Are Robo-Investors driving the market to insane levels?

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luckybamboo
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Are Robo-Investors driving the market to insane levels?

Post by luckybamboo » Fri Jan 05, 2018 11:29 pm

The pace at which the indices are rising without a real logical reason behind this kind of growth makes me wonder if the robots that place trades these days are responsible for this kind of skewed performance?
No matter how much I try, I just can't seem to understand the euphoria in the stock market and this rapid rise of Dow and Nasdaq..
I feel as if the investing as we know it is long gone and all the rules of past about investing will be rewritten pretty soon.
Please help me understand what's going on with this incessant rise of indices without a meaningful correction.
Any thoughts?

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SimpleGift
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Re: Are Robo-Investors driving the market to insane levels?

Post by SimpleGift » Sat Jan 06, 2018 12:06 am

luckybamboo wrote:
Fri Jan 05, 2018 11:29 pm
The pace at which the indices are rising without a real logical reason behind this kind of growth makes me wonder if the robots that place trades these days are responsible for this kind of skewed performance?
The logical reason is that corporate earnings in all regions of the world have been growing at 10% or more annualized, for the first time in quite a few years (chart below). U.S. annual earnings growth rates are in the 10%-11% range, Japan and Europe in 12%-15% range, while emerging market corporate earnings are growing at an even faster rate.
So there's no skewed performance, in my view. Market prices worldwide are simply responding to favorable trends in corporate earnings growth. Barring a setback, there's no reason stock prices can't continue to follow these fundamentals higher.
Cordially, Todd

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CyclingDuo
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Re: Are Robo-Investors driving the market to insane levels?

Post by CyclingDuo » Sat Jan 06, 2018 12:12 am

luckybamboo wrote:
Fri Jan 05, 2018 11:29 pm
The pace at which the indices are rising without a real logical reason behind this kind of growth makes me wonder if the robots that place trades these days are responsible for this kind of skewed performance?
No matter how much I try, I just can't seem to understand the euphoria in the stock market and this rapid rise of Dow and Nasdaq..
I feel as if the investing as we know it is long gone and all the rules of past about investing will be rewritten pretty soon.
Please help me understand what's going on with this incessant rise of indices without a meaningful correction.
Any thoughts?
Did you miss the bear market from mid 2015 to mid 2016?

Image
https://www.yardeni.com/pub/sp500corrbear.pdf

Were you invested in the market between 1995-2000?
"Everywhere is within walking distance if you have the time." ~ Steven Wright

david1082b
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Re: Are Robo-Investors driving the market to insane levels?

Post by david1082b » Sat Jan 06, 2018 1:03 am

Earnings growth can be a thing:

http://www.multpl.com/s-p-500-earnings-growth

luckybamboo
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Re: Are Robo-Investors driving the market to insane levels?

Post by luckybamboo » Sat Jan 06, 2018 1:15 am

CyclingDuo wrote:
Sat Jan 06, 2018 12:12 am


Did you miss the bear market from mid 2015 to mid 2016?
No, my investments have been on an autopilot since 2005. All our investments were in a target date fund in retirement accounts. Fortunately, we didn't panic in 2008-2009 or any other years..just put in the max every year and now the portfolio has compounded a lot..and i am surprised.
Were you invested in the market between 1995-2000?
No, in fact i was still in school and didn't understand anything about investing.
I have started to pay close attention to the investments since last 1.5 years and the rise seemed to fast and the graphs too steep to me, so i asked.

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CyclingDuo
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Re: Are Robo-Investors driving the market to insane levels?

Post by CyclingDuo » Sat Jan 06, 2018 7:13 am

luckybamboo wrote:
Sat Jan 06, 2018 1:15 am
CyclingDuo wrote:
Sat Jan 06, 2018 12:12 am


Did you miss the bear market from mid 2015 to mid 2016?
No, my investments have been on an autopilot since 2005. All our investments were in a target date fund in retirement accounts. Fortunately, we didn't panic in 2008-2009 or any other years..just put in the max every year and now the portfolio has compounded a lot..and i am surprised.
Were you invested in the market between 1995-2000?
No, in fact i was still in school and didn't understand anything about investing.
I have started to pay close attention to the investments since last 1.5 years and the rise seemed to fast and the graphs too steep to me, so i asked.
I asked if you were invested in the 1990's because the current move we are in, or have been in, has qualities of prior highly optimistic market moves such as the one we experienced in 1995-1999 when the business cycle moved through and from the mid to late periods of the cycle. This current one is in sync on a global basis, so the move is what it is with regard to the cycle. The wild card of the corporate tax cuts and what corporations will do as a result has added an additional layer onto the cake that everyone is scrambling to make sense of at the moment. The optimism - or some might even say mild euphoria - you commented on in your OP certainly juiced all of our portfolios this past week.

This graph appeared in an online article last week (everybody is always trying to predict where we are in the cycle), where an economist was making his version or case of where his economics team believes the US currently is within the business cycle. Take it for what it's worth, one economist's opinion, but it illustrates to you the logic behind the investing roller coaster...

Image

Here's a typical article, although this one was from last year.

https://www.fidelity.com/viewpoints/inv ... ness-cycle

Fidelity has articles such as the one above all the time - as do plenty of other online investment sites. They all draw their graphs more or less in a similar fashion, but the Mid portion of the business cycle is usually the longest one in terms of time frame (on average 3 1/2 years - can be shorter, can be longer). Economists have been scrambling to figure out if the new tax cuts and if increased growth takes place - are we going to retrace a portion of the Mid phase of the cycle, or at least prolong it? The Late portion of the cycle averages usually 1 1/2 years, with the shortest phase of the cycle being the recession which lasts, on average, less than a year. Throughout all of the cycles from early, mid, late, to recession there is sector rotation which you can follow along as an observer to help gauge where we are in the cycle.

Owning index funds, we have no need to worry about it as we own the entire market - or rather - all sectors that are being rotated in and out of as the business cycle unfolds. This happens time, and time, and time, and time again. So there is logic to what you wrote...

No matter how much I try, I just can't seem to understand the euphoria in the stock market and this rapid rise of Dow and Nasdaq.

Optimism and euphoria are normal in conjunction with this point of the business cycle (add to the mix the tax cuts). Just as pessimism and despair are normal on the opposite side of the business cycle.

Cryptocurrencies, cannabis stocks, upcoming IPO's, M&A activity all are interesting to watch. Whether we continue on a melt-up phase or not in the short, intermediate, or longer term remains to be seen. The one guarantee is that the phases of the cycle do not last forever, and we will be through many more over the years and decades ahead.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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Tycoon
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Re: Are Robo-Investors driving the market to insane levels?

Post by Tycoon » Sat Jan 06, 2018 7:58 am

luckybamboo wrote:
Fri Jan 05, 2018 11:29 pm
The pace at which the indices are rising without a real logical reason behind this kind of growth makes me wonder if the robots that place trades these days are responsible for this kind of skewed performance?
No matter how much I try, I just can't seem to understand the euphoria in the stock market and this rapid rise of Dow and Nasdaq..
I feel as if the investing as we know it is long gone and all the rules of past about investing will be rewritten pretty soon.
Please help me understand what's going on with this incessant rise of indices without a meaningful correction.
Any thoughts?
Projection?
Appeal to Pity:When pity is envoked to support a statement | Appeal to Popular Sentiment:Appealing to unrelated prejudices and attitudes | Hasty Generalization:Too little evidence to support the conclusion

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nedsaid
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Re: Are Robo-Investors driving the market to insane levels?

Post by nedsaid » Sat Jan 06, 2018 1:33 pm

luckybamboo wrote:
Fri Jan 05, 2018 11:29 pm
The pace at which the indices are rising without a real logical reason behind this kind of growth makes me wonder if the robots that place trades these days are responsible for this kind of skewed performance?
No matter how much I try, I just can't seem to understand the euphoria in the stock market and this rapid rise of Dow and Nasdaq..
I feel as if the investing as we know it is long gone and all the rules of past about investing will be rewritten pretty soon.
Please help me understand what's going on with this incessant rise of indices without a meaningful correction.
Any thoughts?
This market advance is happening for a couple of good reasons. First, as Simplegift pointed out, earnings growth is accelerating. This is caused by the second reason, economic growth is accelerating too. In the aftermath of the 2008-2009 financial crisis, we had a very slow recovery. We were told that we were in a "new normal" of 1% to 2% economic growth. Surprises were to the downside. Economists would get excited, make a forecast only to be disappointed. Now the economy is growing at 3% and above and the surprises are on the upside and not the downside.
A fool and his money are good for business.

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Earl Lemongrab
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Re: Are Robo-Investors driving the market to insane levels?

Post by Earl Lemongrab » Sat Jan 06, 2018 2:53 pm

This is why I adopted a core principle for investing that states that I don't anything about how the markets work or how to time them. Nor do I think that anyone else does. That relieves me greatly, because I don't have to spend time worrying about why the market is up or down.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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bottlecap
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Re: Are Robo-Investors driving the market to insane levels?

Post by bottlecap » Sat Jan 06, 2018 3:10 pm

luckybamboo wrote:
Fri Jan 05, 2018 11:29 pm
The pace at which the indices are rising without a real logical reason behind this kind of growth makes me wonder if the robots that place trades these days are responsible for this kind of skewed performance?
No matter how much I try, I just can't seem to understand the euphoria in the stock market and this rapid rise of Dow and Nasdaq..
I feel as if the investing as we know it is long gone and all the rules of past about investing will be rewritten pretty soon.
Please help me understand what's going on with this incessant rise of indices without a meaningful correction.
Any thoughts?
I think somebody says this every time the market goes up. This time, you're that somebody.

Why do you think there is "no logical reason behind this kind of growth?" Even the most unimaginative person could come up with SOME reasons behind the stock market growth. Just turn on the TV or radio. That's not to say they're right, but what do you know that they don't?

JT

harvestbook
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Re: Are Robo-Investors driving the market to insane levels?

Post by harvestbook » Sat Jan 06, 2018 4:22 pm

I think you answered your own question by saying you've only been paying attention for the last year and a half. Imagine how you would've felt in 2013, when the S & P returned 32 percent.

You can find plenty of "scary" and "crash" headlines from as recently as Feb 2016, less than two years ago.
"Dow plunges 391 points as fear grips markets"
http://money.cnn.com/2016/01/15/investi ... index.html

"Stocks dive to lowest level in nearly 2 years"
http://money.cnn.com/2016/02/11/investi ... index.html

"Global stocks sink into bear market"
http://money.cnn.com/2016/02/12/investi ... index.html

My guess is if you pay attention for another year and half, it won't feel like stocks are always going up way too much and too fast. (I tend to agree with those who say the bull market actually started in 2013 instead of 2009, but that doesn't mean it couldn't end Monday.) BTW I felt the same way in 2008-09, I didn't even know how to check my 401k and so just snoozed through the crash like a blissful idiot putting in every two weeks.
I'm not smart enough to know, and I can't afford to guess.

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Re: Are Robo-Investors driving the market to insane levels?

Post by AnalogKid22 » Sat Jan 06, 2018 5:10 pm

There is so much money in US business right now. The fact that jobs are outpacing candidates is a clear indicator that companies are trying to grow and have the capital to do so. With the new corporate tax break this year, businesses are expecting even more capital.

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randomizer
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Re: Are Robo-Investors driving the market to insane levels?

Post by randomizer » Sat Jan 06, 2018 5:17 pm

It's not about robos. Even without them, investing is too easy and everybody wants in, spurred on by 8 or 9 years of basically uninterrupted growth. Ditto for the cryptocurrency craze. Sooner or later the music is gonna stop. I'm ready to rebalance and stick to my plan when it does.
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arcticpineapplecorp.
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Re: Are Robo-Investors driving the market to insane levels?

Post by arcticpineapplecorp. » Sat Jan 06, 2018 5:19 pm

isn't it that unemployment has come down over the last many years and people working are contributing to their 401ks, IRAs? With more people working/making money, there's more investing which is likely pushing prices up. Plus when bonds are at high levels and low interset rates are being paid, then people are buying stocks instead (which is pushing up prices).

All the robo advisors are doing is getting people's money invested at lower costs. I wouldn't blame them.

Now maybe you're talking about high frequency traders, which is different from robo investing. Could that be what you're referring to? HFT just following algorithms, momentum strategies, etc. so when the market goes up, hft keeps pushing it up higher for a while until the market starts going the other way.

I don't think the markets at "insane" levels. Besides, what market are you talking about? Emerging markets still seem to be a better deal than other markets (U.S., developed markets, etc.). I don't think we can just talk about the "market" since there's really no one market but rather different markets around the world, many of which are at different levels.
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pecunia
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Re: Are Robo-Investors driving the market to insane levels?

Post by pecunia » Sat Jan 06, 2018 5:41 pm

randomizer wrote:
Sat Jan 06, 2018 5:17 pm
It's not about robos. Even without them, investing is too easy and everybody wants in, spurred on by 8 or 9 years of basically uninterrupted growth. Ditto for the cryptocurrency craze. Sooner or later the music is gonna stop. I'm ready to rebalance and stick to my plan when it does.
Do you want to rebalance now or do you wait until..?
All I've been reading is that very (very) few people can predict the markets so most of us can only re-balance after bad stuff happens. (sell your bonds and stuff it into the equity etf's or place your monthly investment in the ETF that is losing money?)
If you start now you might miss out on good returns..

Curious what your strategy is with these markets today..

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Re: Are Robo-Investors driving the market to insane levels?

Post by AnalogKid22 » Sat Jan 06, 2018 5:53 pm

pecunia wrote:
Sat Jan 06, 2018 5:41 pm
randomizer wrote:
Sat Jan 06, 2018 5:17 pm
It's not about robos. Even without them, investing is too easy and everybody wants in, spurred on by 8 or 9 years of basically uninterrupted growth. Ditto for the cryptocurrency craze. Sooner or later the music is gonna stop. I'm ready to rebalance and stick to my plan when it does.
Do you want to rebalance now or do you wait until..?
All I've been reading is that very (very) few people can predict the markets so most of us can only re-balance after bad stuff happens. (sell your bonds and stuff it into the equity etf's or place your monthly investment in the ETF that is losing money?)
If you start now you might miss out on good returns..

Curious what your strategy is with these markets today..
You just need to pick an AA and stick to it. Panick-selling is pointless. Decide how much you're willing to lose, so you can sleep at night and not think about your investments, and keep contributing. The longer you can invest the better.

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Re: Are Robo-Investors driving the market to insane levels?

Post by AnalogKid22 » Sat Jan 06, 2018 6:20 pm

arcticpineapplecorp. wrote:
Sat Jan 06, 2018 5:19 pm
isn't it that unemployment has come down over the last many years and people working are contributing to their 401ks, IRAs? With more people working/making money, there's more investing which is likely pushing prices up.
I think so, and as long as there are jobs this year people will invest even more.

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Re: Are Robo-Investors driving the market to insane levels?

Post by UpperNwGuy » Sat Jan 06, 2018 7:04 pm

Follow this philosophy and stop worrying about what the market is doing:
1. Develop a workable plan
2. Invest early and often
3. Never bear too much or too little risk
4. Diversify
5. Never try to time the market
6. Use index funds when possible
7. Keep costs low
8. Minimize taxes
9. Invest with simplicity
10. Stay the course
Retiree with a pension and a 60/40 taxable portfolio: Total Stock + Total Int'l + Total Bond + Interm Term Tax Exempt.

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randomizer
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Re: Are Robo-Investors driving the market to insane levels?

Post by randomizer » Sat Jan 06, 2018 7:05 pm

pecunia wrote:
Sat Jan 06, 2018 5:41 pm
randomizer wrote:
Sat Jan 06, 2018 5:17 pm
It's not about robos. Even without them, investing is too easy and everybody wants in, spurred on by 8 or 9 years of basically uninterrupted growth. Ditto for the cryptocurrency craze. Sooner or later the music is gonna stop. I'm ready to rebalance and stick to my plan when it does.
Do you want to rebalance now or do you wait until..?
All I've been reading is that very (very) few people can predict the markets so most of us can only re-balance after bad stuff happens. (sell your bonds and stuff it into the equity etf's or place your monthly investment in the ETF that is losing money?)
If you start now you might miss out on good returns..
Of course. Sorry for not making it clear. I rebalance when my allocation drifts off target. I meant that I am ready to rebalance when it does drift off course. Stay the course!
87.5:12.5, EM tilt — HODL the course!

OnTrack
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Re: Are Robo-Investors driving the market to insane levels?

Post by OnTrack » Sat Jan 06, 2018 7:10 pm

nedsaid wrote:
Sat Jan 06, 2018 1:33 pm
This market advance is happening for a couple of good reasons. First, as Simplegift pointed out, earnings growth is accelerating. This is caused by the second reason, economic growth is accelerating too. In the aftermath of the 2008-2009 financial crisis, we had a very slow recovery. We were told that we were in a "new normal" of 1% to 2% economic growth. Surprises were to the downside. Economists would get excited, make a forecast only to be disappointed. Now the economy is growing at 3% and above and the surprises are on the upside and not the downside.
Well, the economy is growing at 3% for 2 quarters in 2017 (don't know about Q4 yet). However, it has grown more than that on a quarterly basis since the Great Recession, for example 4.6% and 5.2% in Q2/Q3 2014.
https://www.statista.com/statistics/188 ... in-the-us/

venkman
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Re: Are Robo-Investors driving the market to insane levels?

Post by venkman » Sun Jan 07, 2018 1:07 am

luckybamboo wrote:
Fri Jan 05, 2018 11:29 pm
The pace at which the indices are rising without a real logical reason behind this kind of growth makes me wonder if the robots that place trades these days are responsible for this kind of skewed performance?
For every robot who decides to get into the market right now, there must necessarily be another robot deciding to get out of the market now. :happy

pecunia
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Re: Are Robo-Investors driving the market to insane levels?

Post by pecunia » Sun Jan 07, 2018 2:46 pm

UpperNwGuy wrote:
Sat Jan 06, 2018 7:04 pm
Follow this philosophy and stop worrying about what the market is doing:
1. Develop a workable plan
2. Invest early and often
3. Never bear too much or too little risk
4. Diversify
5. Never try to time the market
6. Use index funds when possible
7. Keep costs low
8. Minimize taxes
9. Invest with simplicity
10. Stay the course
I'm putting this on my wall :mrgreen:

UpperNwGuy
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Re: Are Robo-Investors driving the market to insane levels?

Post by UpperNwGuy » Sun Jan 07, 2018 7:47 pm

pecunia wrote:
Sun Jan 07, 2018 2:46 pm
UpperNwGuy wrote:
Sat Jan 06, 2018 7:04 pm
Follow this philosophy and stop worrying about what the market is doing:
1. Develop a workable plan
2. Invest early and often
3. Never bear too much or too little risk
4. Diversify
5. Never try to time the market
6. Use index funds when possible
7. Keep costs low
8. Minimize taxes
9. Invest with simplicity
10. Stay the course
I'm putting this on my wall :mrgreen:
Good idea, but don’t attribute it to me. I merely copied it from the Boglehead Wiki. I’m not sure who originally wrote this list. Perhaps Jack? Taylor? Mel?
Retiree with a pension and a 60/40 taxable portfolio: Total Stock + Total Int'l + Total Bond + Interm Term Tax Exempt.

luckybamboo
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Re: Are Robo-Investors driving the market to insane levels?

Post by luckybamboo » Mon Jan 08, 2018 4:01 pm

CyclingDuo wrote:
Sat Jan 06, 2018 7:13 am
luckybamboo wrote:
Sat Jan 06, 2018 1:15 am
CyclingDuo wrote:
Sat Jan 06, 2018 12:12 am


Did you miss the bear market from mid 2015 to mid 2016?
No, my investments have been on an autopilot since 2005. All our investments were in a target date fund in retirement accounts. Fortunately, we didn't panic in 2008-2009 or any other years..just put in the max every year and now the portfolio has compounded a lot..and i am surprised.
Were you invested in the market between 1995-2000?
No, in fact i was still in school and didn't understand anything about investing.
I have started to pay close attention to the investments since last 1.5 years and the rise seemed to fast and the graphs too steep to me, so i asked.
I asked if you were invested in the 1990's because the current move we are in, or have been in, has qualities of prior highly optimistic market moves such as the one we experienced in 1995-1999 when the business cycle moved through and from the mid to late periods of the cycle. This current one is in sync on a global basis, so the move is what it is with regard to the cycle. The wild card of the corporate tax cuts and what corporations will do as a result has added an additional layer onto the cake that everyone is scrambling to make sense of at the moment. The optimism - or some might even say mild euphoria - you commented on in your OP certainly juiced all of our portfolios this past week.

This graph appeared in an online article last week (everybody is always trying to predict where we are in the cycle), where an economist was making his version or case of where his economics team believes the US currently is within the business cycle. Take it for what it's worth, one economist's opinion, but it illustrates to you the logic behind the investing roller coaster...

Image

Here's a typical article, although this one was from last year.

https://www.fidelity.com/viewpoints/inv ... ness-cycle

Fidelity has articles such as the one above all the time - as do plenty of other online investment sites. They all draw their graphs more or less in a similar fashion, but the Mid portion of the business cycle is usually the longest one in terms of time frame (on average 3 1/2 years - can be shorter, can be longer). Economists have been scrambling to figure out if the new tax cuts and if increased growth takes place - are we going to retrace a portion of the Mid phase of the cycle, or at least prolong it? The Late portion of the cycle averages usually 1 1/2 years, with the shortest phase of the cycle being the recession which lasts, on average, less than a year. Throughout all of the cycles from early, mid, late, to recession there is sector rotation which you can follow along as an observer to help gauge where we are in the cycle.

Owning index funds, we have no need to worry about it as we own the entire market - or rather - all sectors that are being rotated in and out of as the business cycle unfolds. This happens time, and time, and time, and time again. So there is logic to what you wrote...

No matter how much I try, I just can't seem to understand the euphoria in the stock market and this rapid rise of Dow and Nasdaq.

Optimism and euphoria are normal in conjunction with this point of the business cycle (add to the mix the tax cuts). Just as pessimism and despair are normal on the opposite side of the business cycle.

Cryptocurrencies, cannabis stocks, upcoming IPO's, M&A activity all are interesting to watch. Whether we continue on a melt-up phase or not in the short, intermediate, or longer term remains to be seen. The one guarantee is that the phases of the cycle do not last forever, and we will be through many more over the years and decades ahead.
Thanks for a great explanation.

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Re: Are Robo-Investors driving the market to insane levels?

Post by luckybamboo » Mon Jan 08, 2018 4:07 pm

bottlecap wrote:
Sat Jan 06, 2018 3:10 pm
luckybamboo wrote:
Fri Jan 05, 2018 11:29 pm
The pace at which the indices are rising without a real logical reason behind this kind of growth makes me wonder if the robots that place trades these days are responsible for this kind of skewed performance?
No matter how much I try, I just can't seem to understand the euphoria in the stock market and this rapid rise of Dow and Nasdaq..
I feel as if the investing as we know it is long gone and all the rules of past about investing will be rewritten pretty soon.
Please help me understand what's going on with this incessant rise of indices without a meaningful correction.
Any thoughts?
I think somebody says this every time the market goes up. This time, you're that somebody.

Why do you think there is "no logical reason behind this kind of growth?" Even the most unimaginative person could come up with SOME reasons behind the stock market growth. Just turn on the TV or radio. That's not to say they're right, but what do you know that they don't?

JT
I agree with you that part of it is due to my ignorance but I still feel that the euphoria isn't justified. It's this kind of behavior that makes history repeats itself. No matter how many bubbles with experience, there's always another one that forms. It's hard for humans to learn from history. I guess, what goes up has to come down eventually.

luckybamboo
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Re: Are Robo-Investors driving the market to insane levels?

Post by luckybamboo » Mon Jan 08, 2018 4:13 pm

UpperNwGuy wrote:
Sat Jan 06, 2018 7:04 pm
Follow this philosophy and stop worrying about what the market is doing:
1. Develop a workable plan
2. Invest early and often
3. Never bear too much or too little risk
4. Diversify
5. Never try to time the market
6. Use index funds when possible
7. Keep costs low
8. Minimize taxes
9. Invest with simplicity
10. Stay the course
Points #2, 5,6,10 has kept our portfolio sane and stable. We have stayed with index funds and invested consistently in index funds and followed the BUY and HOLD principle for past 18 years and have been really happy. I think the sense of calm the 3 fund portfolio brings is priceless. Maybe that's the reason I am seeing this euphoria in a negative light. Why chase the returns when you can easily gain no-less/no-more than the market does using a simple 3-fund portfolio without losing sleep.

luckybamboo
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Re: Are Robo-Investors driving the market to insane levels?

Post by luckybamboo » Mon Jan 08, 2018 4:16 pm

arcticpineapplecorp. wrote:
Sat Jan 06, 2018 5:19 pm
Now maybe you're talking about high frequency traders, which is different from robo investing. Could that be what you're referring to? HFT just following algorithms, momentum strategies, etc. so when the market goes up, hft keeps pushing it up higher for a while until the market starts going the other way.
I guess that's what I meant.

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Re: Are Robo-Investors driving the market to insane levels?

Post by bogglehead125 » Mon Jan 08, 2018 4:38 pm

If you think HFT are just pushing the market higher and higher for no reason, why not trade against them?
Last edited by bogglehead125 on Fri Jan 12, 2018 1:26 am, edited 1 time in total.

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arcticpineapplecorp.
Posts: 3205
Joined: Tue Mar 06, 2012 9:22 pm

Re: Are Robo-Investors driving the market to insane levels?

Post by arcticpineapplecorp. » Mon Jan 08, 2018 7:26 pm

UpperNwGuy wrote:
Sun Jan 07, 2018 7:47 pm
pecunia wrote:
Sun Jan 07, 2018 2:46 pm
UpperNwGuy wrote:
Sat Jan 06, 2018 7:04 pm
Follow this philosophy and stop worrying about what the market is doing:
1. Develop a workable plan
2. Invest early and often
3. Never bear too much or too little risk
4. Diversify
5. Never try to time the market
6. Use index funds when possible
7. Keep costs low
8. Minimize taxes
9. Invest with simplicity
10. Stay the course
I'm putting this on my wall :mrgreen:
Good idea, but don’t attribute it to me. I merely copied it from the Boglehead Wiki. I’m not sure who originally wrote this list. Perhaps Jack? Taylor? Mel?
This matches the number of videos presented at the bogleheads wiki by Rick Van Ness. I don't know if he wrote them himself or collaborated with others when putting the videos together. Anyone know? If you click on the link at the wiki:

https://www.bogleheads.org/wiki/Video:B ... philosophy

it takes you to here (Rick's site, www.financinglife.org):

https://financinglife.org/learn-how-to- ... transcript

Rick only says,
Special thanks to Karina Buck and Jennifer Howell for valuable feedback and encouraging words.
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

OkieIndexer
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Re: Are Robo-Investors driving the market to insane levels?

Post by OkieIndexer » Tue Jan 09, 2018 9:49 pm

The thing that had been puzzling me lately was not the size of the market gains, but the total lack of volatility in the market since Nov. 2016. We haven't had even a 3% drop in the S&P 500 since Nov. 2016, 13.5 months now. The previous record for "no 3% drop" was Jan. 1995-Jan. 1996, 12 months, which of course was followed by several strong years for the market.

On the other hand, if we use longest period without a 2% drop, we haven't had a 2% drop in the S&P 500 since last August, 4.5 months ago. We also went 4.5 months without a 2% drop from Nov. 2016-March 2017. Before this, the previous record for "no 2% drop" was the 5.5 months between 9/8/2006 - 2/27/2007, which of course was followed by a market crash the next 2 years.

So it appears that very low volatility alone isn't a useful indicator of anything major.
"In bull markets, people say 'The more risk I take, the greater my return.' But when people aren't afraid of risk, they'll accept risk without being compensated." -Howard Marks, Oaktree Capital

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CyclingDuo
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Re: Are Robo-Investors driving the market to insane levels?

Post by CyclingDuo » Tue Jan 09, 2018 10:52 pm

OkieIndexer wrote:
Tue Jan 09, 2018 9:49 pm
The thing that had been puzzling me lately was not the size of the market gains, but the total lack of volatility in the market since Nov. 2016. We haven't had even a 3% drop in the S&P 500 since Nov. 2016, 13.5 months now. The previous record for "no 3% drop" was Jan. 1995-Jan. 1996, 12 months, which of course was followed by several strong years for the market.

On the other hand, if we use longest period without a 2% drop, we haven't had a 2% drop in the S&P 500 since last August, 4.5 months ago. We also went 4.5 months without a 2% drop from Nov. 2016-March 2017. Before this, the previous record for "no 2% drop" was the 5.5 months between 9/8/2006 - 2/27/2007, which of course was followed by a market crash the next 2 years.

So it appears that very low volatility alone isn't a useful indicator of anything major.
Yet, within individual stocks in the S&P 500, there have been drops in the 8% - 45% variety.

In case you weren't watching or following along in the past year, let's take a look (this list includes 8 of the top 10 largest companies in the S&P)...

GE dropped from $31 to $17 = -45.1%
Target dropped from $78 to $50 = - 35.8%
Qualcomm dropped from $66 to $49 = -25.7%
AT & T dropped from $42 to 33 = -21.4%
Altria dropped from $77 to $61 = -20.7%
Verizon dropped from $53 to $43 = -18.8%
Costco went from $182 to $151 = -17%
Wells Fargo dropped from $59 to $49 = -16.9%
Amgen dropped from $182 to $153 = -15.9%
Nvidia dropped from $216 to $186 = -13.8%
Facebook dropped from $132 to $115 = -12.8%
Chevron dropped from $118 to $103 = -12.7%
JP Morgan dropped from $93 to $82 = -11.8%
Exxon dropped from $87 to $76 = -11.3%
Amazon dropped from $1052 to $938 = -10.8%
Berkshire Hathaway B dropped from $177 to $161 = -9%
Home Depot dropped from $158 to $144 = -8.8%
Walmart dropped from $80 to $73 = -8.7%
Apple dropped from $164 to $150 = -8.5%
Google dropped from $1004 to $919 = -8.4%
Apple dropped from $155 to $142 = -8.3%

I could go on and on, but the above look at what rolling corrections, sector rotation, and price action has done throughout the year to various individual stocks tells more of the story if you look underneath the hood. You may be puzzled about lack of volatility, but plenty of corrections have been going on over the past year that are beyond a 3-5% drop.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

KSActuary
Posts: 379
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Re: Are Robo-Investors driving the market to insane levels?

Post by KSActuary » Wed Jan 10, 2018 5:15 pm

Low volatility is caused by ........ low volatility. You couldn't really invest much in volatility until recently and everybody is short volatility. Only fools go long volatility.

Volatility is now an investment available to the broader crowd of retail investors. Everyone buys the dip. Higher than usual company buy backs due to low interest rates.

Higher interest rates will cure this eventually.

Jeff Albertson
Posts: 552
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Location: Springfield

Re: Are Robo-Investors driving the market to insane levels?

Post by Jeff Albertson » Thu Jan 11, 2018 5:44 pm

It's definitely not about robo advisors. Robos cater mainly to middle class investors & they (bottom 90%) control only a small percentage (9%) of the total amount invested in the stock market. It's much more likely the big money drives the market.
Image
Top one percent: Net worth of $7,766,500 or more.
Next 9 percent: Net worth between $980,900 and $7,766,500.
Bottom 90 Percent: Net worth less than $908,900.

source: National Bureau of Economic Research (NBER) Working Paper No. 20733, Edward N. Wolff 2014 (Table 7)
http://www.nber.org/papers/w20733
chart source:
http://www2.ucsc.edu/whorulesamerica/power/wealth.html

SrGrumpy
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Re: Are Robo-Investors driving the market to insane levels?

Post by SrGrumpy » Thu Jan 11, 2018 6:18 pm

luckybamboo wrote:
Mon Jan 08, 2018 4:07 pm
I agree with you that part of it is due to my ignorance but I still feel that the euphoria isn't justified. It's this kind of behavior that makes history repeats itself. No matter how many bubbles with experience, there's always another one that forms. It's hard for humans to learn from history. I guess, what goes up has to come down eventually.
I tend to agree with you, and don't think your alleged ignorance is a hindrance. We never learn from history. I just finished the new Herbert Hoover bio; plenty of food for thought there.

Boglegrappler
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Re: Are Robo-Investors driving the market to insane levels?

Post by Boglegrappler » Thu Jan 11, 2018 7:55 pm

One should be aware that there was a change in corporate income tax rates late last month. So a corporation that was earning 100million pretax was left with 65% of that prior to the new bill. Since the passage, that same corporation will be left with 79% of that amount. Roughly speaking.

So 79 vs 65 is an increase in earnings available to the shareholders of over 21%.


If every corporation were fully taxable, you would have expected an immediate rise in the market of 2O% plus. The market is up about 3 1/2 % since the passage of the bill.

This analysis is overly simplified, but it ought to be reflected upon in discussions like this. Companies are more valuable to their owners if their required payments to the government are lower. And they are now, for at least the next three years, and maybe longer. So shares are higher, at least in part because of this.

Edited to add:https://www.cnbc.com/2018/01/10/warren- ... lainternal

Hadn't seen this before, but it is simple. Buffett's saying that, as of Jan 10, the market hasn't yet reflected the impact of the change (obviously in his opinion).
Last edited by Boglegrappler on Fri Jan 12, 2018 8:48 am, edited 1 time in total.

Jeff Albertson
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Location: Springfield

Re: Are Robo-Investors driving the market to insane levels?

Post by Jeff Albertson » Thu Jan 11, 2018 9:04 pm

Boglegrappler wrote:
Thu Jan 11, 2018 7:55 pm
One should be aware that there was a change in corporate income tax rates late last month. So a corporation that was earning 100million pretax was left with 65% of that prior to the new bill. Since the passage, that same corporation will be left with 79% of that amount. Roughly speaking.

So 79 vs 65 is an increase in earnings available to the shareholders of over 21%.


If every corporation were fully taxable, you would have expected an immediate rise in the market of 2O% plus. The market is up about 3 1/2 % since the passage of the bill.

This analysis is overly simplified, but it ought to be reflected upon in discussions like this. Companies are more valuable to their owners if their required payments to the government are lower. And they are now, for at least the next three years, and maybe longer. So shares are higher, at least in part because of this.
FYI:
Image
https://en.wikipedia.org/wiki/Corporate ... ted_States
&
"1 in 5 big U.S. companies pay no federal income tax" (US GAO)
https://www.cbsnews.com/news/20-percent ... ncome-tax/

grog
Posts: 369
Joined: Sat Jul 20, 2013 1:09 pm

Re: Are Robo-Investors driving the market to insane levels?

Post by grog » Fri Jan 12, 2018 4:05 pm

The S&P 500 returned 21% in 2017. Just to put the recent "insane" run-up in perspective, this also occurred in

2013
2009
2003
1999
1998
1997
1996
1995
1991
1989
1985
1983
1982
1980
...

If you'd invested a lump sum on Jan 1, 1980, you would've multiplied your money by 4.5x by the the end of the decade. And then in the 90s you'd have multiplied it by another 4.9x. That's 22x for both decades. Then for 2000-2009, you'd have ... basically broken even, slightly worse actually. For the current decade from 2010-2017 you'd have earned a respectable 2.8x. We'd need to get 25+% returns for 2018 and 2019 to hit the 4.5x range for this decade.

The returns really haven't been that great. But the question still remains whether the economy and earnings will actually keep up.

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