intermediates, and you have a longer time horizon than the duration of those bonds, you actually WANT rates to go up, so you can eventually get the higher interest rate. And with just moderate (or short) duration bonds, you're simply just never going to see a "burst." Ain't gonna happen. Intermediate/Short bonds, at investment grade or higher, is more about preserving capital and gives you something to rebalance with, and the actual return on those bonds is ancillary to that. Said another way, if someone gets severely worked over with those safer kinds of bonds, there will be a LOT of other people with you in the soup line.
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Re: The bubble that wasn't?

Post by billfromct »

dboeger1, according to the Vanguard website,”advisors.vanguard.com”, the average annual stock market return from 1926 to 2019 was 10.29%.

This was the S&P 90 from 1926-1957, the S&P 500 1957-1974, the Dow Jones Wilshire 5000 from 1975-2005, the MSCI US Broad Market Index from 2005-2013 & the CRSP US Total Market Index thereafter.

Personally, I use a more conservative 7% annual stock market return (double your money every 7 years) for my own long term projections (20-30 years). Of course, past returns do not guarantee future results.

Google “vanguard historical index risk/returns”

If you can’t trust Vanguard to provide accurate information, who can you trust?

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csmath
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Re: The bubble that wasn't?

Post by csmath »

billfromct wrote: Thu Oct 07, 2021 5:46 pm Personally, I use a more conservative 7% annual stock market return (double your money every 7 years) for my own long term projections (20-30 years).
I think you meant 7% real return doubles your money about every 10 years.
Nver2Late
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Re: The bubble that wasn't?

Post by Nver2Late »

When I find myself starting to listen to the "bubble" talk, I like to look at the volume of trades, realizing that for every person selling out of the bubble, there is a corresponding person wanting to buy in at that price.
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BolderBoy
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Re: The bubble that wasn't?

Post by BolderBoy »

scot wrote: Thu Oct 07, 2021 4:08 pmDry powder ready folks etc.
By "dry powder" do you mean keeping cash available so you can time the market?

Being less than 100% invested in the market all the time isn't strongly recommended.

... since you are new to the "game".
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
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scot
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Re: The bubble that wasn't?

Post by scot »

I’m 100% VTI and haven’t sold a share yet with only $2 of powder in my wallet. But still reading about when this crash hits how others have a bunch of money on the side lines ready to cash in.


Just thought it would be interesting to hear people that market timed or thought about market timing and missed. Like the 2005 housing comment being 3 years early and the Japanese market situation. Personal reflections if you will.
000
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Re: The bubble that wasn't?

Post by 000 »

Consider this thread from March 2019: viewtopic.php?t=276618
AnnetteLouisan
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Re: The bubble that wasn't?

Post by AnnetteLouisan »

In my opinion - not an old investing pro by any means - reading financial history is a great way to get a feeling for what a bubble looks like. For example, Popular Delusions and the Madness Of Crowds; The Depression: a Diary; Hard Times by Studs Terkel, and so very many others. The Way We Live Now is also great, although it’s fiction.

Some say when multitudes of rank ignoramuses pile in to any market 🙄😇🧐 (referring to myself here) and it feels like there is easy money to be made, a bubble is approaching. Some say every ten years there’s a crash in some asset class (87, 2000, 2008…), but it’s correct to say no one can really call it until it’s popping. Never a bad idea to keep some dry powder and not to trade on margin.
Last edited by AnnetteLouisan on Fri Oct 08, 2021 7:52 am, edited 1 time in total.
whereskyle
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Re: The bubble that wasn't?

Post by whereskyle »

csmath wrote: Thu Oct 07, 2021 6:07 pm
billfromct wrote: Thu Oct 07, 2021 5:46 pm Personally, I use a more conservative 7% annual stock market return (double your money every 7 years) for my own long term projections (20-30 years).
I think you meant 7% real return doubles your money about every 10 years.
So the rule of 72 gives you a rough estimate of the initial doubling but it's not nearly as accurate over longer periods. A $10,000 investment at the beginning of 2000 has nearly quintupled in the past 21 years, even though the Compound Annual Growth Rate since has been only 7.39%.

https://www.portfoliovisualizer.com/bac ... ion1_1=100

The rule of 72 would tell us that the $10,000 shouldn't even have tripled yet, which is obviously wrong. So that rule of thumb is useful only for estimating that initial doubling.
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MIretired
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Re: The bubble that wasn't?

Post by MIretired »

Actually, it's still close. You have to double it twice for 20 yrs. X 7.2% = 144= 2 x 72. Or 4 x starting value.
csmath
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Re: The bubble that wasn't?

Post by csmath »

whereskyle wrote: Thu Oct 07, 2021 8:24 pm
csmath wrote: Thu Oct 07, 2021 6:07 pm
billfromct wrote: Thu Oct 07, 2021 5:46 pm Personally, I use a more conservative 7% annual stock market return (double your money every 7 years) for my own long term projections (20-30 years).
I think you meant 7% real return doubles your money about every 10 years.
So the rule of 72 gives you a rough estimate of the initial doubling but it's not nearly as accurate over longer periods. A $10,000 investment at the beginning of 2000 has nearly quintupled in the past 21 years, even though the Compound Annual Growth Rate since has been only 7.39%.

https://www.portfoliovisualizer.com/bac ... ion1_1=100

The rule of 72 would tell us that the $10,000 shouldn't even have tripled yet, which is obviously wrong. So that rule of thumb is useful only for estimating that initial doubling.
I'm not sure what you are trying to say. If it is estimated that an investment will double in about 10 years at ~7% annual return, then it should double twice in 20 years. That is quintupling...
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BolderBoy
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Re: The bubble that wasn't?

Post by BolderBoy »

scot wrote: Thu Oct 07, 2021 7:20 pmI’m 100% VTI and haven’t sold a share yet with only $2 of powder in my wallet. But still reading about when this crash hits how others have a bunch of money on the side lines ready to cash in...

Personal reflections if you will.
When your AA is 100/0 and the equity market takes a dive you have nothing you can do but ride the wave down and back up (eventually).

If you had an AA of 80/20, you would at least have the 20% available to rebalance into the falling asset so as to reap the reward when the market started back up. This isn't market timing, it is simple rebalancing. And it is not keeping any dry powder on hand since I'm fully invested all the time.

Has worked for me numerous times since I don't have an AA of either 100/0 or 0/100.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
MIretired
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Re: The bubble that wasn't?

Post by MIretired »

Im shocked now at how much I've misremembered from college math ( or is it ,s/b, high school).
I realized I think I'd construed my memory of the simple distance formula wrong. And from a post by dbr today, I realized I've messed up on nat logs too.
Yea, 40 yrs of forgot. Like a podcast with Rick Ferri, if ya don't use math, you forget it. Embarrassing.
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black jack
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Re: The bubble that wasn't?

Post by black jack »

scot wrote: Thu Oct 07, 2021 7:20 pm I’m 100% VTI and haven’t sold a share yet with only $2 of powder in my wallet. But still reading about when this crash hits how others have a bunch of money on the side lines ready to cash in.


Just thought it would be interesting to hear people that market timed or thought about market timing and missed. Like the 2005 housing comment being 3 years early and the Japanese market situation. Personal reflections if you will.
From memory, so details may not be exact: in May of last year the market was coming back up from the sharp drop it experienced at the end of February, thanks in part to Congress having passed legislation to support the economy and the rate of COVID cases having started to decline, creating hopes that the economy would recover. There was concern about what would happen to the economy if Congress failed to provide additional financial support, if the pandemic worsened during the summer, etc. I was fairly certain that Congress would fail to pass another support bill before the November elections, and that the pandemic would worsen quite soon. So I moved all my money to cash, waiting for the market to drop again when these things came to pass, when I would get back in, buying low.

The things I expected to happen did happen: no further support for the economy from Congress (until the end of the year), the pandemic worsened, businesses tried to reopen and had to close, unemployment rose, the economy was shaken—and the market barely hiccupped in the course of its steady rise from that March bottom. I gave up and bought back in late in the year, having missed out on well over $100k in appreciation (I never calculated it exactly, it was too painful).

What did I miss? Why didn't the market swoon again when the pandemic resurged? Too late I realized that, as a rank amateur investor, I'd failed to consider the impact of the Federal Reserve, which was pumping TRILLIONS of dollars into the economy to keep it, and the market, stable. Doh!

So a truth that I knew, but then forgot, was reinforced, at great expense: nobody knows anything. Many people have beliefs, opinions, and expectations about the market. At any moment some of them will appear right and some will appear wrong, but each person's success or failure is a matter of chance, not market mastery (there may be a few people who actually are knowledgeable enough to beat the market consistently, but it takes a long time to know if it was just an exceptional series of lucky die rolls or real mastery (see e.g. Bill Gross?), or if the market just stayed irrational for a long time).

That's my market-timing story. Learn from my mistake: don't think you know enough to beat the market; invest regularly in index funds to take what the market offers at the lowest cost possible; ignore the noise; get rich slowly.
We cannot absolutely prove [that they are wrong who say] that we have seen our best days. But so said all who came before us, and with just as much apparent reason. | -T. B. Macaulay (1800-1859)
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burritoLover
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Re: The bubble that wasn't?

Post by burritoLover »

scot wrote: Thu Oct 07, 2021 4:08 pm I'm new to the investment game and in my first three years in the market there have been some interesting situations going on. There are multiple posts here and on other forums recently about the bubble that is bound to pop any day. Dry powder ready folks etc.


So my question for the veterans is, can you provide insight to some bubbles that weren't actual bubbles and the market kept on trucking its 7% average?
If you went all-in on the S&P 500 at the peak of the dot com bubble in early 2000, you'd have a 7% return to date. There's always going to be a crash in equities at some point - so this idea that there's bubble talk and the market just "keeps on trucking" is dependent on how narrow of period you define. That makes that question irrelevant really.
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jason2459
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Re: The bubble that wasn't?

Post by jason2459 »

Bubbles? Invest we must.

Jack's take on bubbles during a rising bubble
https://youtu.be/3bf0Qgem_dQ
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Ramjet
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Re: The bubble that wasn't?

Post by Ramjet »

Literally, every time the market reaches a new high people are talking about bubbles. It's noise. Even if they are right and there is a bubble, the market could rise 50% more before it actually crashes and you would miss out on all those gains
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arcticpineapplecorp.
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Re: The bubble that wasn't?

Post by arcticpineapplecorp. »

the market does in fact climb a wall of worry:

Image

Image

Image

Image

this is a good article:

https://www.etf.com/sections/index-inve ... nopaging=1

Image

source: https://trader535.wordpress.com/2016/07 ... re-prices/
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WyomingFIRE
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Re: The bubble that wasn't?

Post by WyomingFIRE »

arcticpineapplecorp. wrote: Fri Oct 08, 2021 8:45 am the market does in fact climb a wall of worry:
Those charts are wonderful. Thank you for posting them.
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Chief_Engineer
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Re: The bubble that wasn't?

Post by Chief_Engineer »

Reading Bogleheads for the past decade we've "been in a bubble" since the market started recovering from the GFC. There have been countless threads fretting over CAPE and other metrics predicting an imminent crash. Yet here we are. I'm not saying valuations don't matter, but it's impossible to predict when a change will occur.
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Re: The bubble that wasn't?

Post by esqu1re »

One benefit of age is having experience that gives you perspective. If all you have experienced is 10 years of tremendous growth (last 10 years), or 10 years of stagnation (dot com bubble to housing bubble bursting), then your perspective is limited, even if you understand, in theory, that it will "revert back to the mean" at some point.

I don't have the benefit of age and experience. I began working in 2009, and the market has been really rosy since then. I look back and regret almost every time I have "dry powder" laying around, because the market keeps going up. The more it goes up, the more I suspect that it will go down at some point. I suppose if your experience is 10 years of stagnation, you might be motivated to not have so much money in the market.

All this is to say markets go up and they go down, sometimes for a long period of time. Continue your AA and ignore the ups and downs.
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Re: The bubble that wasn't?

Post by Californiastate »

Elaine Garzarelli picked the pop in '87. Most have never heard of her because she didn't pick the next pop.
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Re: The bubble that wasn't?

Post by SchruteB&B »

Chief_Engineer wrote: Fri Oct 08, 2021 9:06 am Reading Bogleheads for the past decade we've "been in a bubble" since the market started recovering from the GFC. There have been countless threads fretting over CAPE and other metrics predicting an imminent crash. Yet here we are. I'm not saying valuations don't matter, but it's impossible to predict when a change will occur.
This is my impression as well. I started reading Bogleheads around 2011 and there were frequently threads about the bubble(s) and how they were about to pop, and there are still frequently threads about the bubble(s) and how they are about to pop.
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arcticpineapplecorp.
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Re: The bubble that wasn't?

Post by arcticpineapplecorp. »

Californiastate wrote: Fri Oct 08, 2021 11:15 am Elaine Garzarelli picked the pop in '87. Most have never heard of her because she didn't pick the next pop.
yes and Meredith Whitney got a lot of credit for predicting the housing crash in 2007.

unfortunately she also predicted a municpal bond market crash which never happened.
Ms. Whitney, 48 years old, catapulted to fame after her prescient October 2007 report on Citigroup Inc. But the accolades turned to unmistakable schadenfreude following her 2010 interview on “60 Minutes,” in which she predicted an as-yet-unrealized meltdown in municipal bonds.Apr 13, 2018

https://www.google.com/search?q=meredit ... nt=gws-wiz
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garlandwhizzer
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Re: The bubble that wasn't?

Post by garlandwhizzer »

Bubbles are typically not visible when you're inside of one. They're very hard to recognize when you get swept up in it. There is so much good news circulating and such great recent and intermediate term investing results. Fear of missing out overcomes fear of downside volatility. Those who have in the past predicted the popping of the bubble now look like fools. When there is almost universal optimistic agreement in the financial media and among market professionals--that's precisely the time to worry. As long as the contrary case--that the market is wildly overpriced--has strong traction in the market media and among a substantial portion of investors, like now IMO, it is very unlikely that you are currently in a bubble that is soon to pop. Pessimism is the key to prevent bubbles and when it disappears, that is historically the time to worry.

No one can accurately differentiate between an exuberant bull market that just keeps going on and on and a bubble. Bubbles are defined not prospectively but in retrospect after they have popped. Many have been saying for almost a decade that the market was and continues to be in a bubble. Valuations have been very rich historically for a long, long time. The popping of bubbles cannot be predicted on valuations alone. Aggregate investor sentiment is a more reliable guide, but not flawless. Most who market time and get out of equity to avoid bubble popping losses wind up losing more money by flawed market timing than they would have just staying the course.

We were told a decade ago by many experts that the US market was hugely overvalued (and it was by historical measures). As a result US real equity returns were expected to be 2% or less over the next decade. Furthermore, it was wise to move from US to INTL and especially EM equity where expected returns were much, much higher. If valuations accurately predicted 10 forward returns reliably this would have worked beautifully. But there was no reversion the mean in valuations. They just kept on going up. Instead the switch to INTL produced very substantial opportunity costs, the exact opposite of what actually happened. There is a lesson here. Market predictions, even expert predictions, at least over the short and intermediate term are totally unreliable. We do not like to admit that we are ignorant about some things like the market's future, but admit it or not, we are.

This is the reason IMO for holding a cheap balanced portfolio of widely diversified equity and quality bonds, attuned to your own circumstances. It prepares you in advance for all outcomes instead of making aggressive market timing portfolio bets based on your or some expert's perception of the market's future. There is a great deal of noise inherent in market action and the financial media but very little true insight.

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novolog
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Re: The bubble that wasn't?

Post by novolog »

we could crash or we could melt upwards

no one knows
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loukycpa
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Re: The bubble that wasn't?

Post by loukycpa »

1996 was my first year investing in the stock market. That year the earnings for the S&P 500 was about 60 and the index was at 600. 2019 earnings of 148 and the index was around 3300. 2021 projected earnings of 200 and the index is around 4400.

The earnings growth (4%ish) has driven some of the returns I have received. The dividends paid out (2%ish and those grew too over time) is another component. I expect both to continue to grow over time at a pace somewhere close to GDP growth. The earnings and dividends have bounced around a lot, dipping especially during the 2000-2002 and 2008-2009 recessions. But the general trend over the long term has always been growth.

There is yet another piece of my return (3%ish). The index value has grown faster than the earnings and the dividends. This is the other part of my returns and it has been substantial. Can this continue? If anyone knows the answer please share - I need to know! :wink:
RudyS
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Re: The bubble that wasn't?

Post by RudyS »

BolderBoy wrote: Thu Oct 07, 2021 6:20 pm
scot wrote: Thu Oct 07, 2021 4:08 pmDry powder ready folks etc.
By "dry powder" do you mean keeping cash available so you can time the market?

Being less than 100% invested in the market all the time isn't strongly recommended.

... since you are new to the "game".
How about folks in the "distribution" phase? They should have a sufficient allocation in "stable" funds to avoid having to sell stocks at or near a bottom to fund withdrawals.
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Re: The bubble that wasn't?

Post by firebirdparts »

scot wrote: Thu Oct 07, 2021 4:08 pm So my question for the veterans is, can you provide insight to some bubbles that weren't actual bubbles and the market kept on trucking its 7% average?
I don't know if this helps, but in hindsight, the best thing for me to do is to stay invested and just ride the crashes down and back up. That would have been the best move. I tell all the young guys, I lost half my net worth twice, and I don't think it was the wrong thing to do. I've tried market timing and I've tried losing half my net worth. The market timing didn't work for me.

The problem with recognizing it's a bubble is that you don't get to pop it. It may pop 6 years from now.
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Re: The bubble that wasn't?

Post by Northern Flicker »

scot wrote: Thu Oct 07, 2021 4:08 pm I'm new to the investment game and in my first three years in the market there have been some interesting situations going on. There are multiple posts here and on other forums recently about the bubble that is bound to pop any day. Dry powder ready folks etc.


So my question for the veterans is, can you provide insight to some bubbles that weren't actual bubbles and the market kept on trucking its 7% average?
There are bull markets and bear markets. Which you are in is a historical statement about past events. Below is a history of US bull and bear markets. There is no reliable method to identify a bubble or imminent bear market.

https://www.invesco.com/us-rest/content ... =investors

Technically, 3/17/2020 was the start of a new bull market. It may go on a long time, or may have already ended. Time will tell.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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HanSolo
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Re: The bubble that wasn't?

Post by HanSolo »

Northern Flicker wrote: Fri Oct 08, 2021 11:33 pm Technically, 3/17/2020 was the start of a new bull market.
According to what? The S&P 500 bottomed on 3/23/2020.
scot wrote: Thu Oct 07, 2021 4:08 pm So my question for the veterans is, can you provide insight to some bubbles that weren't actual bubbles and the market kept on trucking its 7% average?
There's never a shortage of bears. The first half of the 2009-2020 bull market had a lot of bears proclaiming a top all along the way, and it wasn't even half over. By Jan/Feb 2020, they were still proclaiming, and then they were right.

Is there something actionable in this?
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Re: The bubble that wasn't?

Post by whodidntante »

Chief_Engineer wrote: Fri Oct 08, 2021 9:06 am Reading Bogleheads for the past decade we've "been in a bubble" since the market started recovering from the GFC. There have been countless threads fretting over CAPE and other metrics predicting an imminent crash. Yet here we are. I'm not saying valuations don't matter, but it's impossible to predict when a change will occur.
Yep. There is solid evidence that valuations do affect long-term returns. But I could only see timing the market in extreme cases, and when there is a clearly better investment available. That's what Bogle did when he timed the market. He sold stocks that had poor expected returns to buy bonds that had higher expected returns at that time than stocks.

For me, high-quality bonds passed the point of reasonable valuations. But I won't get much support for that statement on this bond lover site. There are clear demographic trends and purposeful market interventions from central banks that have contributed.
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Re: The bubble that wasn't?

Post by burritoLover »

whodidntante wrote: Sat Oct 09, 2021 8:36 am
Chief_Engineer wrote: Fri Oct 08, 2021 9:06 am Reading Bogleheads for the past decade we've "been in a bubble" since the market started recovering from the GFC. There have been countless threads fretting over CAPE and other metrics predicting an imminent crash. Yet here we are. I'm not saying valuations don't matter, but it's impossible to predict when a change will occur.
Yep. There is solid evidence that valuations do affect long-term returns. But I could only see timing the market in extreme cases, and when there is a clearly better investment available. That's what Bogle did when he timed the market. He sold stocks that had poor expected returns to buy bonds that had higher expected returns at that time than stocks.
There's solid evidence that valuations correlate to long-term returns after the entire period you're analyzing has come to fruition. But using them at any given point in time to predict future long-term returns is not reliable.
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Re: The bubble that wasn't?

Post by Northern Flicker »

HanSolo wrote: Sat Oct 09, 2021 8:27 am
Northern Flicker wrote: Fri Oct 08, 2021 11:33 pm Technically, 3/17/2020 was the start of a new bull market.
According to what? The S&P 500 bottomed on 3/23/2020.
Fair enough. 3/24/20 was the start of a new bull market.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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Portfolio7
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Re: The bubble that wasn't?

Post by Portfolio7 »

csmath wrote: Thu Oct 07, 2021 9:24 pm
whereskyle wrote: Thu Oct 07, 2021 8:24 pm
csmath wrote: Thu Oct 07, 2021 6:07 pm
billfromct wrote: Thu Oct 07, 2021 5:46 pm Personally, I use a more conservative 7% annual stock market return (double your money every 7 years) for my own long term projections (20-30 years).
I think you meant 7% real return doubles your money about every 10 years.
So the rule of 72 gives you a rough estimate of the initial doubling but it's not nearly as accurate over longer periods. A $10,000 investment at the beginning of 2000 has nearly quintupled in the past 21 years, even though the Compound Annual Growth Rate since has been only 7.39%.

https://www.portfoliovisualizer.com/bac ... ion1_1=100

The rule of 72 would tell us that the $10,000 shouldn't even have tripled yet, which is obviously wrong. So that rule of thumb is useful only for estimating that initial doubling.
I'm not sure what you are trying to say. If it is estimated that an investment will double in about 10 years at ~7% annual return, then it should double twice in 20 years. That is quintupling...
csmath, I agree with your general point, but actually, doubling twice is a factor of 4, called quadrupling. Quintupling is a factor of 5.

Whereskyle's point about tripling is wrong, the rule of 72 would say the original $10,000 should have doubled twice by now, plus another 2.3 years of appreciation (and as described below, that almost exactly hits the actual $ figure ending balance.)

Back to your point, the original $10,000 did indeed almost quintuple ($3K short of the $50K 'quintuple' mark), but the rule of 72 yields the correct result very closely as long as one doesn't get too lazy with their rounding, and also counts the years correctly. A few doublings doesn't really decrease the accuracy much despite Whereskyle's assertion. If you avoid rounding 7.39% to 7, and extend out over the full 21.75 years that are modeled, the rule of 72 should yield a final portfolio valuation of roughly $47.241, a little higher than actual ($47,176) but within 1%. In fact, if the actual rate was 7.385% (that would still round to 7.39%) then I get 47,194, so within 0.2%. Of course, excel makes this much easier (and for me more reliable) than doing it in one's head!
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Re: The bubble that wasn't?

Post by Elric »

dboeger1 wrote: Thu Oct 07, 2021 4:25 pm For starters, I don't know where you're getting your 7% average figure from, but be aware that the stock market can be very volatile, and those average figures often include both good and bad years sprinkled throughout a very long window of time. So just because you might invest at the worst possible time before a crash doesn't necessarily mean you won't recover long-term, especially if you continue buying steadily while the market is down. So I would say the way you framed your question sounds a bit presumptuous, as if the average is highly likely any given year. It's not.
Just to further illustrate this excellent point:
  • In the 34 years between 1986 and 2019, there's been only one year when the total return for the S&P 500 fell between 6 and 8 percent!
  • in the entire time from 1926 when the S&P index was started until 2020, it's only done that 4 times! (Looking at the S&P index again, which began life as the S&P 90).
To see a nice graph of the bell shaped distribution of returns, checkout https://advisor.visualcapitalist.com/hi ... t-returns/
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Re: The bubble that wasn't?

Post by csmath »

Portfolio7 wrote: Sat Oct 09, 2021 7:43 pm
csmath wrote: Thu Oct 07, 2021 9:24 pm
whereskyle wrote: Thu Oct 07, 2021 8:24 pm
csmath wrote: Thu Oct 07, 2021 6:07 pm
billfromct wrote: Thu Oct 07, 2021 5:46 pm Personally, I use a more conservative 7% annual stock market return (double your money every 7 years) for my own long term projections (20-30 years).
I think you meant 7% real return doubles your money about every 10 years.
So the rule of 72 gives you a rough estimate of the initial doubling but it's not nearly as accurate over longer periods. A $10,000 investment at the beginning of 2000 has nearly quintupled in the past 21 years, even though the Compound Annual Growth Rate since has been only 7.39%.

https://www.portfoliovisualizer.com/bac ... ion1_1=100

The rule of 72 would tell us that the $10,000 shouldn't even have tripled yet, which is obviously wrong. So that rule of thumb is useful only for estimating that initial doubling.
I'm not sure what you are trying to say. If it is estimated that an investment will double in about 10 years at ~7% annual return, then it should double twice in 20 years. That is quintupling...
csmath, I agree with your general point, but actually, doubling twice is a factor of 4, called quadrupling. Quintupling is a factor of 5.

Whereskyle's point about tripling is wrong, the rule of 72 would say the original $10,000 should have doubled twice by now, plus another 2.3 years of appreciation (and as described below, that almost exactly hits the actual $ figure ending balance.)

Back to your point, the original $10,000 did indeed almost quintuple ($3K short of the $50K 'quintuple' mark), but the rule of 72 yields the correct result very closely as long as one doesn't get too lazy with their rounding, and also counts the years correctly. A few doublings doesn't really decrease the accuracy much despite Whereskyle's assertion. If you avoid rounding 7.39% to 7, and extend out over the full 21.75 years that are modeled, the rule of 72 should yield a final portfolio valuation of roughly $47.241, a little higher than actual ($47,176) but within 1%. In fact, if the actual rate was 7.385% (that would still round to 7.39%) then I get 47,194, so within 0.2%. Of course, excel makes this much easier (and for me more reliable) than doing it in one's head!
I had to check to make sure your quote was correct because I misremembered typing it correctly! Yes of course doubling twice is quadrupling and I'm not sure why I said quintupling unless maybe I was typing quickly while looking at the PV link! Thanks for the correction.

And yes, assuming a constant rate of return, the doubling time stays the same each iteration.
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Re: The bubble that wasn't?

Post by secondopinion »

whodidntante wrote: Sat Oct 09, 2021 8:36 am
Chief_Engineer wrote: Fri Oct 08, 2021 9:06 am Reading Bogleheads for the past decade we've "been in a bubble" since the market started recovering from the GFC. There have been countless threads fretting over CAPE and other metrics predicting an imminent crash. Yet here we are. I'm not saying valuations don't matter, but it's impossible to predict when a change will occur.
Yep. There is solid evidence that valuations do affect long-term returns. But I could only see timing the market in extreme cases, and when there is a clearly better investment available. That's what Bogle did when he timed the market. He sold stocks that had poor expected returns to buy bonds that had higher expected returns at that time than stocks.

For me, high-quality bonds passed the point of reasonable valuations. But I won't get much support for that statement on this bond lover site. There are clear demographic trends and purposeful market interventions from central banks that have contributed.
I have most of my dedicated fixed income self-managed. Since my objective is not blind asset allocation but actually respecting my dynamic portfolio needs, I can say that fixed income is not one that I have found autopilot to work for me. Except when storing "cash" for stock purchases or speculating with EDV, why mess with funds when I can take advantage of "small money" opportunities with fixed income? They are often safer as well. Granted, I buy corporate bonds by a fund since that is the most liquid way to do it.

Since I will never be able to place much into retirement accounts in comparison to taxable (right now, I only have IRAs), I actually have almost all my fixed income outside of my taxable; the superior stability is what I need in hand, not in the retirement account.
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Re: The bubble that wasn't?

Post by DB2 »

Northern Flicker wrote: Sat Oct 09, 2021 1:32 pm
HanSolo wrote: Sat Oct 09, 2021 8:27 am
Northern Flicker wrote: Fri Oct 08, 2021 11:33 pm Technically, 3/17/2020 was the start of a new bull market.
According to what? The S&P 500 bottomed on 3/23/2020.
Fair enough. 3/24/20 was the start of a new bull market.
Technically, true.

But it was due to voluntary circumstances (a voluntary decision to lockdown and close a big part of the economy - forcing a recession and super brief -35% downard spike). I still believe we are in the 'longer' bull that started in 2009.
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Re: The bubble that wasn't?

Post by whereskyle »

csmath wrote: Thu Oct 07, 2021 9:24 pm
whereskyle wrote: Thu Oct 07, 2021 8:24 pm
csmath wrote: Thu Oct 07, 2021 6:07 pm
billfromct wrote: Thu Oct 07, 2021 5:46 pm Personally, I use a more conservative 7% annual stock market return (double your money every 7 years) for my own long term projections (20-30 years).
I think you meant 7% real return doubles your money about every 10 years.
So the rule of 72 gives you a rough estimate of the initial doubling but it's not nearly as accurate over longer periods. A $10,000 investment at the beginning of 2000 has nearly quintupled in the past 21 years, even though the Compound Annual Growth Rate since has been only 7.39%.

https://www.portfoliovisualizer.com/bac ... ion1_1=100

The rule of 72 would tell us that the $10,000 shouldn't even have tripled yet, which is obviously wrong. So that rule of thumb is useful only for estimating that initial doubling.
I'm not sure what you are trying to say. If it is estimated that an investment will double in about 10 years at ~7% annual return, then it should double twice in 20 years. That is quintupling...
Good thing this is a relatively safe space for me to say dumb things!
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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