Heading for a top?

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ValueComplex
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Heading for a top?

Post by ValueComplex » Thu Jan 04, 2018 2:14 am

I know market timing is against Boglehead principles. However Warren Buffet and Jack Bogle agree on many points including the value of index funds. Warren Buffet has always said "Be fearful when others are greedy". I see a number of developments that I believe are cause for concern and I would like to get the experienced Bogleheads perspective on them.

1)The Crypto Bubble. Yep it's a bubble. How can you know? Ripple (XRP). Today trading at almost $3.70 per coin gives it a market cap of almost $400 Billion (the market cap stated on coinmarketcap.com is incorrect, because ripple actually kept 60% of the coins. Only the float is being reported). It's not just parabolic, it's straight up (I've never seen that). Ripple is now valued twice of bitcoin and valued equally to century old companies like Johnson and Johnson and JP Morgan. It's market cap has moved 14x in just two weeks. There's no way to know how much a replacement for wire transfers are worth, but it is worth noting it's currently valued at 10 times the CME group (CME). That seems hard to believe.

2) CNBC fast money reporting on technology / FAANG stocks. Tonight the discussion is that technology has no way to go but up despite some chip makers being parabolic. "Just close your eyes and buy" they said. That hardly seems like sound investing advice.

3) The flattening Yield curve. IShares SLQD has a sec yield of 2.35%. It is quickly catching up to LQD which holds intermediate term bonds. My understanding is an inverted yield curve often proceeds big corrections. But please correct me if that is wrong

4) The Vix went below 9 today. Hardly any fear in the market.

In any case, I will maintain my investments but I would like to get your thoughts on these developments. The crypto space seems greedy, the rest of the market seems complacent.

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Re: Heading for a top?

Post by Alex Frakt » Thu Jan 04, 2018 4:52 pm

bumping due to delayed moderator approval

alfaspider
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Re: Heading for a top?

Post by alfaspider » Thu Jan 04, 2018 5:20 pm

All valid points, but the problem with market timing is figuring out when to do something about it. The bull market is rather long in the tooth, but you could make pretty good arguments it was this time last year, and the year before that. If you had sold this time last year, you would have lost out on an epic year.

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Pajamas
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Re: Heading for a top?

Post by Pajamas » Thu Jan 04, 2018 5:24 pm

ValueComplex wrote:
Thu Jan 04, 2018 2:14 am

In any case, I will maintain my investments but I would like to get your thoughts on these developments. The crypto space seems greedy, the rest of the market seems complacent.
At any one point in time, there are usually some sectors doing well, some doing poorly, some chugging along. The same is true for individual stocks. There are probably several stocks that set new all-time highs today and several others that set new all-time lows.

Wakefield1
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Re: Heading for a top?

Post by Wakefield1 » Thu Jan 04, 2018 5:33 pm

Dow Jones Utilities Index down a bit again today? Is it considered to have any predictive value at all when that index moves down during an otherwise frothy market?

Perhaps correlated to falling bond prices?
Last edited by Wakefield1 on Thu Jan 04, 2018 5:35 pm, edited 1 time in total.

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Re: Heading for a top?

Post by livesoft » Thu Jan 04, 2018 5:35 pm

The market spends quite a lot of time at a top. It cannot go higher without hit a top ... by definition. So a top means absolutely nothing.

And as for a top, you know that Japan Nikkei finally closed about where it was in 1992? What's up with that? Is that a top?
https://www.reuters.com/article/japan-s ... SL4N1OZ28C
Catching up to overseas gains after the long Japanese New Year’s holiday, the Nikkei share average finished up 3.26 percent at its session high of 23,506.33, its highest level since January 1992.

Thursday’s gain was the Nikkei’s biggest for one day since Nov. 10, 2016.
Cue the "best days / worst days" "don't time the market" folks please.
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Re: Heading for a top?

Post by WhyNotUs » Thu Jan 04, 2018 5:39 pm

Maybe
I own the next hot stock- VTSAX

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Re: Heading for a top?

Post by AnalogKid22 » Thu Jan 04, 2018 5:56 pm

Recent NYT article on the points you bring up: After Dow 25,000, the Party Has to End. But When?

Just like a year ago, the general consensus is that the market is overvalued, but that doesn't mean the bull won't continue this year, with or without a correction. It echoes the "stay the course" sentiments posted every day on this forum:
“If the sharp rise in the stock market in 2017 has unbalanced your portfolio with a higher proportion of equities than is consistent with your risk tolerance, then you could do some rebalancing by trimming the equities down to the proportion at which you are comfortable,” Mr. Malkiel said. “But do not try to time the market. Nobody can consistently time the market, and those who try it usually fail.”
If you're worried, all you can do is adjust your AA so that you're not worried. Will your adjusted AA cause you to miss out on gains during an epic 2018, assuming the bull continues to run? Maybe, maybe not, but at least you can sleep at night.
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ValueComplex
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Re: Heading for a top?

Post by ValueComplex » Thu Jan 04, 2018 6:18 pm

All good points. I would never leave the market. Too wise for that. Maybe reduce a bit.

But there is obviously a lot of speculation out there. Ripple in particular shows that people are just buying things because they're going up. Last I heard it was getting a lot of hype because it had around "100" potential bank customers. I'm not sure that's worthy of a $350B-$400B valuation.

Not to mention this article. https://www.coindesk.com/100-billion-co ... ns-ripple/
which alludes to the fact that XRP might not even be necessary for the platform. So XRP are worth somewhere between $400,000,000,000 and $0. That's a big range.

Wild stuff.

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Re: Heading for a top?

Post by AnalogKid22 » Thu Jan 04, 2018 6:34 pm

ValueComplex wrote:
Thu Jan 04, 2018 6:18 pm
All good points. I would never leave the market. Too wise for that. Maybe reduce a bit.

But there is obviously a lot of speculation out there. Ripple in particular shows that people are just buying things because they're going up. Last I heard it was getting a lot of hype because it had around "100" potential bank customers. I'm not sure that's worthy of a $350B-$400B valuation.

Not to mention this article. https://www.coindesk.com/100-billion-co ... ns-ripple/
which alludes to the fact that XRP might not even be necessary for the platform. So XRP are worth somewhere between $400,000,000,000 and $0. That's a big range.

Wild stuff.
Indeed. I plan to buy more bonds, but equities are staying put. I truly believe the "fear of missing out" (FOMO) crowd that have been sitting on the sidelines during this multi-year bull run will finally accept that holding out is getting them nowhere. With a healthy economy people have money to invest.
A fool and his money are very easily parted - Anonymous

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Re: Heading for a top?

Post by Fallible » Thu Jan 04, 2018 7:32 pm

ValueComplex wrote:
Thu Jan 04, 2018 6:18 pm
All good points. I would never leave the market. Too wise for that. Maybe reduce a bit. ...
You said in your first post that you would "maintain" your investments despite having concerns about the market. Here you say you may "reduce a bit." The latter would not be market timing, which is predicting what the market will do (which no one can do with any certainty). It would simply be lowering risk to bring your allocation within your tolerance for risk, i.e., how much risk you want to handle, or how much you can afford to lose in a downturn before you'll need the money. It's a personal call, doing what is right for you.
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Re: Heading for a top?

Post by Phineas J. Whoopee » Thu Jan 04, 2018 7:47 pm

Regardless of one's definition of top, we are always heading for a top. We just don't know when or by how much so there's nothing we can do that predictably will enrich us from it. Somebody, of course, will happen to have benefited, and somebody else will have been harmed. The trick is to predict who(m), in advance, and be right; not to make up a deterministic backstory once the future becomes the past and is known.

That's why we encourage people to develop a plan they can and will stick with through thick and thin. Pretending one can predict the market usually leads to losses, although we all can name somebody who happened to come out ahead in some specific instance.

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Re: Heading for a top?

Post by AQ » Thu Jan 04, 2018 7:57 pm

Good points and I agreed with all of them. As others pointed out, what do we do?

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Re: Heading for a top?

Post by bligh » Thu Jan 04, 2018 8:10 pm

I was convinced that the market was going to tank at the end of 2016. I felt brexit had knocked out one big pillar, and the unexpected result of the US election would knock out the other. My heart was telling me to "Maybe reduce a bit", my brain told me to stay the course.

Today at the beginning of 2017, my heart continues to scream at me "You got lucky that time... okay NOW Maybe reduce a bit".. my brain continues to tell me.. "stay the course".

Go back and look at those threads on the forum, around the end of 2016 early 2017 where it seemed like for each thread where someone was going to cash, there was another thread where someone was saying "Why not 100% stocks?" ..

I oh so wish there was a way to know when to jump in and out of the market.. but there isn't. This bull could continue another 2 years.. or it could just go sideways for another 5 years before tanking 50%. I am scared too.... but I'm strapped in for the ride and, when the time comes, I will lend my tiny voice to the screams on the way down.

:sharebeer

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Phineas J. Whoopee
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Re: Heading for a top?

Post by Phineas J. Whoopee » Thu Jan 04, 2018 8:16 pm

AQ wrote:
Thu Jan 04, 2018 7:57 pm
Good points and I agreed with all of them. As others pointed out, what do we do?
This.

PJW

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Re: Heading for a top?

Post by onourway » Thu Jan 04, 2018 8:20 pm

There are plenty of things indicating optimism, but I'm far from convinced we are at the top, or perhaps anywhere near it yet. I just don't see the kind of unbridled optimism in the general public that we've seen in the last couple of run-ups. Jobs and wages are only growing moderately. People aren't spending like crazy - whether on consumer goods, houses, cars, stocks, whatever. Sure there is some crazy stuff going on with crypto, but that's still a relatively small slice of the population. I can fully see this going another couple of years at this point.

Of course I don't actually know anything at all, so I will stick to my plan either way, this is simply how I view things at the moment.

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Re: Heading for a top?

Post by MindBogler » Thu Jan 04, 2018 8:30 pm

bligh wrote:
Thu Jan 04, 2018 8:10 pm
I was convinced that the market was going to tank at the end of 2016. I felt brexit had knocked out one big pillar, and the unexpected result of the US election would knock out the other. My heart was telling me to "Maybe reduce a bit", my brain told me to stay the course.
It's always a good time to rebalance and evaluate one's risk tolerance. To the OP, if you have to ask this question then your asset allocation isn't appropriate for your risk tolerance. The market is never at a top, the trend will always be up. Set your portfolio to weather the volatility and move on.

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Re: Heading for a top?

Post by AnalogKid22 » Thu Jan 04, 2018 8:33 pm

onourway wrote:
Thu Jan 04, 2018 8:20 pm
There are plenty of things indicating optimism, but I'm far from convinced we are at the top, or perhaps anywhere near it yet. I just don't see the kind of unbridled optimism in the general public that we've seen in the last couple of run-ups. Jobs and wages are only growing moderately. People aren't spending like crazy - whether on consumer goods, houses, cars, stocks, whatever. Sure there is some crazy stuff going on with crypto, but that's still a relatively small slice of the population. I can fully see this going another couple of years at this point.

Of course I don't actually know anything at all, so I will stick to my plan either way, this is simply how I view things at the moment.
I'm of the same perspective. Unemployment is near zero in every state and so many people with money have been waiting for a very long time for the market to drop before jumping in, but it never comes. It will certainely correct eventually, but as long as the wave keeps rising you must ride it or you continue to miss out!
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Re: Heading for a top?

Post by The Wizard » Thu Jan 04, 2018 9:40 pm

bligh wrote:
Thu Jan 04, 2018 8:10 pm
I was convinced that the market was going to tank at the end of 2016. I felt brexit had knocked out one big pillar, and the unexpected result of the US election would knock out the other. My heart was telling me to "Maybe reduce a bit", my brain told me to stay the course.

Today at the beginning of 2017...
You might want to check your calendar...
Attempted new signature...

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bligh
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Re: Heading for a top?

Post by bligh » Thu Jan 04, 2018 9:45 pm

The Wizard wrote:
Thu Jan 04, 2018 9:40 pm
bligh wrote:
Thu Jan 04, 2018 8:10 pm
I was convinced that the market was going to tank at the end of 2016. I felt brexit had knocked out one big pillar, and the unexpected result of the US election would knock out the other. My heart was telling me to "Maybe reduce a bit", my brain told me to stay the course.

Today at the beginning of 2017...
You might want to check your calendar...
:shock:

NOOOOOO! I lost a whole year of my life!! Why did no one tell me!?!!

ValueComplex
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Re: Heading for a top?

Post by ValueComplex » Fri Jan 05, 2018 12:36 am

Thank you all for your thoughtful replies. I will basically just re-evaluate my risk tolerance. I have stayed in equities throughout the past
15 years so I've been through some downturns and I'm sure I'll be through some more. Best of Luck

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Re: Heading for a top?

Post by Alex Frakt » Fri Jan 05, 2018 2:08 am

ValueComplex wrote:
Fri Jan 05, 2018 12:36 am
Thank you all for your thoughtful replies. I will basically just re-evaluate my risk tolerance. I have stayed in equities throughout the past
15 years so I've been through some downturns and I'm sure I'll be through some more. Best of Luck
Risk tolerance is the last step in determining your equity allocation. First you need to think about your ability to take that risk. Ability is determined by the amount of income you will need to draw from your savings as a percentage of your expected nest egg. Some people with the right combination of pensions, SSI and cost of living won't need anything. Others will be right on the edge of what's feasible. The former is free to set their equity holdings based on other factors such as the desire to leave a large estate or a desire to have a steady income stream. The latter will have to adopt a more defensive position, since a market correction and a large allocation to equities could put retirement out of reach.

Once you've figured out an appropriate range of allocations for your individual situation, you can use factors like risk tolerance to determine where you should fall in that range.

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Re: Heading for a top?

Post by broslami » Fri Jan 05, 2018 2:14 am

I don't remember the exact numbers but if you look at the stock market as a whole, in general, historically like 80% of the time it goes up. Not sure what the point is there, but I'm sure if you search for it you'll find one.

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Re: Heading for a top?

Post by minimalistmarc » Fri Jan 05, 2018 2:23 am

When commenters say “top is in”, “bull market is long in the tooth”, I get the feeling they also feel there is going to be an epic crash.

A lot of people say “there will definitely be a crash you just don’t know when”’

Thing is a crash may never come, or it may follow a parabolic boom and just take things down a little, it may last for a decade or a couple of weeks.

The only predictable thing is that markets will go up over the (undefined) long term. If you don’t believe that then you wouldn’t invest

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Re: Heading for a top?

Post by TheHouse7 » Fri Jan 05, 2018 7:22 am

For all these concerns, I think there will be an extra 10+ years in this bull while I start accumulating (started 3 years ago).

Has anyone considered having a different AA in contributions, than their portfolio?(like 60/40 and 100/0 compared to 80/20)

Sorry if that's not clear :beer
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Re: Heading for a top?

Post by munemaker » Fri Jan 05, 2018 7:27 am

It seems like you are trying to outsmart the market. Just stay the course and you will do fine.

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Re: Heading for a top?

Post by bottlecap » Fri Jan 05, 2018 7:45 am

Yes, we are definitely headed toward a market top! We always are when the market rises. Who knows when it will get there?

I know you say you “know” that market timing doesn’t work. But you then ask, based on your current market evaluation, if we think market timing will work now, just this once.

The answer is no one knows. If market timing worked, we could give you an answer. But it doesn’t work except in hindsight. But you already know that.

JT

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Re: Heading for a top?

Post by david1082b » Fri Jan 05, 2018 8:54 am

VIX was very low in the early to mid 1990s too. I'm sure you could find articles from then being bearish based on that. Low VIX has continually been used as a warning that the market is "complacent". Look at this from August 2012:
Beware of investor complacency

Investor malaise has settled in like a hot summer day. And it's just as uncomfortable.

"Our volume is as muted as it can be and the VIX is down sharply," said John Kosar, director of research at Asbury Research in Schaumberg, Ill.

Kosar is talking about the Chicago Board of Trade's volatility index (VIX), Wall Street's notorious fear gauge. It has barely budged above 20 during the past month. It is now hovering around 16 following two straight up days for stocks.

"Sustained market recoveries don't begin with a 15 VIX," said Kosar. Any reading below 30 signals a relatively low level of fear in the markets. No one is too nervous at the moment, and "that's when bad things happen," he added. http://buzz.money.cnn.com/2012/08/07/in ... omplacent/
The same buzzwords are used again and again as "indicators". Eventually they will be correct but only by accident. That is not useful for people. As for the crypto stuff, the more money people pile into that the less money will go into stocks, making a price bubble less likely for stocks imo.
Last edited by david1082b on Fri Jan 05, 2018 9:14 am, edited 1 time in total.

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Re: Heading for a top?

Post by Flymore » Fri Jan 05, 2018 9:01 am

John Templeton, “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.
The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best
time to sell.”


Just my opinion, I'd say we're in the "mature on optimism" phase. Still a ways to go. :D :beer

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Re: Heading for a top?

Post by david1082b » Fri Jan 05, 2018 9:07 am

After searching VIX + complacent and market, I found another VIX thing from October 2010:
Another indicator we look at is the VIX, which helps us to determine when investors get too complacent. When the VIX drops below 20, this is a signal investors are getting too complacent. At this writing, the VIX is at 19.79. If the VIX drops further, the chances of a major market reversal increase. https://www.marketwatch.com/story/stock ... 2010-10-22
I never see these articles present any proof that a lower VIX indicates an increased chance of a major market reversal. Has any positive correlation ever been shown? What if low VIX only coincided with declines by accident? We've seen so many low VIX numbers not result in bad declines that I believe that it's just a stopped clock "indicator".

What do they even mean when they say "investors are getting complacent"? It reminds me of the continual warnings about "mum n pop" investors arriving "late to the party", so watch out for the inevitable declines.

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Re: Heading for a top?

Post by lostdog » Fri Jan 05, 2018 9:10 am

Time in the market is better than timing the market. Stay the course through the ups and downs.

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Re: Heading for a top?

Post by Stormbringer » Fri Jan 05, 2018 9:20 am

For what it's worth, Grantham is now saying that if the market is in a classic bubble, then S&P 3,400 - 3,700 in 9 to 18 months may be in the cards.

I'm not all that into market timing, but I'm pretty sure if that happened in that time frame I would make changes to my equity allocation.
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Re: Heading for a top?

Post by z3r0c00l » Fri Jan 05, 2018 9:33 am

We are up what, 150% in 10 years since the last high in 2007? That doesn't exactly strike me as unsustainable returns. Worth holding for the next 100% even if we have to take 10 years to get there. Companies are making bank right now, the whole point in owning stocks it to share in those profits.

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Re: Heading for a top?

Post by michaeljc70 » Fri Jan 05, 2018 9:58 am

Fallible wrote:
Thu Jan 04, 2018 7:32 pm
ValueComplex wrote:
Thu Jan 04, 2018 6:18 pm
All good points. I would never leave the market. Too wise for that. Maybe reduce a bit. ...
You said in your first post that you would "maintain" your investments despite having concerns about the market. Here you say you may "reduce a bit." The latter would not be market timing, which is predicting what the market will do (which no one can do with any certainty). It would simply be lowering risk to bring your allocation within your tolerance for risk, i.e., how much risk you want to handle, or how much you can afford to lose in a downturn before you'll need the money. It's a personal call, doing what is right for you.
Isn't changing your AA based on market conditions market timing? In my book, it is.

When you pick an AA you know stocks can go up 40%, down 40%, etc. That hasn't changed based on market conditions.

As others have pointed out, I'm sure people bailed (or at least reduced stocks) 5 years ago, 4 years ago, 3 years ago, 2 years ago, 1 year ago. Think of the potential gains they lost. I guess if the market had tanked, then they would think they were geniuses.

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Re: Heading for a top?

Post by heyyou » Fri Jan 05, 2018 11:30 am

by munemaker » Fri Jan 05, 2018 7:27 am
It seems like you are trying to outsmart the market. Just stay the course and you will do fine.
Well said.
Yes, there will be a crash someday, and no one knows when. It has been shown that the best prep is to just accept those wild market fluctuations in your portfolio's value by not trying to guess what will happen next, not by trying to preserve your recent gains. Some portion of those recent gains are as temporary as the future losses that will also occur.

Trying to avoid the crashes, has been shown to also avoid gains due to mistiming both of them. To benefit from stock market investing, we need to just tolerate the crashes instead of trying to avoid them.

Rephrasing Winston Churchill's remark about democracy to this topic, index investing is a very stressful way to invest, it has only been better than all of the other ways that have been tried.

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Re: Heading for a top?

Post by Fallible » Fri Jan 05, 2018 11:34 am

michaeljc70 wrote:
Fri Jan 05, 2018 9:58 am
Fallible wrote:
Thu Jan 04, 2018 7:32 pm
ValueComplex wrote:
Thu Jan 04, 2018 6:18 pm
All good points. I would never leave the market. Too wise for that. Maybe reduce a bit. ...
You said in your first post that you would "maintain" your investments despite having concerns about the market. Here you say you may "reduce a bit." The latter would not be market timing, which is predicting what the market will do (which no one can do with any certainty). It would simply be lowering risk to bring your allocation within your tolerance for risk, i.e., how much risk you want to handle, or how much you can afford to lose in a downturn before you'll need the money. It's a personal call, doing what is right for you.
Isn't changing your AA based on market conditions market timing? In my book, it is.

When you pick an AA you know stocks can go up 40%, down 40%, etc. That hasn't changed based on market conditions.

As others have pointed out, I'm sure people bailed (or at least reduced stocks) 5 years ago, 4 years ago, 3 years ago, 2 years ago, 1 year ago. Think of the potential gains they lost. I guess if the market had tanked, then they would think they were geniuses.
Market timing is basically predicting what the market will do (or trying to) and investing based on the prediction. However, being concerned or anxious about what the market will do to the point of failing the "sleep test" can signal a change in personal risk tolerance and a need to lower portfolio risk (or risk bailing out in a downturn). If the OP is at this point, he would be changing his allocation to better match his risk level.

When we choose an allocation, you're right, we should understand market risk, i.e., our need, ability, and willingness (risk tolerance) to take risk. We should know how much we're willing and able to lose. But it's not easy to know and risk tolerance is known to change and change often. In his book, All About Asset Allocation (2nd ed.), Rick Ferri writes about this in Chapter 14, "When to Change Your Asset Allocation."
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Re: Heading for a top?

Post by michaeljc70 » Fri Jan 05, 2018 11:42 am

Fallible wrote:
Fri Jan 05, 2018 11:34 am
michaeljc70 wrote:
Fri Jan 05, 2018 9:58 am
Fallible wrote:
Thu Jan 04, 2018 7:32 pm
ValueComplex wrote:
Thu Jan 04, 2018 6:18 pm
All good points. I would never leave the market. Too wise for that. Maybe reduce a bit. ...
You said in your first post that you would "maintain" your investments despite having concerns about the market. Here you say you may "reduce a bit." The latter would not be market timing, which is predicting what the market will do (which no one can do with any certainty). It would simply be lowering risk to bring your allocation within your tolerance for risk, i.e., how much risk you want to handle, or how much you can afford to lose in a downturn before you'll need the money. It's a personal call, doing what is right for you.
Isn't changing your AA based on market conditions market timing? In my book, it is.

When you pick an AA you know stocks can go up 40%, down 40%, etc. That hasn't changed based on market conditions.

As others have pointed out, I'm sure people bailed (or at least reduced stocks) 5 years ago, 4 years ago, 3 years ago, 2 years ago, 1 year ago. Think of the potential gains they lost. I guess if the market had tanked, then they would think they were geniuses.
Market timing is basically predicting what the market will do (or trying to) and investing based on the prediction. However, being concerned or anxious about what the market will do to the point of failing the "sleep test" can signal a change in personal risk tolerance and a need to lower portfolio risk (or risk bailing out in a downturn). If the OP is at this point, he would be changing his allocation to better match his risk level.

When we choose an allocation, you're right, we should understand market risk, i.e., our need, ability, and willingness (risk tolerance) to take risk. We should know how much we're willing and able to lose. But it's not easy to know and risk tolerance is known to change and change often. In his book, All About Asset Allocation (2nd ed.), Rick Ferri writes about this in Chapter 14, "When to Change Your Asset Allocation."
Though I agree mostly with what you said, when the market is "cheap" or "expensive" (whatever that means....eye of the beholder) is when people get emotional and make changes they probably shouldn't be.

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Re: Heading for a top?

Post by nisiprius » Fri Jan 05, 2018 11:51 am

ValueComplex wrote:
Thu Jan 04, 2018 2:14 am
...Warren Buffet[t] has always said "Be fearful when others are greedy"...
In the words of the old computer adventure game, "You must tell me how to do a thing like that."

I don't know how to gauge others' fear or others' greed.

I don't know how to adjust my emotions, to become greedy or fearful simply by willing it.

I don't even know what specific investment actions correspond to "greed" or "fear."

I don't know how to adjust the amount, to be greedy enough but not too greedy, to be fearful enough but not too fearful.

However, in terms of actual behavior, if I can "stay the course," then when others are acting greedy I will be acting relatively more fearful then others, and when others are acting fearful, I will be acting relatively more greedy than others. That's something I think I can do.
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Re: Heading for a top?

Post by HomerJ » Fri Jan 05, 2018 11:58 am

ValueComplex wrote:
Thu Jan 04, 2018 2:14 am
In any case, I will maintain my investments but I would like to get your thoughts on these developments. The crypto space seems greedy, the rest of the market seems complacent.
Here's the trick. Set your Asset Allocation (AA) that you can stick with assuming the market will start a 50% drop tomorrow. Because it might.

Then you don't have to worry about it.

The market WILL crash. Maybe tomorrow, maybe in 5 years. No one knows.

Don't try to change your AA based on what you think will happen over the next year. Because no one knows.

Setting your AA is dependent on your need, willingness, and ability to take risk. In most cases, this is directly related how close you are to retirement.

If you are 30, you could stick with a 90/10 Asset Allocation, because even if the market drops 50% tomorrow, you have plenty of time for it to recover. Now, if you are very nervous 30-year old and a 50% drop would freak you out, maybe 70/30 would be better.

If you are 53, and hope to retire in 5 years or so with 25x-30x assets, you better be much more conservative. Because the market could drop 50% tomorrow, and not come back fast enough for you to retire easily. Plus losing your job at 53 with a 50% market drop (recessions and job losses go together), could really destroy your finances if you're 90/10 at 53.

So maybe 50/50 or even 40/60 as you get real close to retirement. You still get to enjoy a good chunk of the upside of a rising market, but you're protected if the market drops tomorrow. Because it could.

Note NONE of this has anything to do with any prediction of what the market is going to do tomorrow. NONE of this has anything to do with valuations or other market metrics.

Assume the market could start a 50% drop tomorrow. The risk is NEVER zero, regardless of market conditions. So set your Asset Allocation around that assumption that it MIGHT drop tomorrow. Because it could.

And then you don't have to worry anymore or pay attention to financial news anymore. You're already prepared.

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Re: Heading for a top?

Post by 2comma » Fri Jan 05, 2018 1:40 pm

Well put Homer! Describes me to a 'T'. If I didn't read the forum I'd have no idea what the market is doing. I've only changed my AA once and it had everything to do with my age and nothing to do with what the market was doing.
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Re: Heading for a top?

Post by Fallible » Fri Jan 05, 2018 4:45 pm

michaeljc70 wrote:
Fri Jan 05, 2018 11:42 am
Fallible wrote:
Fri Jan 05, 2018 11:34 am
michaeljc70 wrote:
Fri Jan 05, 2018 9:58 am
Fallible wrote:
Thu Jan 04, 2018 7:32 pm
ValueComplex wrote:
Thu Jan 04, 2018 6:18 pm
All good points. I would never leave the market. Too wise for that. Maybe reduce a bit. ...
You said in your first post that you would "maintain" your investments despite having concerns about the market. Here you say you may "reduce a bit." The latter would not be market timing, which is predicting what the market will do (which no one can do with any certainty). It would simply be lowering risk to bring your allocation within your tolerance for risk, i.e., how much risk you want to handle, or how much you can afford to lose in a downturn before you'll need the money. It's a personal call, doing what is right for you.
Isn't changing your AA based on market conditions market timing? In my book, it is.

When you pick an AA you know stocks can go up 40%, down 40%, etc. That hasn't changed based on market conditions.

As others have pointed out, I'm sure people bailed (or at least reduced stocks) 5 years ago, 4 years ago, 3 years ago, 2 years ago, 1 year ago. Think of the potential gains they lost. I guess if the market had tanked, then they would think they were geniuses.
Market timing is basically predicting what the market will do (or trying to) and investing based on the prediction. However, being concerned or anxious about what the market will do to the point of failing the "sleep test" can signal a change in personal risk tolerance and a need to lower portfolio risk (or risk bailing out in a downturn). If the OP is at this point, he would be changing his allocation to better match his risk level.

When we choose an allocation, you're right, we should understand market risk, i.e., our need, ability, and willingness (risk tolerance) to take risk. We should know how much we're willing and able to lose. But it's not easy to know and risk tolerance is known to change and change often. In his book, All About Asset Allocation (2nd ed.), Rick Ferri writes about this in Chapter 14, "When to Change Your Asset Allocation."
Though I agree mostly with what you said, when the market is "cheap" or "expensive" (whatever that means....eye of the beholder) is when people get emotional and make changes they probably shouldn't be.
This is where we investors need to know ourselves - to know whether we’re just overreacting to the usual market madness and can continue to hold in a crash, or whether our reactions mean we should lower portfolio risk now to avoid much anxiety possibly leading to selling when a crash comes. It's a tough call, but if a good IPS includes reasons why an AA was chosen, it can then be either a reminder to control emotions and hold, or a realization that too much risk is being taken.
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Re: Heading for a top?

Post by michaeljc70 » Fri Jan 05, 2018 6:02 pm

Fallible wrote:
Fri Jan 05, 2018 4:45 pm
michaeljc70 wrote:
Fri Jan 05, 2018 11:42 am
Fallible wrote:
Fri Jan 05, 2018 11:34 am
michaeljc70 wrote:
Fri Jan 05, 2018 9:58 am
Fallible wrote:
Thu Jan 04, 2018 7:32 pm


You said in your first post that you would "maintain" your investments despite having concerns about the market. Here you say you may "reduce a bit." The latter would not be market timing, which is predicting what the market will do (which no one can do with any certainty). It would simply be lowering risk to bring your allocation within your tolerance for risk, i.e., how much risk you want to handle, or how much you can afford to lose in a downturn before you'll need the money. It's a personal call, doing what is right for you.
Isn't changing your AA based on market conditions market timing? In my book, it is.

When you pick an AA you know stocks can go up 40%, down 40%, etc. That hasn't changed based on market conditions.

As others have pointed out, I'm sure people bailed (or at least reduced stocks) 5 years ago, 4 years ago, 3 years ago, 2 years ago, 1 year ago. Think of the potential gains they lost. I guess if the market had tanked, then they would think they were geniuses.
Market timing is basically predicting what the market will do (or trying to) and investing based on the prediction. However, being concerned or anxious about what the market will do to the point of failing the "sleep test" can signal a change in personal risk tolerance and a need to lower portfolio risk (or risk bailing out in a downturn). If the OP is at this point, he would be changing his allocation to better match his risk level.

When we choose an allocation, you're right, we should understand market risk, i.e., our need, ability, and willingness (risk tolerance) to take risk. We should know how much we're willing and able to lose. But it's not easy to know and risk tolerance is known to change and change often. In his book, All About Asset Allocation (2nd ed.), Rick Ferri writes about this in Chapter 14, "When to Change Your Asset Allocation."
Though I agree mostly with what you said, when the market is "cheap" or "expensive" (whatever that means....eye of the beholder) is when people get emotional and make changes they probably shouldn't be.
This is where we investors need to know ourselves - to know whether we’re just overreacting to the usual market madness and can continue to hold in a crash, or whether our reactions mean we should lower portfolio risk now to avoid much anxiety possibly leading to selling when a crash comes. It's a tough call, but if a good IPS includes reasons why an AA was chosen, it can then be either a reminder to control emotions and hold, or a realization that too much risk is being taken.
I agree, but the market doesn't have to be "expensive" for it to crash either.....so best to evaluate your risk tolerance in advance. Stock market valuations will not predict the next crash.
Last edited by michaeljc70 on Fri Jan 05, 2018 6:14 pm, edited 1 time in total.

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Re: Heading for a top?

Post by willthrill81 » Fri Jan 05, 2018 6:13 pm

bottlecap wrote:
Fri Jan 05, 2018 7:45 am
Yes, we are definitely headed toward a market top! We always are when the market rises. Who knows when it will get there?

I know you say you “know” that market timing doesn’t work. But you then ask, based on your current market evaluation, if we think market timing will work now, just this once.

The answer is no one knows. If market timing worked, we could give you an answer. But it doesn’t work except in hindsight. But you already know that.

JT
Well there's market timing, and then there's market timing. Most investors that use market timing are trying to subjectively predict the future, and that's a fool's errand. Rules-based, objective market timing (i.e. trend following) has worked well for those willing to stick to their strategy.

The problem with buy-and-hold is the deep drawdowns. The problem with market timing is looking different from the market. These problems are very real, and neither strategy is appropriate for everyone.

Being a trend follower, I'm currently all-in. When the trend reverses, I'll move out, but not before.
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Re: Heading for a top?

Post by orphic » Fri Jan 05, 2018 9:44 pm

The idea of dogmatically calling any subjective judgement used to shift an aa is silly. Shifting from 60/40 to 50/50 when CAPE hits 40 something is just plain common sense - same as shifting 60/40 to 70/30 during/after a major drawdown.

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Re: Heading for a top?

Post by Altron » Sat Jan 13, 2018 7:54 am

Just to piggyback on Homer’s post with an anecdote. My Dad is 70 and uses an investment manager (sigh) so when the market tanked in 2009 I was worried about him making a rash decision.

It just so happens he had adjusted his allocation from 70/30 stocks/bonds to 20/80 back in 2007 as he was prepping for retirement. This Asset allocation shift “saved” him millions when the stock market dropped 50%.

Fast forward to 2018 and his well-timed shift doesn’t seem so smart. He missed out on the greatest stock rally of all-time! If he had kept all his money in stocks and ridden out the recession he would have actually done better.

Wrong! At the end of the day he preserved his nest egg and has enough money to live out the rest of his days comfortably. Isn’t that the whole point of retirement investing?

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Re: Heading for a top?

Post by minesweep » Sat Jan 13, 2018 9:11 am

I'm much better at predicting the past than I am at predicting the future.

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Re: Heading for a top?

Post by investingdad » Sat Jan 13, 2018 9:18 am

I keep updating Quicken and it feels ridiculous. I've rebalanced a little bit as I try to keep the ratio where I want it, but the gains I'm seeing have me scratching my head.

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Re: Heading for a top?

Post by letsgobobby » Sat Jan 13, 2018 9:20 am

ValueComplex wrote:
Thu Jan 04, 2018 6:18 pm
All good points. I would never leave the market. Too wise for that. Maybe reduce a bit.

But there is obviously a lot of speculation out there. Ripple in particular shows that people are just buying things because they're going up. Last I heard it was getting a lot of hype because it had around "100" potential bank customers. I'm not sure that's worthy of a $350B-$400B valuation.

Not to mention this article. https://www.coindesk.com/100-billion-co ... ns-ripple/
which alludes to the fact that XRP might not even be necessary for the platform. So XRP are worth somewhere between $400,000,000,000 and $0. That's a big range.

Wild stuff.
Cryptocurrencies have gone parabolic which never ends well. The question is whether their collapse will impact the larger economy like tech stocks in 2000 or real estate debt in 2007. It's hard to see that right now.

Is the rest of the market overvalued? I think so, but there are a lot of buts which make it far less obvious than in 2000 and 2007. I haven't changed our AA in our retirement accounts, where we are currently 63/37, but I'm close to pulling the trigger in our college savings accounts, where we are 100/0.

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Re: Heading for a top?

Post by letsgobobby » Sat Jan 13, 2018 9:23 am

nisiprius wrote:
Fri Jan 05, 2018 11:51 am
ValueComplex wrote:
Thu Jan 04, 2018 2:14 am
...Warren Buffet[t] has always said "Be fearful when others are greedy"...
In the words of the old computer adventure game, "You must tell me how to do a thing like that."

I don't know how to gauge others' fear or others' greed.

I don't know how to adjust my emotions, to become greedy or fearful simply by willing it.

I don't even know what specific investment actions correspond to "greed" or "fear."

I don't know how to adjust the amount, to be greedy enough but not too greedy, to be fearful enough but not too fearful.

However, in terms of actual behavior, if I can "stay the course," then when others are acting greedy I will be acting relatively more fearful then others, and when others are acting fearful, I will be acting relatively more greedy than others. That's something I think I can do.
You couldn't tell the world was fearful in October 2008?

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Re: Heading for a top?

Post by Toons » Sat Jan 13, 2018 9:26 am

I have no control over it,
Why Fret.(Nothing to Fret About)
Corrections,Bear Markets are healthy .
That is when wealth is created (ifyou are steady buying)
You just don't know it at the time.
Invest.
Reinvest


:happy
"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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