Heading for a top?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
nisiprius
Advisory Board
Posts: 36020
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Heading for a top?

Post by nisiprius » Sat Jan 13, 2018 9:41 am

orphic wrote:
Fri Jan 05, 2018 9:44 pm
...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.
It seems like "just plain common sense," and yet tactical asset allocation funds, which were very popular in the 1980s, had an almost ludicrous record of failing to beat simple fixed allocations. Why do you think that was?

The category has survived, but is much less mainstream than it once was, and still failing.
Luke F. Delorma wrote:Jeffrey Ptak of Morningstar wrote an article in 2012 that highlighted the poor performance of tactical allocation funds.... I decided to update this research.... [He selected 57 funds using carefully stated criteria]. I then pulled total returns (gross of dividends, net of fees) for these 57 funds and for Vanguard’s VBIAX fund from Bloomberg. Based on Ptak’s research, I expected that only a handful of tactical allocation funds would outperform the Vanguard index after fees...

What I found was surprising. Not only has the group of tactical allocation funds underperformed, but not a single one of them outperformed the simple, low-cost, passive fund.

There was not a single outperformer in the bunch. One would think, by chance alone, that at least one of these funds would outperform. But no, their performance has been universally lousy. I also looked at the 10- and 15-year performance, over which time there were exactly zero outperformers.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

livesoft
Posts: 61343
Joined: Thu Mar 01, 2007 8:00 pm

Re: Heading for a top?

Post by livesoft » Sat Jan 13, 2018 9:45 am

VBIAX is not a suitable benchmark because it contains zero, (0.00%) of international equities.

Select another time frame where international funds did well and VBIAX should have done worse during that time frame.

Of course, I suppose one could say, "Well, tactical asset allocators should have know to not have international funds when they were not doing well."
Wiki This signature message sponsored by sscritic: Learn to fish.

MnD
Posts: 3502
Joined: Mon Jan 14, 2008 12:41 pm

Re: Heading for a top?

Post by MnD » Sat Jan 13, 2018 9:50 am

The "this bull market is long in the tooth" argument would have gotten you out of the 1949-1966 run in 1958 and out of the 1982-2000 run in 1991.
Both pretty unfortunate timing-wise in terms of foregone total return in the remaining years of those moves.
Last edited by MnD on Sat Jan 13, 2018 9:55 am, edited 1 time in total.

letsgobobby
Posts: 11353
Joined: Fri Sep 18, 2009 1:10 am

Re: Heading for a top?

Post by letsgobobby » Sat Jan 13, 2018 9:53 am

MnD wrote:
Sat Jan 13, 2018 9:50 am
The "this bull market is long in the tooth" argument would have gotten you out of the 1949-1966 run in 1958 and out of the 1982-2000 run in 1991.
Both pretty unfortunate timing-wise.
Let's think about that though.

In real terms, how much higher were markets at their future nadirs than the years you mentioned? 1974, or 1981, and 2002, or 2009? How did cash or bonds perform relatively, and on a risk adjusted basis? What were CAGRs from 1958-1981 or 1991-2009?

BlackStrat
Posts: 262
Joined: Wed Apr 29, 2015 9:20 am

Re: Heading for a top?

Post by BlackStrat » Sat Jan 13, 2018 10:02 am

The way I look at it is that you need to find an AA you're comfortable with to ride out any drastic changes in the market. If equities drop 50% and you're retired, you're drawing from bond funds (by doing so you're naturally rebalancing and can manually rebalance further if your withdrawal doesn't provide enough of a shift to get your AA back to normal). The equities will be left to grow and hopefully recover within 10+ years or so. We have a tendency to think at any given moment our portfolio as locked in, instead of viewing it as an organism which ebbs and flows.

User avatar
Tycoon
Posts: 1218
Joined: Wed Mar 28, 2012 7:06 pm

Re: Heading for a top?

Post by Tycoon » Sat Jan 13, 2018 10:12 am

Pay no attention to those fancy indicators, they reveal nothing. I plan on retiring at the end of this year. That's when the market will reach the top.
...I might be just beginning | I might be near the end. Enya | | C'est la vie

investingdad
Posts: 1333
Joined: Fri Mar 15, 2013 10:41 pm

Re: Heading for a top?

Post by investingdad » Sat Jan 13, 2018 10:15 am

Toons wrote:
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
This is certainly true. The money that's accumulating in our accounts now its a result of steady buying over the last 20 years without regard to what the market was actually doing. And there was some ugliness.

User avatar
nisiprius
Advisory Board
Posts: 36020
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Heading for a top?

Post by nisiprius » Sat Jan 13, 2018 10:25 am

livesoft wrote:
Sat Jan 13, 2018 9:45 am
VBIAX is not a suitable benchmark because it contains zero, (0.00%) of international equities.

Select another time frame where international funds did well and VBIAX should have done worse during that time frame.

Of course, I suppose one could say, "Well, tactical asset allocators should have know to not have international funds when they were not doing well."
I'm not prepared to repeat the work with 57 funds, but I'll try a quick reality check. The fund I will use as representative of tactical asset allocation is Fidelity Asset Manager 50%, FASMX, for the excellent reasons that a) I invested in it for many years, b) there's a good long period of time to look at, and c) it's a Morningstar five-star fund so in the past it was relatively good of it's kind--it isn't something known in hindsight to have been a dog. In fact in hindsight it was a star. Five stars, in fact.

It describes itself currently:
Maintaining a neutral mix over time of 50% of assets in stocks, 40% of assets in bonds, and 10% of assets in short-term and money market instruments.
The expense ratio is 0.67% which Morningstar calls "below average," so, well, it is what it is. It is currently 31.72% U.S. stock, 19.05% non-U.S. stock. Since your beef is that Delorma compared asset-allocation funds it to a U.S.-only fund, I won't. I'll compare it a portfolio that matches FASMX's current international allocation. If anything, that likely means more international than FASMX might have had in the past. We will use Fidelity's own index funds for U.S. stock, international stock, and bonds, and PortfolioVisualizer's "CASHX" (which is actually 1-month Treasury bills).

PortfolioVisualizer has available data for Dec 1997 - Dec 2017, a respectable twenty-year period. Note that it included both long periods of international outperforming U.S. and U.S. outperforming international, neither dominating.

Fidelity's five-star asset allocation fund, FASMX, was beaten, over a twenty year period, by a fixed allocation of Fidelity index funds in the same proportions as the fund's "neutral mix." And not only did it have lower return, but it had significantly higher risk as measured not only by standard deviation but also by worse year and max drawdown. The professional managers of this fund, five-star-rating or no, obviously failed to anticipate 2008-2009 and not only failed to mitigate its effects, but whatever they did made things worse.

The asset allocation fund
Portfolio 1
FASMX Fidelity Asset Manager 50% 100.00%

Comparable fixed allocation portfolio:
Portfolio 2
FSTMX Fidelity Total Market Index Investor 31.72%
FSIIX Fidelity International Index Investor 19.05%
FBIDX Fidelity US Bond Index Investor 40.00%
CASHX Cash 9.23%

Source
Image


P.S. Over the same time period, FASMX was not only beaten by the portfolio above, in which about 40% of stocks were international. It was also beaten by fixed-allocation portfolios holding 20% of stocks international

FSTMX Fidelity Total Market Index Investor 40.77%
FSIIX Fidelity International Index Investor 10.00% -- (about 20% of stocks international)
FBIDX Fidelity US Bond Index Investor 40.00%
CASHX Cash 9.23%

and no international at all:

FSTMX Fidelity Total Market Index Investor 50.77% -- (i.e. no international)
FBIDX Fidelity US Bond Index Investor 40.00%
CASHX Cash 9.23%

The comparison in this case was not very sensitive to the amount of international holdings in the fixed-allocation portfolio.
Last edited by nisiprius on Sat Jan 13, 2018 10:40 am, edited 3 times in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

livesoft
Posts: 61343
Joined: Thu Mar 01, 2007 8:00 pm

Re: Heading for a top?

Post by livesoft » Sat Jan 13, 2018 10:36 am

@nisiprius, thanks! It seems a 0.2% difference in CAGR may be close to the difference in expense ratio.

The point that it is difficult for any 'active' manager to outperform index funds is well taken.

As for the 0.67% current expense ratio of being below average, I read somewhere recently that the average expense ratio of mutual funds has dropped from about 1.02% (stated in Vanguard Portfolio Watch) to under 0.70% nowadays. This is partly driven by the increase in use of index funds and partly that some actively-managed funds have lowered their expense ratios due to competition from index funds.
Wiki This signature message sponsored by sscritic: Learn to fish.

matthewmon
Posts: 47
Joined: Mon Nov 07, 2016 10:38 pm

Re: Heading for a top?

Post by matthewmon » Sat Jan 13, 2018 10:53 am

I agree there is no way to time it and we shouldn't try to time it...but we have had 9 straight years of positive return in US stock market which ties a record I think...so if the market goes up the next 2 years which I could see as possible with these new tax cuts we would definitely be setting a new record of 11 straight positive years right?

hilink73
Posts: 270
Joined: Tue Sep 20, 2016 3:29 pm

Re: Heading for a top?

Post by hilink73 » Sat Jan 13, 2018 11:21 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.
Yes.
ValueComplex wrote:
Thu Jan 04, 2018 6:18 pm
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.
The technology/company Ripple may have a usable product for banks and such.

But the Ripple-Coin XRP is a scam.
It has no use, no decentralization or anything what is related to "crypto" as what is discussed here sometimes. Stay away.
Last edited by hilink73 on Sat Jan 13, 2018 11:46 am, edited 1 time in total.

User avatar
nisiprius
Advisory Board
Posts: 36020
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Heading for a top?

Post by nisiprius » Sat Jan 13, 2018 11:35 am

When looking at the performance of the market since 2009, all statistics should be tempered by the observation that about half of it is measuring from the bottom of well. There is all the difference in the world between the bull market of 1995-2000, which was in the nature of an acceleration on top of an established upward trend, and today. I think a lot of cheerleading about what the mighty engines of the market hath wrought is a bit overstated. I don't think the time spent getting back to even is cause for wild celebration, and we are still are far below where we might have dreamed of being, based on vintage-1998 retirement-planning workbooks.

Image
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

MnD
Posts: 3502
Joined: Mon Jan 14, 2008 12:41 pm

Re: Heading for a top?

Post by MnD » Sat Jan 13, 2018 11:41 am

letsgobobby wrote:
Sat Jan 13, 2018 9:53 am
MnD wrote:
Sat Jan 13, 2018 9:50 am
The "this bull market is long in the tooth" argument would have gotten you out of the 1949-1966 run in 1958 and out of the 1982-2000 run in 1991.
Both pretty unfortunate timing-wise.
Let's think about that though.

In real terms, how much higher were markets at their future nadirs than the years you mentioned? 1974, or 1981, and 2002, or 2009? How did cash or bonds perform relatively, and on a risk adjusted basis? What were CAGRs from 1958-1981 or 1991-2009?
Without cherry-picking exact months/days........
$10K invested in Fidelity Fund 1/1/1958 (~9 years into that bull market) grew to just over $30K by 12/31/1965 (8 more years).
$10K in Fidelity Fund 1/1/1991 (~9 years into that bull market) grew to just under $50K by 12/31/2000 (10 more years).

Bull markets don't die of old age at 9 years or whatever the criteria is for "long in the tooth".
Many investors have PTISD (post-traumatic investor stress disorder) from 2000 and 2009 which attributes a lot to the "crash is due" mentality, versus any rational analysis.

User avatar
nedsaid
Posts: 9691
Joined: Fri Nov 23, 2012 12:33 pm

Re: Heading for a top?

Post by nedsaid » Sat Jan 13, 2018 11:52 am

ValueComplex wrote:
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.

Nedsaid: I think it was Jane Bryant Quinn who said that the Market Timers Hall of Fame is an empty room. There are no reliable timing indicators that I know of and the well known timers that I know of have wound up with egg all over their face with bad timing calls.

What I will say is that valuations matter and matter a lot. When markets experience euphoria like they did during the roaring twenties, the go-go era of the sixties, and the tech boom of the nineties; you will see a bad bear market and with various rallies and downturns, the market essentially going nowhere for years. We saw this from 1929 to about 1948 or so, from 1968 to 1984, and from early 2000 to 2012.

So I see this in terms of trying to buy cheaper asset classes and taking advantage of opportunities. I am not interested in moving averages, omens, oscillators and the like. What I am interested in is price.

Probably the best someone can do is lighten up on stocks a bit when they look expensive and load up when they look cheap. Easy to say, easy to conceptualize, but harder to do in practice. If you can avoid the temptation of performance chasing that might be as good as it gets.


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.

Nedsaid: Sounds like a true bubble to me. I would definitely stay away.

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.

Nedsaid: You are right, that is not good investing advice. I don't close my eyes but I have held my nose a few times. Not excited about bonds but I am buying them as I slowly rebalance out of stocks. I bought Coke stock in 2017 despite my reservations about valuations though I bought two other stocks that were truly cheap.


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

Nedsaid: This can be a signal for recession and thus a signal for a market correction. Markets, however, do what markets do and not in accordance to our expectations. But yes, a flattening yield curve or even an inverted yield curve is often not a good sign. Notice how I use "can" and "often" as markets are complex and many factors involved.

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

Nedsaid: I like to see some pessimism and a whiff of fear in the markets. Rising markets need a supply of pessimists who can potentially turn into optimists, the "Wall of Worry" that markets climb. Pretty much when the last pessimist, in utter disgust that he has missed on out market gains, mortgages his home to the hilt and throws every last dollar he has at the stock market, that is the end of the bull. Conversely, bear markets end when the last optimist sells his stock for a huge loss in utter disgust after months and months of losses.

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.
A fool and his money are good for business.

2pedals
Posts: 447
Joined: Wed Dec 31, 2014 12:31 pm

Re: Heading for a top?

Post by 2pedals » Sat Jan 13, 2018 12:14 pm

nobody knows nothing

michaeljc70
Posts: 2966
Joined: Thu Oct 15, 2015 3:53 pm

Re: Heading for a top?

Post by michaeljc70 » Sat Jan 13, 2018 12:17 pm

Though I don't believe in market timing, I have wondered if there are any good strategies that modestly shift AA based on market/economic indicator(s). For example, you always have an AA between 60/40 and 40/60 and shift it based on some predetermined indicator (CAPE, PE, etc). Maybe too modest to move the needle?

drk
Posts: 628
Joined: Mon Jul 24, 2017 10:33 pm
Location: Seattle

Re: Heading for a top?

Post by drk » Sat Jan 13, 2018 12:25 pm

michaeljc70 wrote:
Sat Jan 13, 2018 12:17 pm
Though I don't believe in market timing, I have wondered if there are any good strategies that modestly shift AA based on market/economic indicator(s). For example, you always have an AA between 60/40 and 40/60 and shift it based on some predetermined indicator (CAPE, PE, etc). Maybe too modest to move the needle?
That's what rebalancing to maintain an asset allocation does. You're changing your current or future investment mix in response to relative market performance in order to maintain the same balance.

michaeljc70
Posts: 2966
Joined: Thu Oct 15, 2015 3:53 pm

Re: Heading for a top?

Post by michaeljc70 » Sat Jan 13, 2018 12:28 pm

drk wrote:
Sat Jan 13, 2018 12:25 pm
michaeljc70 wrote:
Sat Jan 13, 2018 12:17 pm
Though I don't believe in market timing, I have wondered if there are any good strategies that modestly shift AA based on market/economic indicator(s). For example, you always have an AA between 60/40 and 40/60 and shift it based on some predetermined indicator (CAPE, PE, etc). Maybe too modest to move the needle?
That's what rebalancing to maintain an asset allocation does. You're changing your current or future investment mix in response to relative market performance in order to maintain the same balance.
That is based on how the market performed and nothing else. Not an external indicator.

LuigiLikesPizza
Posts: 324
Joined: Tue Jan 05, 2016 7:54 am

Re: Heading for a top?

Post by LuigiLikesPizza » Sat Jan 13, 2018 12:34 pm

I know the stay the course mantra, but what interests me about this run is what does the speculation center around? Previous downturns highlighted speculation on the tech sector and other conditions.

I'm not seeing wild speculation this time. A run up to tax reform, a pro-business political environment, but what else?? cryptocurrency is an interesting topic, but not part of the equity market at this point. Don't see much further movement in the interest rate environment.

So what gives here?

drk
Posts: 628
Joined: Mon Jul 24, 2017 10:33 pm
Location: Seattle

Re: Heading for a top?

Post by drk » Sat Jan 13, 2018 12:37 pm

michaeljc70 wrote:
Sat Jan 13, 2018 12:28 pm
drk wrote:
Sat Jan 13, 2018 12:25 pm
michaeljc70 wrote:
Sat Jan 13, 2018 12:17 pm
Though I don't believe in market timing, I have wondered if there are any good strategies that modestly shift AA based on market/economic indicator(s). For example, you always have an AA between 60/40 and 40/60 and shift it based on some predetermined indicator (CAPE, PE, etc). Maybe too modest to move the needle?
That's what rebalancing to maintain an asset allocation does. You're changing your current or future investment mix in response to relative market performance in order to maintain the same balance.
That is based on how the market performed and nothing else. Not an external indicator.
Six of one, half a dozen of the other. If I'm investing in funds managed by someone else, everything is an external indicator, including the NAV ratio of my stock to bond funds. Anyway, you'll find plenty of threads on valuation-based asset allocations.

staythecourse
Posts: 5732
Joined: Mon Jan 03, 2011 9:40 am

Re: Heading for a top?

Post by staythecourse » Sat Jan 13, 2018 1:00 pm

Who cares if it is at the top? I can't understand why folks are so scared of the market dropping and losing money. It is NORMAL for the market to fall. Folks treat it as if it is so abnormal as one has to figure out a plan to avoid it. Believe it was Friedman or Keynes who famously said something to the effect of: It is the duty of the equity investor to sustain losses on occasion. Mind you he said DUTY and not in times of bad luck.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

User avatar
Toons
Posts: 12789
Joined: Fri Nov 21, 2008 10:20 am
Location: Hills of Tennessee

Re: Heading for a top?

Post by Toons » Sat Jan 13, 2018 1:22 pm

investingdad wrote:
Sat Jan 13, 2018 10:15 am
Toons wrote:
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
This is certainly true. The money that's accumulating in our accounts now its a result of steady buying over the last 20 years without regard to what the market was actually doing. And there was some ugliness.
Retrain your brain,
"Ugliness is =Opportunity"
More shares less money.
Fund Share Acquisition
: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

MnD
Posts: 3502
Joined: Mon Jan 14, 2008 12:41 pm

Re: Heading for a top?

Post by MnD » Sat Jan 13, 2018 1:39 pm

Here's what I'm doing........

Check asset allocation versus plan of 70% global cap stock, 30% fixed income.
Is fixed income inside rebalancing bands of 27.5%-32.5%?
Why yes it is - 28.1%.
Therefore do nothing.

"Don't just do something, stand there!" applies to bull markets as well.
Last edited by MnD on Sat Jan 13, 2018 2:49 pm, edited 1 time in total.

Fallible
Posts: 6384
Joined: Fri Nov 27, 2009 4:44 pm
Contact:

Re: Heading for a top?

Post by Fallible » Sat Jan 13, 2018 2:03 pm

staythecourse wrote:
Sat Jan 13, 2018 1:00 pm
Who cares if it is at the top? I can't understand why folks are so scared of the market dropping and losing money. It is NORMAL for the market to fall. Folks treat it as if it is so abnormal as one has to figure out a plan to avoid it. ...
A few reasons they're scared is that, when setting an allocation, they didn't take market history into account, or they didn't ask themselves how much they could afford to lose, or how much risk they could tolerate emotionally. They also may not have a written IPS to turn to when the market scares them.

One book that would address all these issues is Bill Bernstein's' The Four Pillars of Investing. The four are theory, history, psychology, and business. He begins the first, theory, thusly: "The most fundamental characteristic of any investment is that its return and risk go hand in hand."
I
Bogleheads® wiki | Investing Advice Inspired by Jack Bogle

letsgobobby
Posts: 11353
Joined: Fri Sep 18, 2009 1:10 am

Re: Heading for a top?

Post by letsgobobby » Sat Jan 13, 2018 2:58 pm

MnD wrote:
Sat Jan 13, 2018 11:41 am
letsgobobby wrote:
Sat Jan 13, 2018 9:53 am
MnD wrote:
Sat Jan 13, 2018 9:50 am
The "this bull market is long in the tooth" argument would have gotten you out of the 1949-1966 run in 1958 and out of the 1982-2000 run in 1991.
Both pretty unfortunate timing-wise.
Let's think about that though.

In real terms, how much higher were markets at their future nadirs than the years you mentioned? 1974, or 1981, and 2002, or 2009? How did cash or bonds perform relatively, and on a risk adjusted basis? What were CAGRs from 1958-1981 or 1991-2009?
Without cherry-picking exact months/days........
$10K invested in Fidelity Fund 1/1/1958 (~9 years into that bull market) grew to just over $30K by 12/31/1965 (8 more years).
$10K in Fidelity Fund 1/1/1991 (~9 years into that bull market) grew to just under $50K by 12/31/2000 (10 more years).

Bull markets don't die of old age at 9 years or whatever the criteria is for "long in the tooth".
Many investors have PTISD (post-traumatic investor stress disorder) from 2000 and 2009 which attributes a lot to the "crash is due" mentality, versus any rational analysis.
But markets had declined precipitously in real terms at fifteen and nine years respectively after the dates you picked.

User avatar
ram
Posts: 1025
Joined: Tue Jan 01, 2008 10:47 pm
Location: Midwest

Re: Heading for a top?

Post by ram » Sat Jan 13, 2018 3:24 pm

letsgobobby wrote:
Sat Jan 13, 2018 9:20 am
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.
Assuming that there adequate additional funds (perhaps cash flow) outside of 529 accounts to pay college costs if market tanks would it not be beneficial to continue with 100% stocks in 529 plans?

I have 100% in stocks (50%-50% Domestic- Intt) in 529 accounts. I have committed to paying $X for each child's education. The market risk for the 529 account is on me. (not my children).
I have made appropriate asset allocation changes in my "whole" portfolio. (including the 529 Ac)
In case the market continues to go up I am more than happy to take tax free returns in the 529 accounts.
In case the market drops I will sell stocks in 529 at a loss to pay college bills and buy the same amount of stock in my taxable account. I will tax loss harvest in other parts of the taxable account.

In summary if the market continues to boom I get tax free money and if it tanks I share the pain with the IRS. Is there anything wrong with this line of thought?
Ram

User avatar
HomerJ
Posts: 11304
Joined: Fri Jun 06, 2008 12:50 pm

Re: Heading for a top?

Post by HomerJ » Sat Jan 13, 2018 5:47 pm

orphic wrote:
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.
Why is that common sense?

In 1996, CAPE crossed 25. It had never done that before except right before the Great Depression. It would be common sense to change one's AA. Yet the market more than doubled from that point on. The market did indeed crash 40% in 2000, but it NEVER got lower than it was in 1996.

Read that again. In 1996, CAPE was as high as it had ever been in nearly 70 years. Yet stocks have never been lower. It was the best time to BUY in the past 20 years.

All that said, if you want to switch around between 60/40 and 50/50 because it makes you feel like you're actually doing something, go ahead. That's a pretty minor change.

User avatar
HomerJ
Posts: 11304
Joined: Fri Jun 06, 2008 12:50 pm

Re: Heading for a top?

Post by HomerJ » Sat Jan 13, 2018 5:58 pm

staythecourse wrote:
Sat Jan 13, 2018 1:00 pm
Who cares if it is at the top? I can't understand why folks are so scared of the market dropping and losing money. It is NORMAL for the market to fall. Folks treat it as if it is so abnormal as one has to figure out a plan to avoid it.
THIS. Oh my goodness, THIS.

Guys, the 10% historical long-term return of the stock market INCLUDES crashes and "lost decades". You did NOT have to avoid the crashes to get that return in the past.

Sure, it would be great to avoid the crashes, and only invest when the market is going up, but that's a fool's dream. Millions have tried and failed.

But, in the past, you've gotten a great return doing NOTHING.

Now if you need the money in 0-5 years, you might want to make your AA more conservative, since you don't have the "long-term" anymore. At least SOME of your money, you're going to need in the short-term.

User avatar
ruralavalon
Posts: 13313
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Heading for a top?

Post by ruralavalon » Sat Jan 13, 2018 6:04 pm

z3r0c00l wrote:
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.
Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) total return is up 129.5% since the high of October 2007, and $10,000 invested has become $22,955.
Last edited by ruralavalon on Sat Jan 13, 2018 6:05 pm, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

MoonOrb
Posts: 959
Joined: Thu Jan 24, 2013 6:58 pm

Re: Heading for a top?

Post by MoonOrb » Sat Jan 13, 2018 6:05 pm

staythecourse wrote:
Sat Jan 13, 2018 1:00 pm
Who cares if it is at the top? I can't understand why folks are so scared of the market dropping and losing money. It is NORMAL for the market to fall. Folks treat it as if it is so abnormal as one has to figure out a plan to avoid it. Believe it was Friedman or Keynes who famously said something to the effect of: It is the duty of the equity investor to sustain losses on occasion. Mind you he said DUTY and not in times of bad luck.

Good luck.
This deserves yet another singling out.

Also, I'll say, it's fine to feel nervous. You can feel however you want to feel. That's part of being human. But just don't act on it.

MnD
Posts: 3502
Joined: Mon Jan 14, 2008 12:41 pm

Re: Heading for a top?

Post by MnD » Sat Jan 13, 2018 6:48 pm

letsgobobby wrote:
Sat Jan 13, 2018 2:58 pm
MnD wrote:
Sat Jan 13, 2018 11:41 am
letsgobobby wrote:
Sat Jan 13, 2018 9:53 am
MnD wrote:
Sat Jan 13, 2018 9:50 am
The "this bull market is long in the tooth" argument would have gotten you out of the 1949-1966 run in 1958 and out of the 1982-2000 run in 1991.
Both pretty unfortunate timing-wise.
Let's think about that though.

In real terms, how much higher were markets at their future nadirs than the years you mentioned? 1974, or 1981, and 2002, or 2009? How did cash or bonds perform relatively, and on a risk adjusted basis? What were CAGRs from 1958-1981 or 1991-2009?
Without cherry-picking exact months/days........
$10K invested in Fidelity Fund 1/1/1958 (~9 years into that bull market) grew to just over $30K by 12/31/1965 (8 more years).
$10K in Fidelity Fund 1/1/1991 (~9 years into that bull market) grew to just under $50K by 12/31/2000 (10 more years).

Bull markets don't die of old age at 9 years or whatever the criteria is for "long in the tooth".
Many investors have PTISD (post-traumatic investor stress disorder) from 2000 and 2009 which attributes a lot to the "crash is due" mentality, versus any rational analysis.
But markets had declined precipitously in real terms at fifteen and nine years respectively after the dates you picked.
You make my point exactly. Based on the past major bull markets, it might have 8, 9, 10, 15 more years to run - or it might end tomorrow.
The contention that the current bull market is "long in the tooth" as a call to action has no grounding, other than perhaps to highlight PTISD from those that experienced the dot.com 2000/01 and financial crisis 2007/09.

staythecourse
Posts: 5732
Joined: Mon Jan 03, 2011 9:40 am

Re: Heading for a top?

Post by staythecourse » Sat Jan 13, 2018 8:22 pm

HomerJ wrote:
Sat Jan 13, 2018 5:58 pm
Now if you need the money in 0-5 years, you might want to make your AA more conservative, since you don't have the "long-term" anymore. At least SOME of your money, you're going to need in the short-term.
That is the key. No matter if you have 20% or 100% in stocks there are certain criteria for that money that is put in equities. They are things like: Time horizon, lack of liquidity, ability to stay the course, etc...

It is NOT the market falling that causes the problem, but when folks need that money at the same time the market falls. Sometimes I really do think the best option for most investors is to set their asset allocation, set it on automatic deposits from their bank when they get a paycheck, and LOSE their passwords. Almost wish their was an index fund that you put said money in and are not allowed to access the money again for at least 10 years. I would think most investors would do better with that investment product. Actually, I can guarantee that is true since wall street has never made a product like that (no churning for them) and they keep pushing frequently traded products like etfs.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

letsgobobby
Posts: 11353
Joined: Fri Sep 18, 2009 1:10 am

Re: Heading for a top?

Post by letsgobobby » Sat Jan 13, 2018 10:49 pm

MnD wrote:
Sat Jan 13, 2018 6:48 pm
letsgobobby wrote:
Sat Jan 13, 2018 2:58 pm
MnD wrote:
Sat Jan 13, 2018 11:41 am
letsgobobby wrote:
Sat Jan 13, 2018 9:53 am
MnD wrote:
Sat Jan 13, 2018 9:50 am
The "this bull market is long in the tooth" argument would have gotten you out of the 1949-1966 run in 1958 and out of the 1982-2000 run in 1991.
Both pretty unfortunate timing-wise.
Let's think about that though.

In real terms, how much higher were markets at their future nadirs than the years you mentioned? 1974, or 1981, and 2002, or 2009? How did cash or bonds perform relatively, and on a risk adjusted basis? What were CAGRs from 1958-1981 or 1991-2009?
Without cherry-picking exact months/days........
$10K invested in Fidelity Fund 1/1/1958 (~9 years into that bull market) grew to just over $30K by 12/31/1965 (8 more years).
$10K in Fidelity Fund 1/1/1991 (~9 years into that bull market) grew to just under $50K by 12/31/2000 (10 more years).

Bull markets don't die of old age at 9 years or whatever the criteria is for "long in the tooth".
Many investors have PTISD (post-traumatic investor stress disorder) from 2000 and 2009 which attributes a lot to the "crash is due" mentality, versus any rational analysis.
But markets had declined precipitously in real terms at fifteen and nine years respectively after the dates you picked.
You make my point exactly. Based on the past major bull markets, it might have 8, 9, 10, 15 more years to run - or it might end tomorrow.
The contention that the current bull market is "long in the tooth" as a call to action has no grounding, other than perhaps to highlight PTISD from those that experienced the dot.com 2000/01 and financial crisis 2007/09.
But investing is a marathon, not a sprint.

From 1/1/91 - 1/1/09 (just picking random years to make a point), The stock market as measured by the total return of the S&P500 was 7.9%. Like you said, those who bailed out missed quite a bit more of the bull market, but they also missed two brutal bear markets. Furthermore, if they had just bought a long term treasury bond yielding 18 years later, their return would have been about 8.25% - more than the markets, with no risk, and no volatility.

The point is not that market timing is wise. It’s that sometimes, even though bull markets have a ways to run, investors may still choose to get out early - and not regret it.
Last edited by letsgobobby on Sat Jan 13, 2018 11:23 pm, edited 1 time in total.

michaeljc70
Posts: 2966
Joined: Thu Oct 15, 2015 3:53 pm

Re: Heading for a top?

Post by michaeljc70 » Sat Jan 13, 2018 11:04 pm

letsgobobby wrote:
Sat Jan 13, 2018 10:49 pm
MnD wrote:
Sat Jan 13, 2018 6:48 pm
letsgobobby wrote:
Sat Jan 13, 2018 2:58 pm
MnD wrote:
Sat Jan 13, 2018 11:41 am
letsgobobby wrote:
Sat Jan 13, 2018 9:53 am


Let's think about that though.

In real terms, how much higher were markets at their future nadirs than the years you mentioned? 1974, or 1981, and 2002, or 2009? How did cash or bonds perform relatively, and on a risk adjusted basis? What were CAGRs from 1958-1981 or 1991-2009?
Without cherry-picking exact months/days........
$10K invested in Fidelity Fund 1/1/1958 (~9 years into that bull market) grew to just over $30K by 12/31/1965 (8 more years).
$10K in Fidelity Fund 1/1/1991 (~9 years into that bull market) grew to just under $50K by 12/31/2000 (10 more years).

Bull markets don't die of old age at 9 years or whatever the criteria is for "long in the tooth".
Many investors have PTISD (post-traumatic investor stress disorder) from 2000 and 2009 which attributes a lot to the "crash is due" mentality, versus any rational analysis.
But markets had declined precipitously in real terms at fifteen and nine years respectively after the dates you picked.
You make my point exactly. Based on the past major bull markets, it might have 8, 9, 10, 15 more years to run - or it might end tomorrow.
The contention that the current bull market is "long in the tooth" as a call to action has no grounding, other than perhaps to highlight PTISD from those that experienced the dot.com 2000/01 and financial crisis 2007/09.
But investing is a marathon, not a spring.

From 1/1/91 - 1/1/09 (just picking random years to make a point), The stock market as measured by the total return of the S&P500 was 7.9%. Like you said, those who bailed out missed quite a bit more of the bull market, but they also missed two brutal bear markets. Furthermore, if they had just bought a long term treasury bond yielding 18 years later, their return would have been about 8.25% - more than the markets, with no risk, and no volatility.

The point is not that market timing is wise. It’s that sometimes, even though bull markets have a ways to run, investors may still choose to get out early - and not regret it.
Was 1/1/09 random? Treasuries soared during the financial crisis. The 10 year returned over 10% in 2007 and over 20% in 2008.... 91 to 09 doesn't seem like a random date pick. How about comparing 2009 to today? Or the last 50 years?

letsgobobby
Posts: 11353
Joined: Fri Sep 18, 2009 1:10 am

Re: Heading for a top?

Post by letsgobobby » Sat Jan 13, 2018 11:28 pm

MnD suggested 1/1/91 as a starting point; I suggested 1/1/09 as an ending point because I wanted to show that those who got out even very early in a bull market (which of course can only be known in retrospect) might not always be unhappy with the result. The essential info is not that stocks continued to rise from 1991-2000, but that in fact nearly twenty years later, bonds had outperformed stocks and thus ‘early exiters’ had done quite well relatively (better performance, lower risk, lower volatility).

I don’t have easy numbers available for his earlier example (1958-1965, and then returns of stock vs bonds in real terms from 1965-1982).

User avatar
HomerJ
Posts: 11304
Joined: Fri Jun 06, 2008 12:50 pm

Re: Heading for a top?

Post by HomerJ » Sun Jan 14, 2018 2:14 am

letsgobobby wrote:
Sat Jan 13, 2018 11:28 pm
MnD suggested 1/1/91 as a starting point; I suggested 1/1/09 as an ending point because I wanted to show that those who got out even very early in a bull market (which of course can only be known in retrospect) might not always be unhappy with the result. The essential info is not that stocks continued to rise from 1991-2000, but that in fact nearly twenty years later, bonds had outperformed stocks and thus ‘early exiters’ had done quite well relatively (better performance, lower risk, lower volatility).

I don’t have easy numbers available for his earlier example (1958-1965, and then returns of stock vs bonds in real terms from 1965-1982).
Very few human beings got out in 1991 and were able to stay on the sidelines for the next 9 years while stocks grew 300%

Flugugrubah
Posts: 19
Joined: Mon Oct 09, 2017 12:09 am

Re: Heading for a top?

Post by Flugugrubah » Sun Jan 14, 2018 5:08 am

Even if you are able to consistently value the market correctly the only way that valuation is going to affect prices is if others see it too, if they don't see what you are seeing they will continue for example buying despite your certainty that we are experiencing a bull market. This is something I believe people often forget regarding the market, that prices on the market are set by the aggregate opinion of the individuals investing in it. If we look on the other side of the spectrum, if all others are able to see what you are seeing prices will directly adjust or will already have adjusted for what people currently see, and considering how quickly information is incorporated into the market I'd say it's foolish to consistently bet on "beating the herd". Especially since you need to understand if others are able to see what you see, which you often don't know until after a price correction.

kd2008
Posts: 560
Joined: Sun Feb 15, 2009 6:19 pm

Re: Heading for a top?

Post by kd2008 » Sun Jan 14, 2018 7:54 am

It doesn't always have to be a crash. 2011 and end of 2015- start of 2016 provided healthy corrections. We may get one in future.

Considering the Fed is very gradually going to reduce its balance sheet, liquidity will be lowered in coming years. Asset prices will have to support themselves rather than be propped by the Fed. In general this will increase volatality. The swings may spook the markets. As long as banks manage lending well, the recovery has room to grow. Geopolitical stuff may also impede economic expansion.

Best to stay the course. Manage AA per IPS which hopefully has been formulated based on your ability, willingess and need to take risk.

User avatar
nisiprius
Advisory Board
Posts: 36020
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Heading for a top?

Post by nisiprius » Sun Jan 14, 2018 8:26 am

First, I think that it is reasonable to restrict the phrase "market timing" to mean "the strategies followed by people who call themselves market timers." Market timers make huge moves, frequently all in or all out of chosen asset classes, based on "signals" derived from various sources--commonly technical analysis. The make an all-in all-out shifts, in some category, I think several times per year. Often enough so that there's something to put in the monthly newsletters. It doesn't help things to suggest that tactical asset allocation, or value averaging, or rebalancing is a form of market timing. It just muddies the waters.

Second, the reason why wanting to be more invested in stocks when stocks are doing well and less invested when they are doing poorly is easy to understand, because the difference in results between successful market timing (if one could do it) and staying the course are huge. Mouthwatering. It sure seems as if it would be great if you could even get 10% of the difference, and surely you can tip the odds just a little bit... surely?

Image

The red line shows the cumulative growth (including dividends) of staying the course in the SBBI "large-company stocks" (S&P 500 and predecessors). The green line shows the result of having all your money in stocks during years when stocks made money, and having it in non-interest-earning cash in years when stocks lost money. You just replace each downward-sloping line segment with a level one. Oh, it's ever so much better if you can only manage to be in cash during the losing years. It's the difference between an average 9.92% CAGR and 14.50% CAGR. No, it's the difference between less than (yuch) only $60 million and (yum) $2 billion. Surely you can get at least some of that just be being not-stupid? It really does sound compellingly plausible. It doesn't seem so much to ask, it's not asking to buy at the exact bottom and sell at the exact top or anything like that... Insert emoticon for "wistful sigh."
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

User avatar
JoMoney
Posts: 5248
Joined: Tue Jul 23, 2013 5:31 am

Re: Heading for a top?

Post by JoMoney » Sun Jan 14, 2018 8:35 am

I (half-jokingly) am calling this a 'bottom' for U.S. stocks, it's only been a week since I said that over here viewtopic.php?f=10&t=182107&start=250#p3700894
But so far it's been a good call :greedy
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

Small Law Survivor
Posts: 460
Joined: Tue Nov 17, 2015 5:36 pm

Re: Heading for a top?

Post by Small Law Survivor » Sun Jan 14, 2018 9:07 am

But are we heading for a "melt up"?

Bracing Yourself for a Possible Near-Term Melt-Up
Jeremy Grantham
https://www.gmo.com/docs/default-source ... elt-up.pdf

"I made my money by selling too soon"
Bernard Baruch

User avatar
CollegePrudens
Posts: 156
Joined: Mon Oct 16, 2017 10:43 pm
Location: SF Bay Area

Re: Heading for a top?

Post by CollegePrudens » Sun Jan 14, 2018 10:17 am

letsgobobby wrote:
Sat Jan 13, 2018 9:20 am
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.
Likewise.

I have long kept my retirement AA and assets separate from my 529 AA and assets. However, I have been thinking about combining the pools.

The original trigger for looking at the 529 AA was de-risking it (actually two AAs, 100/0 and 90/0 for my two kids), given that both accounts are at the their target asset level.

As I have thought more about the topic, I have come to the conclusion that my target for education funds is independent of the specific underlying instrument (529s in this case). I want to save enough for 4 years of in-state education for both kids and would have borrowed from my retirement assets (or from cash flow) if the 529s fell short. Similarly, I would have returned excess 529 assets to my retirement accounts (after paying the penalty if any) if the 529s assets exceeded the educational need (as defined earlier).

While 529s had gotten me started on the journey to saving for college, it turns out that several years on, I no longer need that crutch to think about college expenses. In combining all my paper assets, I am overweight in stocks relative to my desired retirement AA. I expect to bring the stock allocation down to that specified in my retirement AA (67%) over the next few weeks.
Live as if you were to die tomorrow; learn as if you were to live forever - Gandhi

MnD
Posts: 3502
Joined: Mon Jan 14, 2008 12:41 pm

Re: Heading for a top?

Post by MnD » Sun Jan 14, 2018 10:37 am

letsgobobby wrote:
Sat Jan 13, 2018 10:49 pm
MnD wrote:
Sat Jan 13, 2018 6:48 pm
letsgobobby wrote:
Sat Jan 13, 2018 2:58 pm
MnD wrote:
Sat Jan 13, 2018 11:41 am
letsgobobby wrote:
Sat Jan 13, 2018 9:53 am


Let's think about that though.

In real terms, how much higher were markets at their future nadirs than the years you mentioned? 1974, or 1981, and 2002, or 2009? How did cash or bonds perform relatively, and on a risk adjusted basis? What were CAGRs from 1958-1981 or 1991-2009?
Without cherry-picking exact months/days........
$10K invested in Fidelity Fund 1/1/1958 (~9 years into that bull market) grew to just over $30K by 12/31/1965 (8 more years).
$10K in Fidelity Fund 1/1/1991 (~9 years into that bull market) grew to just under $50K by 12/31/2000 (10 more years).

Bull markets don't die of old age at 9 years or whatever the criteria is for "long in the tooth".
Many investors have PTISD (post-traumatic investor stress disorder) from 2000 and 2009 which attributes a lot to the "crash is due" mentality, versus any rational analysis.
But markets had declined precipitously in real terms at fifteen and nine years respectively after the dates you picked.
You make my point exactly. Based on the past major bull markets, it might have 8, 9, 10, 15 more years to run - or it might end tomorrow.
The contention that the current bull market is "long in the tooth" as a call to action has no grounding, other than perhaps to highlight PTISD from those that experienced the dot.com 2000/01 and financial crisis 2007/09.
But investing is a marathon, not a sprint.

From 1/1/91 - 1/1/09 (just picking random years to make a point), The stock market as measured by the total return of the S&P500 was 7.9%. Like you said, those who bailed out missed quite a bit more of the bull market, but they also missed two brutal bear markets. Furthermore, if they had just bought a long term treasury bond yielding 18 years later, their return would have been about 8.25% - more than the markets, with no risk, and no volatility.

The point is not that market timing is wise. It’s that sometimes, even though bull markets have a ways to run, investors may still choose to get out early - and not regret it.
So the specific point you are trying to make is that on such and such an intermediate date in the 1982-2000 bull market for stocks an investor had gone 100% to long-term treasuries they would have done OK, despite a further 300% or so gain in stocks past the 9-year point. Considering 1982-2000 is also a subset of an incredible 35+ bull market in bonds, that's a very "duhhhh" observation made from the rear-view mirror.

Instead why don't you specify a more promising investment to go in to now in the current 9-year bull market for stocks and we'll see how that works out for you after we go through a few more market cycles. Also indicate your criteria for getting back in to equities after you have bailed into some "safer" investment. Still sticking with LT Treasuries as your go-to? Good luck with that.

Your first sentence - "But investing is a marathon, not a sprint" belies your continual reversions to "better ideas" for investors versus sticking to their AA and investment policy under various market situations.
Last edited by MnD on Sun Jan 14, 2018 11:08 am, edited 1 time in total.

letsgobobby
Posts: 11353
Joined: Fri Sep 18, 2009 1:10 am

Re: Heading for a top?

Post by letsgobobby » Sun Jan 14, 2018 11:04 am

the ten year returned 8.05%, not much different.

yes, I would still feel comfortable owning treasuries, including ten years.

yes, I think bonds will perform about the same as bonds over the next five to ten years.

bonds are more expensive than they were in 1991, but so are stocks.

User avatar
Rowan Oak
Posts: 140
Joined: Mon May 09, 2016 2:11 pm
Location: Yoknapatawpha

Re: Heading for a top?

Post by Rowan Oak » Sun Jan 14, 2018 11:25 am

In this interview Jack Bogle talked about what he did in the spring of 2000. "... stock market at that point being closer to 40x earnings than to 30..."

Completely different situation, but very interesting to hear him tell what he personally did at that time.

https://youtu.be/k6ra5POdsYg
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

User avatar
nedsaid
Posts: 9691
Joined: Fri Nov 23, 2012 12:33 pm

Re: Heading for a top?

Post by nedsaid » Sun Jan 14, 2018 11:27 am

LuigiLikesPizza wrote:
Sat Jan 13, 2018 12:34 pm
I know the stay the course mantra, but what interests me about this run is what does the speculation center around? Previous downturns highlighted speculation on the tech sector and other conditions.

I'm not seeing wild speculation this time. A run up to tax reform, a pro-business political environment, but what else?? cryptocurrency is an interesting topic, but not part of the equity market at this point. Don't see much further movement in the interest rate environment.

So what gives here?
This mostly reflects my views though I am getting a bit nervous when I see Forward P/E's based on estimated earnings nearing 21. Through much of this bull market, they have been 18-19. If the climate stays pro-business, the economy continues to accelerate, and interest rates behave; then we should be fine. What I am hoping is that earnings will catch up with the higher expectations but I will get increasingly concerned if P/E ratios keep going up. The market is pricing in a "just right" environment but I know that in real life things can go wrong. I am seeing optimism but not euphoria.
A fool and his money are good for business.

User avatar
nedsaid
Posts: 9691
Joined: Fri Nov 23, 2012 12:33 pm

Re: Heading for a top?

Post by nedsaid » Sun Jan 14, 2018 11:40 am

Rowan Oak wrote:
Sun Jan 14, 2018 11:25 am
In this interview Jack Bogle talked about what he did in the spring of 2000. "... stock market at that point being closer to 40x earnings than to 30..."

Completely different situation, but very interesting to hear him tell what he personally did at that time.

https://youtu.be/k6ra5POdsYg
Thank you very much, this is the video I have been trying to find. Here in 2014 interview, Mr. Bogle says that he went from 70%-80% stocks down to about 25-30% stocks in the spring of 2000. As stocks were nearing a peak, Bogle wondered why he was in stocks at all with bond yields at 7% and stock P/E's at 40 and stock yields at 1%. Another factor was that Mr. Bogle was experiencing health problems and wanted to protect his estate if something happened to him. He also talks about looking forward 10 years and project returns.
A fool and his money are good for business.

User avatar
munemaker
Posts: 3102
Joined: Sat Jan 18, 2014 6:14 pm

Re: Heading for a top?

Post by munemaker » Sun Jan 14, 2018 11:44 am

LuigiLikesPizza wrote:
Sat Jan 13, 2018 12:34 pm
I know the stay the course mantra, but what interests me about this run is what does the speculation center around? Previous downturns highlighted speculation on the tech sector and other conditions.

I'm not seeing wild speculation this time. A run up to tax reform, a pro-business political environment, but what else?? cryptocurrency is an interesting topic, but not part of the equity market at this point. Don't see much further movement in the interest rate environment.

So what gives here?
The Schiller PE ratio is at its second highest point in history. As Warren Buffet says, you can't look at valuations independently from interest rates.

The positives for the market are:
1) consumers have more money in their pocket due to the numerous companies paying bonuses & pay increases, less withholding (tax cut - will hit paychecks soon) and the wealth effect of the higher stock market.
2) companies can now write off capital equipment purchases in the same tax year they occur, resulting in increased equipment sales.
3) as Warren Buffet pointed out on CNBC last week, Uncle Sam was a partner in businesses. While US does not own any business assets, he was taking 35% of the profits. With the new law, he is only taking 21% of the profits. Buffet says that, to shareholders, this is like getting 14% more of the business for free.
3) improved regulatory environment for businesses
4) The above items will lead to more employment. In the current tight labor market, they may lead to higher wages as well.

This is anecdotal, but since the beginning of the year, I hear friends and acquaintances saying they are getting in due to a feeling they are missing out. This makes me think the market is getting a little frothy. Who knows?
Last edited by munemaker on Sun Jan 14, 2018 1:47 pm, edited 1 time in total.

letsgobobby
Posts: 11353
Joined: Fri Sep 18, 2009 1:10 am

Re: Heading for a top?

Post by letsgobobby » Sun Jan 14, 2018 11:51 am

Well it’s definitely not 2000. That was a once in a lifetime bubble; really the 07-09 crisis was the second half of the 2000-02 tech crash, as the fed lowered interest rates to prop up stock markets and liquidity flowed into real estate and debt.

Stocks are less expensive than they were in 2000 and bonds are more expensive.

When the 2008 corporate losses roll out of the calculation, CAPE will immediately drop by around 10%.

Accounting changes make CAPE look worse than it is, by about 10-15% as I understand it.

So If we are currently at 33.8, we are really more like 29 on a comparative basis, and a year from now we may be around 26. That’s assuming earnings continue at their current pace, which is a big if - granted.

But 26-29 is not a reason to get excited. It’s a reason to expect less than historical returns but not a reason to sell everything willy-nilly. Almost nothing in common with 2000.

User avatar
Rowan Oak
Posts: 140
Joined: Mon May 09, 2016 2:11 pm
Location: Yoknapatawpha

Re: Heading for a top?

Post by Rowan Oak » Sun Jan 14, 2018 12:50 pm

nedsaid wrote:
Sun Jan 14, 2018 11:40 am
Rowan Oak wrote:
Sun Jan 14, 2018 11:25 am
In this interview Jack Bogle talked about what he did in the spring of 2000. "... stock market at that point being closer to 40x earnings than to 30..."

Completely different situation, but very interesting to hear him tell what he personally did at that time.

https://youtu.be/k6ra5POdsYg
Thank you very much, this is the video I have been trying to find. Here in 2014 interview, Mr. Bogle says that he went from 70%-80% stocks down to about 25-30% stocks in the spring of 2000. As stocks were nearing a peak, Bogle wondered why he was in stocks at all with bond yields at 7% and stock P/E's at 40 and stock yields at 1%. Another factor was that Mr. Bogle was experiencing health problems and wanted to protect his estate if something happened to him. He also talks about looking forward 10 years and project returns.
Yes, I've found this interview with Jack Bogle very helpful anytime I begin to question my own asset allocation.

- He was around 70 yrs old at the time;
- his heart was failing;
- equity position 70-80%;
- bonds yielding around 7%;
- stocks yielding 1%;
- stock market closer to 40x earnings than to 30;

Jack Bogle: I think it's impossible in the next decade, and I look at things in decade lengths, that stocks will outperform bonds. So returns on stocks ought to be, you know, pretty close to nominal and the returns on bonds gonna be 7% a year. That's doubling your money in a decade. And then I looked at him and said, "You know, Don, sometimes I sit here and worry why I have any money in stocks whatsoever.

And I was in the process then, and I can't remember the exact timing, but obviously around that time, of reducing my own equity position from about what's normal of about 70-75%. I don't even remember, maybe 80% down to about 25-30%. And I did that.

...everybody said, "you knew what was going to happen", and I suppose you could argue that I did, but that was also, my heart was failing; my life was in danger. I wanted to make sure what kind of estate I had mostly my retirement plan here (Vanguard) was protected for my family so it was a personal financial decision greatly abetted by the fact that it made totally financial and economic sense. How many times in a lifetime does that come along.

https://youtu.be/k6ra5POdsYg
Last edited by Rowan Oak on Sun Jan 28, 2018 9:31 am, edited 2 times in total.
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

Post Reply