CNBC says Vanguard says 70% Chance of "Correction"

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JoMoney
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CNBC says Vanguard says 70% Chance of "Correction"

Post by JoMoney » Mon Nov 27, 2017 11:36 am

"Chance of US stock market correction now at 70 percent: Vanguard Group"
Scary headline of the day.
I'm guessing they're deriving that number from the below quotes
https://www.cnbc.com/2017/11/27/chance- ... guard.html
Vanguard research shows that the current probability is 30 percent higher than what has been typical over the past six decades.
...
"Having a 10 percent negative return in the U.S. market in a calendar year has happened 40 percent of the time since 1960. That goes with the territory of being a stock investor."
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by baconavocado » Mon Nov 27, 2017 11:44 am

Stay the course.

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by roflwaffle » Mon Nov 27, 2017 11:49 am

So if the current risk of a correction is 30% higher than the typical risk over the past few decades, that puts the typical risk at ~50%.

On the other hand, the S&P 500 seems to have more positive years than negative ones.

http://www.icmarc.org/prebuilt/apps/downloadDoc.asp

Is there something else about that metric they aren't mentioning, like the "risk" also being a function of the magnitude of the correction?

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by corn18 » Mon Nov 27, 2017 11:54 am

I am at 62/38 against a 60/40 target. I was going to let contributions fix that, but maybe I should panic and fix it now.

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by flyingaway » Mon Nov 27, 2017 11:57 am

I am disappointed by Vanguard for such a lousy inaccurate statement.

My calculation says that there will be 100% chance of correction, I just do not tell you when and how much.

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by bondsr4me » Mon Nov 27, 2017 12:02 pm

to quote Cramer on his Mad Money show......SELL SELL SELL!!!

I hope the "big one" happens soon....I am looking for a great buying opportunity....bring it on.

Seriously though, I will be on the lookout for some buying opportunities if we get 15-20 % correction.

I have some idle cash just ready to go to work.

Have a great week BH'ers.

Don

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by juliewongferra » Mon Nov 27, 2017 12:04 pm

But also, no correction is permanent!! Maybe the "correction" is a quick and dirty one, maybe the stock market goes up 20% from now to May 1, 2018, then goes down 10% until July 1, 2018, then rises another 20% to year end! And then you are up for 2018, but if you are spooked by this headline, you'll miss the gains!!

You can't time it, and you don't know from what height and for how long a correction will last!!

(The correction also can last a year or two years, and turn into a legit recession, which is why you should diversify, especially if you are near or at withdrawal phase...but this is evryday advice, not correction-specific advice!!)

As everyone smarter than me says, "Stay the course!!"

cheers,
jwf

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by maj » Mon Nov 27, 2017 12:11 pm

I was surprised by the report from Vanguard because it does not normally get into the guessing game.
On more thought, I think the management of the company we own is attempting to reduce anxiety and panicky selling by offering a professional caution signal in advance of what is inevitable.

peace

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by lack_ey » Mon Nov 27, 2017 12:15 pm

Actual quote from the source:
U.S. equity seems set for lower returns and a higher risk of loss. As illustrated in Figure 4, our five-year U.S. equity return simulations show roughly a one-in-three chance of surpassing a 5% annualized return. The probability of a 10% or worse decline in any given year is 69%, which is high relative to the historical probability (42%).
That's a 10% intra-year decline, which is nothing much really.


Vanguard generally understands and adjusts equity valuations by inflation expectations and interest rates to see what makes sense, rather than doing raw comparisons to past values. This makes sense in a number of ways, but can also be used to tell pretty much any kind of story you like.

Image
(shows historical percentile of some earnings ratio figures, and their fair-value CAPE; click for larger)

maj wrote:
Mon Nov 27, 2017 12:11 pm
I was surprised by the report from Vanguard because it does not normally get into the guessing game.
On more thought, I think the management of the company we own is attempting to reduce anxiety and panicky selling by offering a professional caution signal in advance of what is inevitable.

peace
What are you talking about? They put out this kind of analysis or guesses all the time.

For example, check last year's full document of their economic and market outlook:
https://www.vanguard.com/pdf/ISGVEMO.pdf

All I've seen is a summary for this year (the late-2017-published outlook for 2018 and beyond):
https://institutional.vanguard.com/iam/ ... MO2018.pdf
Last edited by lack_ey on Mon Nov 27, 2017 12:20 pm, edited 1 time in total.

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by eye.surgeon » Mon Nov 27, 2017 12:18 pm

In other news the sky is blue.

The chance of a correction is always 100%, it's just a matter of when. For boglehead investors it doesn't change much.
"I would rather be certain of a good return than hopeful of a great one" | Warren Buffett

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by lack_ey » Mon Nov 27, 2017 12:22 pm

eye.surgeon wrote:
Mon Nov 27, 2017 12:18 pm
In other news the sky is blue.

The chance of a correction is always 100%, it's just a matter of when. For boglehead investors it doesn't change much.
Okay, good to know that there's a 100% chance it might rain tomorrow.

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by cheapskate » Mon Nov 27, 2017 12:39 pm

I wIsh Vanguard would just keep the focus on expected 10 year returns for various asset classes instead of trying to handicap the odds of a short term bear market.

Others like Research Affiliates seem to do the right thing here with periodic updates to their expected 10 year returns for various asset classes - which is a lot more useful as input to planning, saving and asset allocation.

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by Toons » Mon Nov 27, 2017 12:46 pm

Whew,
It is about time.
Great Opportunity to pick up shares at lower prices :)
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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djpeteski
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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by djpeteski » Mon Nov 27, 2017 12:47 pm

Doesn't it correct every day/hour/second/millisecond?

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by Bacchus01 » Mon Nov 27, 2017 12:50 pm

So, the opportunity to TLH and buy lower with a 50 year time horizon to spend it? I'd be all for that!

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by staythecourse » Mon Nov 27, 2017 12:53 pm

This fit into my usual, "Who cares" category.

Even if Vanguard is right WHO CARES. In the immortal words of Keynes or Friedman (forgot which one) paraphrasing, "It is the DUTY of the equity investor to lose money from time to time". Note he said DUTY and not unlucky or something in that vain. One is expected to lose money when holding equities from time to time. Last I checked it has been awhile, no?

Good luck.
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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by oldzey » Mon Nov 27, 2017 1:15 pm

Toons wrote:
Mon Nov 27, 2017 12:46 pm
Whew,
It is about time.
Great Opportunity to pick up shares at lower prices :)
Yup, it's been a while since the last sale on cat food. :P
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by Seasonal » Mon Nov 27, 2017 1:25 pm

Toons wrote:
Mon Nov 27, 2017 12:46 pm
Whew,
It is about time.
Great Opportunity to pick up shares at lower prices :)
Prices might be lower because the market correctly forecasts lower returns going forward. Lower prices can mean better value (the same thing is on sale) or worse value (a damaged thing is on sale and the price hasn't dropped enough to compensate).

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by Phineas J. Whoopee » Mon Nov 27, 2017 2:02 pm

djpeteski wrote:
Mon Nov 27, 2017 12:47 pm
Doesn't it correct every day/hour/second/millisecond?
Conventionally when talking about the stock market a correction means at least a 10% decline from the recent high. Similarly a bear market is at least 20%.

There's nothing intuitive about the terms and the numbers are arbitrary. It's just the way people talk.

PJW

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by greg24 » Mon Nov 27, 2017 2:05 pm

I buy Vanguard funds for their low costs and quality products.

I do not listen to Vanguard market prognostications.

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by birdog » Mon Nov 27, 2017 2:11 pm

flyingaway wrote:
Mon Nov 27, 2017 11:57 am
I am disappointed by Vanguard for such a lousy inaccurate statement.

My calculation says that there will be 100% chance of correction, I just do not tell you when and how much.
Exactly what I was going to say!

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by RetiredWithDementia » Mon Nov 27, 2017 2:14 pm

Sad to see Vanguard getting into such bad habits, such as spending money on useless market timing sucker plays. Jack must be spitting mad right now.

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by SimpleGift » Mon Nov 27, 2017 2:17 pm

Since 1980, the average intra-year decline of the S&P 500 has been about 14% (chart below) — but annual returns have been positive in 28 out of 37 calendar years: In other words, corrections are normal market behavior and are of little consequence for returns — even annual returns!
Cordially, Todd

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by jhfenton » Mon Nov 27, 2017 2:29 pm

flyingaway wrote:
Mon Nov 27, 2017 11:57 am
I am disappointed by Vanguard for such a lousy inaccurate statement.

My calculation says that there will be 100% chance of correction, I just do not tell you when and how much.
+1 That is always my response when asked. Of course there will be a correction…at some point. Tomorrow? Next week? Next month? Next year? Someone in the 2020's?

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by KyleAAA » Mon Nov 27, 2017 2:49 pm

Sounds like great market conditions for accumulators over the next 5 years, then.

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by GoldenFinch » Mon Nov 27, 2017 2:50 pm

I read the article and the Boglehead in me decided it would have to be filed under “ignore the noise.”

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by F150HD » Mon Nov 27, 2017 2:56 pm

JoMoney wrote:
Mon Nov 27, 2017 11:36 am
"Chance of US stock market correction now at 70 percent: Vanguard Group"
Scary headline of the day.
I'm guessing they're deriving that number from the below quotes
https://www.cnbc.com/2017/11/27/chance- ... guard.html
Vanguard research shows that the current probability is 30 percent higher than what has been typical over the past six decades.
...
"Having a 10 percent negative return in the U.S. market in a calendar year has happened 40 percent of the time since 1960. That goes with the territory of being a stock investor."
no issue w/ a correction, just hoping it's not like 2008.

Hopefully something more like 10-20% and we bounce out of it in a year or so.

I recall January of 2016 we had a dip.....

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by GoldenFinch » Mon Nov 27, 2017 3:07 pm

GoldenFinch wrote:
Mon Nov 27, 2017 2:50 pm
I read the article and the Boglehead in me decided it would have to be filed under “ignore the noise.”
Or maybe we should all go straight to cash :shock:

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by Da5id » Mon Nov 27, 2017 3:13 pm

They should add some significant figures to show how accurately they can predict this. I'd put the odds at 68.4372% myself.

That said, I'd never be really surprised by a correction or a crash. If the market went up steadily and predictably presumably there wouldn't be much of an equity premium.

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by oldcomputerguy » Mon Nov 27, 2017 3:28 pm

Yawn.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by HomerJ » Mon Nov 27, 2017 4:59 pm

lack_ey wrote:
Mon Nov 27, 2017 12:22 pm
eye.surgeon wrote:
Mon Nov 27, 2017 12:18 pm
In other news the sky is blue.

The chance of a correction is always 100%, it's just a matter of when. For boglehead investors it doesn't change much.
Okay, good to know that there's a 100% chance it might rain tomorrow.
There is a 100% chance it will rain SOMEDAY.

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by mickeyd » Mon Nov 27, 2017 5:11 pm

After a 24 hour cooling off period, I will be converting it all to cash and gold.
Part-Owner of Texas | | “The CMH-the Cost Matters Hypothesis -is all that is needed to explain why indexing must and will work… Yes, it is that simple.” John C. Bogle

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by lack_ey » Mon Nov 27, 2017 5:27 pm

HomerJ wrote:
Mon Nov 27, 2017 4:59 pm
lack_ey wrote:
Mon Nov 27, 2017 12:22 pm
eye.surgeon wrote:
Mon Nov 27, 2017 12:18 pm
In other news the sky is blue.

The chance of a correction is always 100%, it's just a matter of when. For boglehead investors it doesn't change much.
Okay, good to know that there's a 100% chance it might rain tomorrow.
There is a 100% chance it will rain SOMEDAY.
I stated that as intended. There's a 100% chance it might rain tomorrow under reasonable definitions of "might rain." That is, like the other statement, the uncertainty has been tucked away into the "might" and thus renders the number given (100%) useless. There's no point in specifying the 100% when the statement is trivially true.

The thrust of the article, in highlighting one portion of Vanguard's statements, is that the chance of a correction may be higher than usual, even up to 69% now in a given year, under a very tame definition of what a correction entails (10% drawdown).

You can think that's too high, too low, about right, or not have an opinion / don't know. Then regardless of the previous answer, there are a range of things you could do in response to that. I would say in the range of "not much at all" may be appropriate.

It's not like there's some amazing underlying insight here, though, and I don't think anybody really trusts Vanguard's simulation to be perfectly accurate in a statistical sense. There's a lot of residual randomness left even for those who think they can do better than "don't know."

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by fatlever » Mon Nov 27, 2017 6:08 pm

lack_ey wrote:
Mon Nov 27, 2017 5:27 pm

It's not like there's some amazing underlying insight here, though, and I don't think anybody really trusts Vanguard's simulation to be perfectly accurate in a statistical sense. There's a lot of residual randomness left even for those who think they can do better than "don't know."
I worked on the tech side supporting BOA's quantitative analysis modelling and forecasting that also performed things like stress test scenarios that regulators make big banks do. There was almost absolute certainty from some very smart quants and experienced analysts that we were going to have a double dip -- it was like a 70% chance of that scenario they told me. If you google "double dip 2011" the conclusion was the same from almost every corner.

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by lack_ey » Mon Nov 27, 2017 6:19 pm

fatlever wrote:
Mon Nov 27, 2017 6:08 pm
lack_ey wrote:
Mon Nov 27, 2017 5:27 pm

It's not like there's some amazing underlying insight here, though, and I don't think anybody really trusts Vanguard's simulation to be perfectly accurate in a statistical sense. There's a lot of residual randomness left even for those who think they can do better than "don't know."
I worked on the tech side supporting BOA's quantitative analysis modelling and forecasting that also performed things like stress test scenarios that regulators make big banks do. There was almost absolute certainty from some very smart quants and experienced analysts that we were going to have a double dip -- it was like a 70% chance of that scenario they told me. If you google "double dip 2011" the conclusion was the same from almost every corner.
Yeah, there were a lot of people convinced of that back then, and a lot more freaking out. That helped keep valuations down for a while, until we really got the bull market in 2013.

Though these predictions are really not on the same scale. A double dip is a much more extreme outcome (away from the average or random walk, or other know-less models) than a 10% drawdown, which is already fairly routine, with 42% occurrence historically as Vanguard notes over the history they are looking at.

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by David Jay » Mon Nov 27, 2017 7:18 pm

staythecourse wrote:
Mon Nov 27, 2017 12:53 pm
In the immortal words of Keynes or Friedman (forgot which one) paraphrasing, "It is the DUTY of the equity investor to lose money from time to time". Note he said DUTY and not unlucky or something in that vain. One is expected to lose money when holding equities from time to time.
I like the Rockefeller quote: "In bear markets, stocks return to their rightful owners."

or as someone said here on BH: "The stock market is the only market where, when the merchandise goes on sale the shoppers head for the exits."
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by itstoomuch » Mon Nov 27, 2017 7:22 pm

I am ready for this one. :mrgreen:
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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by nisiprius » Mon Nov 27, 2017 7:24 pm

I wish Vanguard would stay the heck out of the prediction business.
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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by columbia » Mon Nov 27, 2017 7:48 pm

It could be a ploy to get people to sell VT and buy one of the new global W funds.

/kidding

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by randomizer » Mon Nov 27, 2017 9:07 pm

bondsr4me wrote:
Mon Nov 27, 2017 12:02 pm
Seriously though, I will be on the lookout for some buying opportunities if we get 15-20 % correction.

I have some idle cash just ready to go to work.
I never have any idle cash. It's always going to work.
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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by garlandwhizzer » Mon Nov 27, 2017 9:42 pm

I actually enjoyed reading the Vanguard piece. No one predicts the future accurately but they aren't actually making predictions, instead talking about probabilities. I think they are correct in their main points. US returns going forward are likely to be significantly lower than historical. INTL equity markets have better valuations and the potential to outperform the US. There has never been a time historically when fundamentals made stronger case for international diversification in equity portfolios in my opinion. Don't think that because we've been a long and vigorous US bull market in the US that it's going to continue forever. The low interest rate environment may rationally elevates PE ratios. We may be a bit overvalued in the US, but we're not in a bubble. I disagree with Vanguard about INTL bonds. I see no compelling reason to hold non-US bonds at this time.

I don't think there's anything new in this analysis and I don't think Vanguard is warning of an imminent correction or bear market in the next weeks or months. They're not screaming, "SELL!" What they are doing is giving investors realistic probability projections of what they expect in the future. Don't kill the messenger if you don't like the message. It's fine to disagree with Vanguard and you might well turn out to be right. But I believe they are doing their fiduciary duty in trying to paint a realistic picture to temper excessive optimism and complacency among some investors who may think the gravy train will run on forever. For future planning purposes it's best to have realistic expectations, to choose rationally based on current data the real probabilities of what is most likely to be the future rather than what we desire the future to be.

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by Jags4186 » Mon Nov 27, 2017 9:45 pm

I’ll go one step further than Vanguard. I 100% guarantee a correction.








Don’t ask me when though.

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by nisiprius » Mon Nov 27, 2017 10:08 pm

Jags4186 wrote:
Mon Nov 27, 2017 9:45 pm
I’ll go one step further than Vanguard. I 100% guarantee a correction.








Don’t ask me when though.
Sooner or later a crash is coming and it may be terrific.
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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by sambb » Mon Nov 27, 2017 10:16 pm

not concerned about a huge crash, unless it is right before i retire or change allcation.

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by Alan S. » Mon Nov 27, 2017 10:21 pm

Jags4186 wrote:
Mon Nov 27, 2017 9:45 pm
I’ll go one step further than Vanguard. I 100% guarantee a correction.








Don’t ask me when though.
Exactly! Without a prediction of a time frame, VG is only stating the obvious and it is not worth the print. Note that this "Correction" might wait until another 11% gain, which means that the 10% correction will only bring the market back to where it is now.

And if the correction started tomorrow, it would only erase the last 7 months of gains.

Sometimes, it is painfully obvious that there is tremendous pressure to issue such predictions. Still waiting for someone to come forward to announce their accuracy with respect to those 2017 predictions made late last year. :wink:

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by lack_ey » Mon Nov 27, 2017 10:24 pm

Alan S. wrote:
Mon Nov 27, 2017 10:21 pm
Exactly! Without a prediction of a time frame, VG is only stating the obvious and it is not worth the print. Note that this "Correction" might wait until another 11% gain, which means that the 10% correction will only bring the market back to where it is now.

And if the correction started tomorrow, it would only erase the last 7 months of gains.

Sometimes, it is painfully obvious that there is tremendous pressure to issue such predictions. Still waiting for someone to come forward to announce their accuracy with respect to those 2017 predictions made late last year. :wink:
...Vanguard did specify a time frame and a probability.

Read my prior post:
viewtopic.php?f=10&t=233158&p=3637339#p3636252

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by Doom&Gloom » Mon Nov 27, 2017 10:43 pm

Attaching a number to a prediction does not make the prediction more accurate or valid.

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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by FIREchief » Mon Nov 27, 2017 11:18 pm

Sweet!!! Hopefully just in time for my January 2018 Roth conversions! I really like saving 10% on taxes. 8-)
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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oldzey
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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by oldzey » Mon Nov 27, 2017 11:49 pm

FIREchief wrote:
Mon Nov 27, 2017 11:18 pm
Sweet!!! Hopefully just in time for my January 2018 Roth conversions! I really like saving 10% on taxes. 8-)
+1 for January 2018 equities to be on sale to fund my 20 year old Roth IRA (est. 1998)! :beer
"The broker said the stock was 'poised to move.' Silly me, I thought he meant up." ― Randy Thurman

alwayshedge
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Re: CNBC says Vanguard says 70% Chance of "Correction"

Post by alwayshedge » Tue Nov 28, 2017 12:09 am

I don't like Vanguard doing this being that they are so anti timing. It can easily generate panic amongst their customer base. People respect Vanguard and might make an irrational decision based on something like this.

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