Why Bull Markets Are Dangerous

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KlangFool
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Re: Why Bull Markets Are Dangerous

Post by KlangFool » Mon Sep 10, 2018 3:25 pm

jadd806 wrote:
Mon Sep 10, 2018 3:18 pm
KlangFool wrote:
Mon Sep 10, 2018 3:12 pm
jadd806 wrote:
Mon Sep 10, 2018 3:03 pm
KlangFool wrote:
Mon Sep 10, 2018 1:26 pm
jadd806,

<<I probably end up with less money in the end compared to 100% equities. >>

Or not. There were times when bond return higher than stock.

Please note that the real world does not have to meet expectation.

As per the example again, for 100/0, with a 50% drop, you need to double to recover. It may take a very long time. Meanwhile, for 70/30, it is only a 35% drop. It can recover faster.

KlangFool
Okay, there were a few periods where bonds outperformed stocks. Those are what those of us who understand statistics refer to as outliers.

You can choose to cherry-pick things such as "double to recover" and totally ignore the fact that the 100% equities portfolio likely had a higher peak value before a crash. Oh boy, your 70/30 portfolio returns to its (lower) peak value 6 months faster and then gets left in the dust during the next bull market. Again, bonds are for liability matching. If you're actively withdrawing, within a decade or two from withdrawing, or you have "enough," fine have some bonds. If you can't stomach market volatility, fine have some bonds. I have no use for them.

We can argue until we're blue in the face, and you can continue replying in circles with platitudes so you can have the last word like you love to do on this forum. Or we can just let the next 2-4 decades of my accumulation play out and see what happens. I know which horse I'm betting on.
jadd806,

Okay. You believe that 100/0 expected return is better than 70/30. So, could you please tell us what are their expected returns? 100/0 versus 70/30?

KlangFool
No, I think you can figure that out for yourself.

https://en.wikipedia.org/wiki/Expected_return
jadd806,

https://personal.vanguard.com/us/insigh ... ns?lang=en

KlangFool

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Toons
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Re: Why Bull Markets Are Dangerous

Post by Toons » Mon Sep 10, 2018 3:29 pm

After any trend continues for more than 5 years,
The brain starts to consider it the "Norm"

: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

CraigTester
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Re: Why Bull Markets Are Dangerous

Post by CraigTester » Mon Sep 10, 2018 4:13 pm

dave_k wrote:
Mon Sep 10, 2018 3:02 pm
CraigTester wrote:
Mon Sep 10, 2018 12:55 pm
It's going to be interesting when some of these experts figure out that if you start with a $1,

Grow it by 50% to $1.50.

And then go on to lose that same 50%...,

You wind up with $0.75
Sorry to sound nitpicky, but that's not the "same" 50%. The opposite of gaining 50% is losing 33.3%. A gain of 100% is offset by a 50% loss, etc. If we assume that the long term market trend is upward, then the probability of a 50% gain over a time period must generally be more than the probability of an offsetting 33.3% loss. And the probability of a 50% gain must be much higher than the probability of a 50% loss. I think I must be missing your point, since I'm not sure what it is.
Um, not being the "same" 50% is my point.

Your understanding of the way the math is supposed to work is correct. Your belief that this is actually understood by most investors suggests you haven't participated in many postmortems.

dave_k
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Re: Why Bull Markets Are Dangerous

Post by dave_k » Mon Sep 10, 2018 4:21 pm

CraigTester wrote:
Mon Sep 10, 2018 4:13 pm
dave_k wrote:
Mon Sep 10, 2018 3:02 pm
CraigTester wrote:
Mon Sep 10, 2018 12:55 pm
It's going to be interesting when some of these experts figure out that if you start with a $1,

Grow it by 50% to $1.50.

And then go on to lose that same 50%...,

You wind up with $0.75
Sorry to sound nitpicky, but that's not the "same" 50%. The opposite of gaining 50% is losing 33.3%. A gain of 100% is offset by a 50% loss, etc. If we assume that the long term market trend is upward, then the probability of a 50% gain over a time period must generally be more than the probability of an offsetting 33.3% loss. And the probability of a 50% gain must be much higher than the probability of a 50% loss. I think I must be missing your point, since I'm not sure what it is.
Um, not being the "same" 50% is my point.

Your understanding of the way the math is supposed to work is correct. Your belief that this is actually understood by most investors suggests you haven't participated in many postmortems.
Correct, I haven't participated in many (any) postmortems. I guess I'm not surprised that the average person (or even investor counting everyone who contributes to retirement accounts) doesn't understand the math, but is that really the main problem investors who run into trouble have - expecting an X% gain to offset an X% loss?

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Hyperborea
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Re: Why Bull Markets Are Dangerous

Post by Hyperborea » Mon Sep 10, 2018 5:08 pm

KlangFool wrote:
Mon Sep 10, 2018 12:42 pm
Isn't that the problem? "Man plan, God laughs".
That's a pretty defeatist attitude. If planning is worthless then why bother saving and investing? We might be dead tomorrow and have put the money to better use rather than piling it up. Spend it all on hookers and blow.

:sharebeer
"Plans are worthless, but planning is everything." - Dwight D. Eisenhower

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triceratop
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Re: Why Bull Markets Are Dangerous

Post by triceratop » Mon Sep 10, 2018 5:11 pm

KlangFool wrote:
Mon Sep 10, 2018 3:12 pm
jadd806,

Okay. You believe that 100/0 expected return is better than 70/30. So, could you please tell us what are their expected returns? 100/0 versus 70/30?

KlangFool
Do you not think that 100/0 has a higher expected return than 70/30? That would be quite the statement.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

KlangFool
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Re: Why Bull Markets Are Dangerous

Post by KlangFool » Mon Sep 10, 2018 5:22 pm

triceratop wrote:
Mon Sep 10, 2018 5:11 pm
KlangFool wrote:
Mon Sep 10, 2018 3:12 pm
jadd806,

Okay. You believe that 100/0 expected return is better than 70/30. So, could you please tell us what are their expected returns? 100/0 versus 70/30?

KlangFool
Do you not think that 100/0 has a higher expected return than 70/30? That would be quite the statement.
triceratop,

You are a scientist.

There is a difference between

A) Believing that100/0 has a higher expected return than 70/30

Versus

B) Knowing exactly the 100/0 expected return and 70/30 expected return. And, how big the difference between them.

KlangFool

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vineviz
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Re: Why Bull Markets Are Dangerous

Post by vineviz » Mon Sep 10, 2018 5:26 pm

KlangFool wrote:
Mon Sep 10, 2018 5:22 pm
triceratop wrote:
Mon Sep 10, 2018 5:11 pm
KlangFool wrote:
Mon Sep 10, 2018 3:12 pm
jadd806,

Okay. You believe that 100/0 expected return is better than 70/30. So, could you please tell us what are their expected returns? 100/0 versus 70/30?

KlangFool
Do you not think that 100/0 has a higher expected return than 70/30? That would be quite the statement.
triceratop,

You are a scientist.

There is a difference between

A) Believing that100/0 has a higher expected return than 70/30

Versus

B) Knowing exactly the 100/0 expected return and 70/30 expected return. And, how big the difference between them.
You can’t have A without having B first.

Not rationally, anyway.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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triceratop
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Re: Why Bull Markets Are Dangerous

Post by triceratop » Mon Sep 10, 2018 5:38 pm

KlangFool wrote:
Mon Sep 10, 2018 5:22 pm
triceratop wrote:
Mon Sep 10, 2018 5:11 pm
KlangFool wrote:
Mon Sep 10, 2018 3:12 pm
jadd806,

Okay. You believe that 100/0 expected return is better than 70/30. So, could you please tell us what are their expected returns? 100/0 versus 70/30?

KlangFool
Do you not think that 100/0 has a higher expected return than 70/30? That would be quite the statement.
triceratop,

You are a scientist.

There is a difference between

A) Believing that100/0 has a higher expected return than 70/30

Versus

B) Knowing exactly the 100/0 expected return and 70/30 expected return. And, how big the difference between them.

KlangFool
Given that there is a difference between these two things, it is confusing to me why you linked them with the word "So" in the quoted post. Or maybe I don't understand what you mean. Stocks are priced with knowledge that there is a competing universe of fixed income products.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

KlangFool
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Re: Why Bull Markets Are Dangerous

Post by KlangFool » Mon Sep 10, 2018 5:39 pm

vineviz wrote:
Mon Sep 10, 2018 5:26 pm
KlangFool wrote:
Mon Sep 10, 2018 5:22 pm
triceratop wrote:
Mon Sep 10, 2018 5:11 pm
KlangFool wrote:
Mon Sep 10, 2018 3:12 pm
jadd806,

Okay. You believe that 100/0 expected return is better than 70/30. So, could you please tell us what are their expected returns? 100/0 versus 70/30?

KlangFool
Do you not think that 100/0 has a higher expected return than 70/30? That would be quite the statement.
triceratop,

You are a scientist.

There is a difference between

A) Believing that100/0 has a higher expected return than 70/30

Versus

B) Knowing exactly the 100/0 expected return and 70/30 expected return. And, how big the difference between them.
You can’t have A without having B first.

Not rationally, anyway.
Then, it should be easy enough for those 100/0 folks to show the numbers.

KlangFool

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vineviz
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Re: Why Bull Markets Are Dangerous

Post by vineviz » Mon Sep 10, 2018 5:51 pm

KlangFool wrote:
Mon Sep 10, 2018 5:39 pm
Then, it should be easy enough for those 100/0 folks to show the numbers.
Who are the 100/0 people, and why do we care what their expectations are?
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

dogagility
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Re: Why Bull Markets Are Dangerous

Post by dogagility » Mon Sep 10, 2018 6:28 pm

KlangFool wrote:
Mon Sep 10, 2018 5:39 pm
vineviz wrote:
Mon Sep 10, 2018 5:26 pm
KlangFool wrote:
Mon Sep 10, 2018 5:22 pm
triceratop wrote:
Mon Sep 10, 2018 5:11 pm
KlangFool wrote:
Mon Sep 10, 2018 3:12 pm
jadd806,

Okay. You believe that 100/0 expected return is better than 70/30. So, could you please tell us what are their expected returns? 100/0 versus 70/30?

KlangFool
Do you not think that 100/0 has a higher expected return than 70/30? That would be quite the statement.
triceratop,

You are a scientist.

There is a difference between

A) Believing that100/0 has a higher expected return than 70/30

Versus

B) Knowing exactly the 100/0 expected return and 70/30 expected return. And, how big the difference between them.
You can’t have A without having B first.

Not rationally, anyway.
Then, it should be easy enough for those 100/0 folks to show the numbers.

KlangFool
I'll take your bait. $500000 more (30 years, $1000/month investment, using a 1% larger return for 100% stock per your link).

I'm sure you'll tell me I'm a fool, so I don't plan on responding any further.

P.S. I'm a scientist too... :beer
Taking "risk" since 1995.

CraigTester
Posts: 80
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Re: Why Bull Markets Are Dangerous

Post by CraigTester » Mon Sep 10, 2018 8:29 pm

dave_k wrote:
Mon Sep 10, 2018 4:21 pm
CraigTester wrote:
Mon Sep 10, 2018 4:13 pm
dave_k wrote:
Mon Sep 10, 2018 3:02 pm
CraigTester wrote:
Mon Sep 10, 2018 12:55 pm
It's going to be interesting when some of these experts figure out that if you start with a $1,

Grow it by 50% to $1.50.

And then go on to lose that same 50%...,

You wind up with $0.75
Sorry to sound nitpicky, but that's not the "same" 50%. The opposite of gaining 50% is losing 33.3%. A gain of 100% is offset by a 50% loss, etc. If we assume that the long term market trend is upward, then the probability of a 50% gain over a time period must generally be more than the probability of an offsetting 33.3% loss. And the probability of a 50% gain must be much higher than the probability of a 50% loss. I think I must be missing your point, since I'm not sure what it is.
Um, not being the "same" 50% is my point.

Your understanding of the way the math is supposed to work is correct. Your belief that this is actually understood by most investors suggests you haven't participated in many postmortems.
Correct, I haven't participated in many (any) postmortems. I guess I'm not surprised that the average person (or even investor counting everyone who contributes to retirement accounts) doesn't understand the math, but is that really the main problem investors who run into trouble have - expecting an X% gain to offset an X% loss?
Naw, this little math example is just one of a gazillion examples of how the "market" doesn't always make the most rationale (aka efficient) decisions....For proof look no further than Tulip bulbs, 1929, 1966, 2000, 2007, 2018, etc, etc...

So hang on for a bumpy ride.....the OP's mom is driving the bus!

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zonto
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Re: Why Bull Markets Are Dangerous

Post by zonto » Tue Sep 11, 2018 6:55 am

triceratop wrote:
Mon Sep 10, 2018 5:11 pm
Do you not think that 100/0 has a higher expected return than 70/30? That would be quite the statement.
Vanguard believes there is a good chance this will be the case over the next 5-10 years based on their adjusted CAPE calculations as of January 3, 2018, before the correction. Market is even higher now than then.

See: https://americas.vanguard.com/instituti ... tm?lang=en
Implications of high US equity prices, low yields

Even if comparisons with the late-1990s share market bubble are too extreme, our analysis suggests that US equity returns during the next five to ten years will be subdued at best. Today, the always-compelling case for global diversification is particularly strong. Consider the results from our Vanguard Capital Markets Model (VCMM) simulations:
  • US equity seems set for lower returns and a higher risk of loss. As illustrated in Figure 4, our five-year US equity return simulations show roughly a one-in-three chance of surpassing a 5% annualised return. The probability of a 10% or worse decline in any given year is 69%, which is high relative to the historical probability (42%).
  • Global diversification improves outlook. Relative to US equity, global equity (60% US equity/40% global ex-US equity) offers better potential for return with slightly lower odds of a 10% or worse decline in any given year. Investors with no allocation to global equity can benefit by diversifying globally.
  • Global bonds enhance diversification, limit tail risk. A global balanced 60% stock/40% bond portfolio has similar potential for return as US equities, with much lower downside risk. Although global bonds are likely to have muted returns themselves, low correlation with equities provides a ballast during times of equity market turmoil, making diversification the only free lunch.
“Diversification is about accepting good enough while missing out on great but avoiding terrible.” - Ben Carlson

KlangFool
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Re: Why Bull Markets Are Dangerous

Post by KlangFool » Tue Sep 11, 2018 9:18 am

dogagility wrote:
Mon Sep 10, 2018 6:28 pm
KlangFool wrote:
Mon Sep 10, 2018 5:39 pm
vineviz wrote:
Mon Sep 10, 2018 5:26 pm
KlangFool wrote:
Mon Sep 10, 2018 5:22 pm
triceratop wrote:
Mon Sep 10, 2018 5:11 pm


Do you not think that 100/0 has a higher expected return than 70/30? That would be quite the statement.
triceratop,

You are a scientist.

There is a difference between

A) Believing that100/0 has a higher expected return than 70/30

Versus

B) Knowing exactly the 100/0 expected return and 70/30 expected return. And, how big the difference between them.
You can’t have A without having B first.

Not rationally, anyway.
Then, it should be easy enough for those 100/0 folks to show the numbers.

KlangFool
I'll take your bait. $500000 more (30 years, $1000/month investment, using a 1% larger return for 100% stock per your link).

I'm sure you'll tell me I'm a fool, so I don't plan on responding any further.

P.S. I'm a scientist too... :beer
dogagility,

It is not 500K more. It is 2.4 million versus 1.9 million. This is personal finance. We are subject to the marginal utility of money.

At 2.4 million, having 500K more does not make a difference in my life. But, losing 1.2 million will change my life. I can afford to have 500K less at 1.9 million. But, I cannot afford to lose 1.2 million.

At 1.9 million (70/30), a 50% drop = 665K loss. I can live with that risk.

KlangFool

goblue100
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Re: Why Bull Markets Are Dangerous

Post by goblue100 » Tue Sep 11, 2018 11:21 am

2.4 millions -1.2 million is 1.2 million
1.9 million - 665,000 is 1.235 million

So 35,000 is the reason for all this discussion?
Can't take it with you when you're gone | But I want enough to get there on - Rollin with the flow - Jerry Hayes

KlangFool
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Re: Why Bull Markets Are Dangerous

Post by KlangFool » Tue Sep 11, 2018 12:00 pm

goblue100 wrote:
Tue Sep 11, 2018 11:21 am
2.4 millions -1.2 million is 1.2 million
1.9 million - 665,000 is 1.235 million

So 35,000 is the reason for all this discussion?
goblue100,

What is your number? My number is 1.5 million. Will you stay at 100/0 at 1 million? A rational person would not do that. So, what is the point about setting up a strawman of 100/0 for 30 years? It is not anything that a reasonable person will do.

In summary,

A) When a portfolio is large enough, it is too risky to stay at 100/0. The loss has a greater impact than the potential gain. The potential gain is 1% more per year. The potential loss versus 70/30 is 15% more.

B) So, in reality, a person does not have 20 to 30 years for 100/0. It may be 10 years or less. Then, the difference and advantage of 100/0 versus 70/30 are not as significant as one wishes.

KlangFool

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triceratop
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Re: Why Bull Markets Are Dangerous

Post by triceratop » Tue Sep 11, 2018 12:18 pm

KlangFool wrote:
Tue Sep 11, 2018 9:18 am
I'll take your bait. $500000 more (30 years, $1000/month investment, using a 1% larger return for 100% stock per your link).

I'm sure you'll tell me I'm a fool, so I don't plan on responding any further.

P.S. I'm a scientist too... :beer
dogagility,

It is not 500K more. It is 2.4 million versus 1.9 million. This is personal finance. We are subject to the marginal utility of money.

At 2.4 million, having 500K more does not make a difference in my life. But, losing 1.2 million will change my life. I can afford to have 500K less at 1.9 million. But, I cannot afford to lose 1.2 million.

At 1.9 million (70/30), a 50% drop = 665K loss. I can live with that risk.

KlangFool
This is nonresponsive to the post you're responding to.
zonto wrote:
Tue Sep 11, 2018 6:55 am
triceratop wrote:
Mon Sep 10, 2018 5:11 pm
Do you not think that 100/0 has a higher expected return than 70/30? That would be quite the statement.
Vanguard believes there is a good chance this will be the case over the next 5-10 years based on their adjusted CAPE calculations as of January 3, 2018, before the correction. Market is even higher now than then.

See: https://americas.vanguard.com/instituti ... tm?lang=en
Implications of high US equity prices, low yields

Even if comparisons with the late-1990s share market bubble are too extreme, our analysis suggests that US equity returns during the next five to ten years will be subdued at best. Today, the always-compelling case for global diversification is particularly strong. Consider the results from our Vanguard Capital Markets Model (VCMM) simulations:
  • US equity seems set for lower returns and a higher risk of loss. As illustrated in Figure 4, our five-year US equity return simulations show roughly a one-in-three chance of surpassing a 5% annualised return. The probability of a 10% or worse decline in any given year is 69%, which is high relative to the historical probability (42%).
  • Global diversification improves outlook. Relative to US equity, global equity (60% US equity/40% global ex-US equity) offers better potential for return with slightly lower odds of a 10% or worse decline in any given year. Investors with no allocation to global equity can benefit by diversifying globally.
  • Global bonds enhance diversification, limit tail risk. A global balanced 60% stock/40% bond portfolio has similar potential for return as US equities, with much lower downside risk. Although global bonds are likely to have muted returns themselves, low correlation with equities provides a ballast during times of equity market turmoil, making diversification the only free lunch.
Expected returns refers to the first moment only. Of course it's possible for risks to change and it's perfectly consistent with Vanguard's market outlook.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

rgs92
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Re: Why Bull Markets Are Dangerous

Post by rgs92 » Tue Sep 11, 2018 12:21 pm

The mantra about Staying the Course is often assumed to only apply to not bailing out in a crash, but it is just as important to not try to call a top and bailing out at that point also.

KlangFool
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Re: Why Bull Markets Are Dangerous

Post by KlangFool » Tue Sep 11, 2018 12:25 pm

triceratop wrote:
Tue Sep 11, 2018 12:18 pm
KlangFool wrote:
Tue Sep 11, 2018 9:18 am
I'll take your bait. $500000 more (30 years, $1000/month investment, using a 1% larger return for 100% stock per your link).

I'm sure you'll tell me I'm a fool, so I don't plan on responding any further.

P.S. I'm a scientist too... :beer
dogagility,

It is not 500K more. It is 2.4 million versus 1.9 million. This is personal finance. We are subject to the marginal utility of money.

At 2.4 million, having 500K more does not make a difference in my life. But, losing 1.2 million will change my life. I can afford to have 500K less at 1.9 million. But, I cannot afford to lose 1.2 million.

At 1.9 million (70/30), a 50% drop = 665K loss. I can live with that risk.

KlangFool
This is nonresponsive to the post you're responding to.
triceratop,

1) You did not respond to my post either.

2) I am answering the questions that someone should ask themselves when they choose 100/0

A) Is the higher expected return high enough to justify the additional risk?

B) Will my real holding period long enough for the difference to matter?

3) There is a bunch of "Bait and Switch" for 100/0 folks. They use 20 to 30 years holding period to justify 100/0. But, in most cases, the AA will be adjusted to be less risky than 100/0 as soon as the portfolio is bigger.

KlangFool

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triceratop
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Re: Why Bull Markets Are Dangerous

Post by triceratop » Tue Sep 11, 2018 12:41 pm

KlangFool wrote:
Tue Sep 11, 2018 12:25 pm
triceratop wrote:
Tue Sep 11, 2018 12:18 pm
KlangFool wrote:
Tue Sep 11, 2018 9:18 am
I'll take your bait. $500000 more (30 years, $1000/month investment, using a 1% larger return for 100% stock per your link).

I'm sure you'll tell me I'm a fool, so I don't plan on responding any further.

P.S. I'm a scientist too... :beer
dogagility,

It is not 500K more. It is 2.4 million versus 1.9 million. This is personal finance. We are subject to the marginal utility of money.

At 2.4 million, having 500K more does not make a difference in my life. But, losing 1.2 million will change my life. I can afford to have 500K less at 1.9 million. But, I cannot afford to lose 1.2 million.

At 1.9 million (70/30), a 50% drop = 665K loss. I can live with that risk.

KlangFool
This is nonresponsive to the post you're responding to.
triceratop,

1) You did not respond to my post either.

2) I am answering the questions that someone should ask themselves when they choose 100/0

A) Is the higher expected return high enough to justify the additional risk?

B) Will my real holding period long enough for the difference to matter?

3) There is a bunch of "Bait and Switch" for 100/0 folks. They use 20 to 30 years holding period to justify 100/0. But, in most cases, the AA will be adjusted to be less risky than 100/0 as soon as the portfolio is bigger.

KlangFool
1) I did respond here: viewtopic.php?p=4113561#p4112531

2) You haven't justified either (A) or (B). Certainly I don't consider (B) useful at all in developing my investment strategy.

3) Who cares about "most cases"? I began investing when I was 22. I will not be adjusting my portfolio exposure to equities down for decades, regardless of how large the portfolio grows. This is the theory board -- neither yours nor my personal situation applies. I don't see how there is a bait and switch here at all. And certainly it doesn't imply that the expected return for 100/0 is not higher. You don't think the higher risk of 100/0 is worth it for your situation, but that is quite different from there not being a difference in expected return at all.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

KlangFool
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Re: Why Bull Markets Are Dangerous

Post by KlangFool » Tue Sep 11, 2018 12:49 pm

triceratop wrote:
Tue Sep 11, 2018 12:41 pm
KlangFool wrote:
Tue Sep 11, 2018 12:25 pm
triceratop wrote:
Tue Sep 11, 2018 12:18 pm
KlangFool wrote:
Tue Sep 11, 2018 9:18 am
I'll take your bait. $500000 more (30 years, $1000/month investment, using a 1% larger return for 100% stock per your link).

I'm sure you'll tell me I'm a fool, so I don't plan on responding any further.

P.S. I'm a scientist too... :beer
dogagility,

It is not 500K more. It is 2.4 million versus 1.9 million. This is personal finance. We are subject to the marginal utility of money.

At 2.4 million, having 500K more does not make a difference in my life. But, losing 1.2 million will change my life. I can afford to have 500K less at 1.9 million. But, I cannot afford to lose 1.2 million.

At 1.9 million (70/30), a 50% drop = 665K loss. I can live with that risk.

KlangFool
This is nonresponsive to the post you're responding to.
triceratop,

1) You did not respond to my post either.

2) I am answering the questions that someone should ask themselves when they choose 100/0

A) Is the higher expected return high enough to justify the additional risk?

B) Will my real holding period long enough for the difference to matter?

3) There is a bunch of "Bait and Switch" for 100/0 folks. They use 20 to 30 years holding period to justify 100/0. But, in most cases, the AA will be adjusted to be less risky than 100/0 as soon as the portfolio is bigger.

KlangFool
1) I did respond here: viewtopic.php?p=4113561#p4112531

2) You haven't justified either (A) or (B). Certainly I don't consider (B) useful at all in developing my investment strategy.

3) Who cares about "most cases"? I began investing when I was 22. I will not be adjusting my portfolio exposure to equities down for decades, regardless of how large the portfolio grows. This is the theory board -- neither yours nor my personal situation applies. I don't see how there is a bait and switch here at all. And certainly it doesn't imply that the expected return for 100/0 is not higher. You don't think the higher risk of 100/0 is worth it for your situation, but that is quite different from there not being a difference in expected return at all.
triceratop,

<< I will not be adjusting my portfolio exposure to equities down for decades, regardless of how large the portfolio grows. >>

So, are you claiming that you will not change your AA when your portfolio is

A) 500K

B) 1 million

C) 2 million

D) 5 million

KlangFool

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triceratop
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Re: Why Bull Markets Are Dangerous

Post by triceratop » Tue Sep 11, 2018 12:54 pm

I will not be changing my portfolio because my portfolio happens to hit those values.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Hyperborea
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Re: Why Bull Markets Are Dangerous

Post by Hyperborea » Tue Sep 11, 2018 12:58 pm

KlangFool wrote:
Tue Sep 11, 2018 12:49 pm
triceratop wrote:
Tue Sep 11, 2018 12:41 pm
KlangFool wrote:
Tue Sep 11, 2018 12:25 pm
triceratop wrote:
Tue Sep 11, 2018 12:18 pm
KlangFool wrote:
Tue Sep 11, 2018 9:18 am


dogagility,

It is not 500K more. It is 2.4 million versus 1.9 million. This is personal finance. We are subject to the marginal utility of money.

At 2.4 million, having 500K more does not make a difference in my life. But, losing 1.2 million will change my life. I can afford to have 500K less at 1.9 million. But, I cannot afford to lose 1.2 million.

At 1.9 million (70/30), a 50% drop = 665K loss. I can live with that risk.

KlangFool
This is nonresponsive to the post you're responding to.
triceratop,

1) You did not respond to my post either.

2) I am answering the questions that someone should ask themselves when they choose 100/0

A) Is the higher expected return high enough to justify the additional risk?

B) Will my real holding period long enough for the difference to matter?

3) There is a bunch of "Bait and Switch" for 100/0 folks. They use 20 to 30 years holding period to justify 100/0. But, in most cases, the AA will be adjusted to be less risky than 100/0 as soon as the portfolio is bigger.

KlangFool
1) I did respond here: viewtopic.php?p=4113561#p4112531

2) You haven't justified either (A) or (B). Certainly I don't consider (B) useful at all in developing my investment strategy.

3) Who cares about "most cases"? I began investing when I was 22. I will not be adjusting my portfolio exposure to equities down for decades, regardless of how large the portfolio grows. This is the theory board -- neither yours nor my personal situation applies. I don't see how there is a bait and switch here at all. And certainly it doesn't imply that the expected return for 100/0 is not higher. You don't think the higher risk of 100/0 is worth it for your situation, but that is quite different from there not being a difference in expected return at all.
triceratop,

<< I will not be adjusting my portfolio exposure to equities down for decades, regardless of how large the portfolio grows. >>

So, are you claiming that you will not change your AA when your portfolio is

A) 500K

B) 1 million

C) 2 million

D) 5 million

KlangFool
I certainly didn't. I waited until I retired to reduce my allocation from 100/0 to ~60/40. I did so for sequence of return reasons and will be increasing the allocation over the next 10 years to deal with a longer expected retirement. If one wasn't willing and able to have a flexible retirement date then moving the allocation down at some point before retirement might be a good idea though some are willing to ride a 100/0 allocation through retirement. Some of us are willing to plan and aren't so fatalistic to believe that planning is futile.
"Plans are worthless, but planning is everything." - Dwight D. Eisenhower

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Earl Lemongrab
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Re: Why Bull Markets Are Dangerous

Post by Earl Lemongrab » Tue Sep 11, 2018 1:25 pm

Not any particular numbers, but I did change my asset allocation due to progress towards goals. That's a combination of asset level and time remaining to retirement.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

MJW
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Re: Why Bull Markets Are Dangerous

Post by MJW » Tue Sep 11, 2018 2:02 pm

Earl Lemongrab wrote:
Tue Sep 11, 2018 1:25 pm
Not any particular numbers, but I did change my asset allocation due to progress towards goals. That's a combination of asset level and time remaining to retirement.
This seems like a sensible thing to do. Not sure why there would be an argument about it.

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HomerJ
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Re: Why Bull Markets Are Dangerous

Post by HomerJ » Tue Sep 11, 2018 2:07 pm

CraigTester wrote:
Mon Sep 10, 2018 12:55 pm
One of my "clues" came from another thread on this site.

People were really lecturing a commenter who came on this site around 2015 announcing they pulled out of the stock market because of high valuations.

More recently, someone reposted the thread and lots of "experts" jumped in to give this lost soul a stern talking to.

Some went on to do a little math and point out just how big the opportunity cost had grown.

Others chimed in sympathetically nodding how sad it was.

It's going to be interesting when some of these experts figure out that if you start with a $1,

Grow it by 50% to $1.50.

And then go on to lose that same 50%...,

You wind up with $0.75
$1 million invested 100% in stocks in 2015

$1,000,000 --> $1,500,000 --> $750,000 (if a 50% crash happens starting tomorrow)

$1 million invested 100% in bonds in 2015 (because stock valuations were "high")

$1,000,000 --> $1,000,000 --> $1,000,000 (bonds have returned close to zero the last two years)

$1 million invested 50/50 in stocks/bonds in 2015 (because no one can predict the future)

$1,000,000 --> $1,250,000 (rebalanced to 625k/625k) --> $937,000 (if a 50% crash happens starting tomorrow).

50/50 seems like a pretty good way to go... Got a good chunk of the upside already, cashed some of it in, and your losses will be limited even if there is a 50% crash starting tomorrow.

And if the market keeps going up, you get some of that too.
The J stands for Jay

EddyB
Posts: 557
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Re: Why Bull Markets Are Dangerous

Post by EddyB » Tue Sep 11, 2018 3:53 pm

HomerJ wrote:
Tue Sep 11, 2018 2:07 pm
CraigTester wrote:
Mon Sep 10, 2018 12:55 pm
One of my "clues" came from another thread on this site.

People were really lecturing a commenter who came on this site around 2015 announcing they pulled out of the stock market because of high valuations.

More recently, someone reposted the thread and lots of "experts" jumped in to give this lost soul a stern talking to.

Some went on to do a little math and point out just how big the opportunity cost had grown.

Others chimed in sympathetically nodding how sad it was.

It's going to be interesting when some of these experts figure out that if you start with a $1,

Grow it by 50% to $1.50.

And then go on to lose that same 50%...,

You wind up with $0.75
$1 million invested 100% in stocks in 2015

$1,000,000 --> $1,500,000 --> $750,000 (if a 50% crash happens starting tomorrow)

$1 million invested 100% in bonds in 2015 (because stock valuations were "high")

$1,000,000 --> $1,000,000 --> $1,000,000 (bonds have returned close to zero the last two years)

$1 million invested 50/50 in stocks/bonds in 2015 (because no one can predict the future)

$1,000,000 --> $1,250,000 (rebalanced to 625k/625k) --> $937,000 (if a 50% crash happens starting tomorrow).

50/50 seems like a pretty good way to go... Got a good chunk of the upside already, cashed some of it in, and your losses will be limited even if there is a 50% crash starting tomorrow.

And if the market keeps going up, you get some of that too.
Why do we stop measuring after the hypothetical 50% crash?

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Hyperborea
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Re: Why Bull Markets Are Dangerous

Post by Hyperborea » Tue Sep 11, 2018 4:20 pm

EddyB wrote:
Tue Sep 11, 2018 3:53 pm
HomerJ wrote:
Tue Sep 11, 2018 2:07 pm
CraigTester wrote:
Mon Sep 10, 2018 12:55 pm
One of my "clues" came from another thread on this site.

People were really lecturing a commenter who came on this site around 2015 announcing they pulled out of the stock market because of high valuations.

More recently, someone reposted the thread and lots of "experts" jumped in to give this lost soul a stern talking to.

Some went on to do a little math and point out just how big the opportunity cost had grown.

Others chimed in sympathetically nodding how sad it was.

It's going to be interesting when some of these experts figure out that if you start with a $1,

Grow it by 50% to $1.50.

And then go on to lose that same 50%...,

You wind up with $0.75
$1 million invested 100% in stocks in 2015

$1,000,000 --> $1,500,000 --> $750,000 (if a 50% crash happens starting tomorrow)

$1 million invested 100% in bonds in 2015 (because stock valuations were "high")

$1,000,000 --> $1,000,000 --> $1,000,000 (bonds have returned close to zero the last two years)

$1 million invested 50/50 in stocks/bonds in 2015 (because no one can predict the future)

$1,000,000 --> $1,250,000 (rebalanced to 625k/625k) --> $937,000 (if a 50% crash happens starting tomorrow).

50/50 seems like a pretty good way to go... Got a good chunk of the upside already, cashed some of it in, and your losses will be limited even if there is a 50% crash starting tomorrow.

And if the market keeps going up, you get some of that too.
Why do we stop measuring after the hypothetical 50% crash?
And why do all these hypotheticals always assume that everybody had exactly the same amount of money before their imaginary 50% crash? If one had a pot of money and put it into the market in varying portfolios then after a number of years the amounts would be different. It's very, very likely especially in the runup before a 50% crash (as hypothesized) that the higher stock portfolios would have done better.
"Plans are worthless, but planning is everything." - Dwight D. Eisenhower

lukestuckenhymer
Posts: 71
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Re: Why Bull Markets Are Dangerous

Post by lukestuckenhymer » Tue Sep 11, 2018 4:31 pm

dwickenh wrote:
Sun Sep 09, 2018 8:08 am
Call_Me_Op wrote:
Sun Sep 09, 2018 6:50 am
Rick,

Perhaps time for a Lifestrategy fund.
+1
Or Target Date. Always a solid choice when your friend/relative starts asking for financial advice.

gmaynardkrebs
Posts: 922
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Re: Why Bull Markets Are Dangerous

Post by gmaynardkrebs » Tue Sep 11, 2018 4:38 pm

lukestuckenhymer wrote:
Tue Sep 11, 2018 4:31 pm
dwickenh wrote:
Sun Sep 09, 2018 8:08 am
Call_Me_Op wrote:
Sun Sep 09, 2018 6:50 am
Rick,

Perhaps time for a Lifestrategy fund.
+1
Or Target Date. Always a solid choice when your friend/relative starts asking for financial advice.
Nor for me. I recommended an "age-appropriate" Target Date fund for a friend in 2004, and it performed terribly in 2008, just as he was about to retire. We are no longer friends. I still feel terrible about it. Never again....

Grt2bOutdoors
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Location: New York

Re: Why Bull Markets Are Dangerous

Post by Grt2bOutdoors » Tue Sep 11, 2018 5:13 pm

gmaynardkrebs wrote:
Tue Sep 11, 2018 4:38 pm
lukestuckenhymer wrote:
Tue Sep 11, 2018 4:31 pm
dwickenh wrote:
Sun Sep 09, 2018 8:08 am
Call_Me_Op wrote:
Sun Sep 09, 2018 6:50 am
Rick,

Perhaps time for a Lifestrategy fund.
+1
Or Target Date. Always a solid choice when your friend/relative starts asking for financial advice.
Nor for me. I recommended an "age-appropriate" Target Date fund for a friend in 2004, and it performed terribly in 2008, just as he was about to retire. We are no longer friends. I still feel terrible about it. Never again....
When friends ask for advice, I point them to a book. If they have ten minutes a night for the news, then they have ten minutes to read a few pages. Over the course of a month, they should be able to read and finish the book, if they have questions, I'm glad to talk about it with them. If they still don't get it, I direct them here. But......they never have the time for the book, they never browse the website, they do have time to pay someone for advice that is almost always questionable, like the nice feller at the bank who offered them a cup of coffee and some cookies...while talking about this variable :annoyed or a high expense ratio fund..... :annoyed
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

gmaynardkrebs
Posts: 922
Joined: Sun Feb 10, 2008 11:48 am

Re: Why Bull Markets Are Dangerous

Post by gmaynardkrebs » Tue Sep 11, 2018 6:28 pm

Grt2bOutdoors wrote:
Tue Sep 11, 2018 5:13 pm
gmaynardkrebs wrote:
Tue Sep 11, 2018 4:38 pm
lukestuckenhymer wrote:
Tue Sep 11, 2018 4:31 pm
dwickenh wrote:
Sun Sep 09, 2018 8:08 am
Call_Me_Op wrote:
Sun Sep 09, 2018 6:50 am
Rick,

Perhaps time for a Lifestrategy fund.
+1
Or Target Date. Always a solid choice when your friend/relative starts asking for financial advice.
Nor for me. I recommended an "age-appropriate" Target Date fund for a friend in 2004, and it performed terribly in 2008, just as he was about to retire. We are no longer friends. I still feel terrible about it. Never again....
When friends ask for advice, I point them to a book. If they have ten minutes a night for the news, then they have ten minutes to read a few pages. Over the course of a month, they should be able to read and finish the book, if they have questions, I'm glad to talk about it with them. If they still don't get it, I direct them here. But......they never have the time for the book, they never browse the website, they do have time to pay someone for advice that is almost always questionable, like the nice feller at the bank who offered them a cup of coffee and some cookies...while talking about this variable :annoyed or a high expense ratio fund..... :annoyed
Good advice..I learned the hard way that no good deed goes unpunished. Especially with investing.

CraigTester
Posts: 80
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Re: Why Bull Markets Are Dangerous

Post by CraigTester » Wed Sep 12, 2018 7:21 am

HomerJ wrote:
Tue Sep 11, 2018 2:07 pm
CraigTester wrote:
Mon Sep 10, 2018 12:55 pm
One of my "clues" came from another thread on this site.

People were really lecturing a commenter who came on this site around 2015 announcing they pulled out of the stock market because of high valuations.

More recently, someone reposted the thread and lots of "experts" jumped in to give this lost soul a stern talking to.

Some went on to do a little math and point out just how big the opportunity cost had grown.

Others chimed in sympathetically nodding how sad it was.

It's going to be interesting when some of these experts figure out that if you start with a $1,

Grow it by 50% to $1.50.

And then go on to lose that same 50%...,

You wind up with $0.75
$1 million invested 100% in stocks in 2015

$1,000,000 --> $1,500,000 --> $750,000 (if a 50% crash happens starting tomorrow)

$1 million invested 100% in bonds in 2015 (because stock valuations were "high")

$1,000,000 --> $1,000,000 --> $1,000,000 (bonds have returned close to zero the last two years)

$1 million invested 50/50 in stocks/bonds in 2015 (because no one can predict the future)

$1,000,000 --> $1,250,000 (rebalanced to 625k/625k) --> $937,000 (if a 50% crash happens starting tomorrow).

50/50 seems like a pretty good way to go... Got a good chunk of the upside already, cashed some of it in, and your losses will be limited even if there is a 50% crash starting tomorrow.

And if the market keeps going up, you get some of that too.
Just to complete your scenario analysis, you left off the one our 2015 commenter said they were striving for:

$1,000,000-->$1,500,000 (logged back on to BH to give a few lectures about avoiding "obvious" 50% crashes, got back in after everyone capitulated, rode up the 50% gain, slept like a baby)

And from here on they are compounding their returns from a base of $1,500,000 versus $937,000.

P.S. to be more accurate with this 2015 example, I remember this poster said he rode up the 240% gain from 2009 before getting out in 2015....Since then, he's missed the last 35% of the bull.....If he "stays the course", he might just do the impossible (e.g. time the market)....We'll see....

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HomerJ
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Re: Why Bull Markets Are Dangerous

Post by HomerJ » Wed Sep 12, 2018 9:05 am

CraigTester wrote:
Wed Sep 12, 2018 7:21 am
HomerJ wrote:
Tue Sep 11, 2018 2:07 pm
CraigTester wrote:
Mon Sep 10, 2018 12:55 pm
One of my "clues" came from another thread on this site.

People were really lecturing a commenter who came on this site around 2015 announcing they pulled out of the stock market because of high valuations.

More recently, someone reposted the thread and lots of "experts" jumped in to give this lost soul a stern talking to.

Some went on to do a little math and point out just how big the opportunity cost had grown.

Others chimed in sympathetically nodding how sad it was.

It's going to be interesting when some of these experts figure out that if you start with a $1,

Grow it by 50% to $1.50.

And then go on to lose that same 50%...,

You wind up with $0.75
$1 million invested 100% in stocks in 2015

$1,000,000 --> $1,500,000 --> $750,000 (if a 50% crash happens starting tomorrow)

$1 million invested 100% in bonds in 2015 (because stock valuations were "high")

$1,000,000 --> $1,000,000 --> $1,000,000 (bonds have returned close to zero the last two years)

$1 million invested 50/50 in stocks/bonds in 2015 (because no one can predict the future)

$1,000,000 --> $1,250,000 (rebalanced to 625k/625k) --> $937,000 (if a 50% crash happens starting tomorrow).

50/50 seems like a pretty good way to go... Got a good chunk of the upside already, cashed some of it in, and your losses will be limited even if there is a 50% crash starting tomorrow.

And if the market keeps going up, you get some of that too.
Just to complete your scenario analysis, you left off the one our 2015 commenter said they were striving for:

$1,000,000-->$1,500,000 (logged back on to BH to give a few lectures about avoiding "obvious" 50% crashes, got back in after everyone capitulated, rode up the 50% gain, slept like a baby)

And from here on they are compounding their returns from a base of $1,500,000 versus $937,000.
So now you're talking about ANOTHER hypothetical 50% gain (after the hypothetical upcoming 50% crash) for the 100% bonds guy (and him switching to 100% stocks at the bottom). But won't valuations likely be getting high again (equal to 2015 where he got out before), and he'll have to get out of stocks again?

I get it. You think market timing is possible, and not only possible, but EASY (Just check CAPE!).

We have obvious proof that timing the top is hard, from the mid-to-late 90s, and we've seen numerous posters just like you, posting here in 2013, 2014, 2015, 2016, and 2017 that valuations are high and we're at a top... All of which have been proven wrong so far. Sooner or later someone will be right. Maybe even you. Maybe we're at the top right now. Doesn't mean you're smart. You're spouting the exact same arguments we heard in 2013 and 2015.

And timing the bottom isn't much easier. Many CAPE proponents in 2009 were waiting for the stock market to go LOWER, since it barely broke below 15 (the historical mean) for a week or two.

It's not easy to time the market. Sure, it would be great if one could. You'd make a lot more money.

But here's something to understand... The long-term historical 10% nominal returns of the stock market? They INCLUDE the crashes. Read that again. You didn't have to market time to get good long-term returns from the stock market.

If you DO try to market-time, you might beat that 10%, or you might trail it. Most people trail it.

Me, I'll take the 10%. And own some bonds and rebalance to manage short-term risk.
Last edited by HomerJ on Wed Sep 12, 2018 10:11 am, edited 3 times in total.
The J stands for Jay

CraigTester
Posts: 80
Joined: Wed Aug 08, 2018 6:34 am

Re: Why Bull Markets Are Dangerous

Post by CraigTester » Wed Sep 12, 2018 9:55 am

HomerJ wrote:
Wed Sep 12, 2018 9:05 am
CraigTester wrote:
Wed Sep 12, 2018 7:21 am
HomerJ wrote:
Tue Sep 11, 2018 2:07 pm
CraigTester wrote:
Mon Sep 10, 2018 12:55 pm
One of my "clues" came from another thread on this site.

People were really lecturing a commenter who came on this site around 2015 announcing they pulled out of the stock market because of high valuations.

More recently, someone reposted the thread and lots of "experts" jumped in to give this lost soul a stern talking to.

Some went on to do a little math and point out just how big the opportunity cost had grown.

Others chimed in sympathetically nodding how sad it was.

It's going to be interesting when some of these experts figure out that if you start with a $1,

Grow it by 50% to $1.50.

And then go on to lose that same 50%...,

You wind up with $0.75
$1 million invested 100% in stocks in 2015

$1,000,000 --> $1,500,000 --> $750,000 (if a 50% crash happens starting tomorrow)

$1 million invested 100% in bonds in 2015 (because stock valuations were "high")

$1,000,000 --> $1,000,000 --> $1,000,000 (bonds have returned close to zero the last two years)

$1 million invested 50/50 in stocks/bonds in 2015 (because no one can predict the future)

$1,000,000 --> $1,250,000 (rebalanced to 625k/625k) --> $937,000 (if a 50% crash happens starting tomorrow).

50/50 seems like a pretty good way to go... Got a good chunk of the upside already, cashed some of it in, and your losses will be limited even if there is a 50% crash starting tomorrow.

And if the market keeps going up, you get some of that too.
Just to complete your scenario analysis, you left off the one our 2015 commenter said they were striving for:

$1,000,000-->$1,500,000 (logged back on to BH to give a few lectures about avoiding "obvious" 50% crashes, got back in after everyone capitulated, rode up the 50% gain, slept like a baby)

And from here on they are compounding their returns from a base of $1,500,000 versus $937,000.
So now you're talking about ANOTHER hypothetical 50% gain (after the hypothetical upcoming 50% crash) for the 100% bonds guy (and him switching to 100% stocks at the bottom). But won't valuations likely be getting high again (equal to 2015 where he got out before), and he'll have to get out of stocks again?

And here's the kicker. The 50/50 guy will have $937,000 ($625,000 x 1.5) + $625,000 in bonds, so his net worth will STILL be higher than the 2015 market timer guy. The 50/50 guy will have $1,562,000, while the 2015 market timer guy only will have $1,500,000 (and that's assuming he times the bottom perfectly).

The 50/50 stocks/bonds doesn't have to time anything. He didn't get out too early in 2015, and he won't get back in too late after the next crash.

I get it. You think market timing is possible, and not only possible, but EASY (Just check CAPE!).

You're wrong. We have obvious proof that timing the top is hard, from 1996, and since this guy got out in 2015, and timing the bottom isn't much easier. Many CAPE proponents in 2009 were waiting for the stock market to go LOWER, since it barely broke below 15 (the historical mean) for a week or two.

It's not easy to time the market. Sure, it would be great if one could. You'd make a lot more money.

But here's something to understand... The long-term historical 10% nominal returns of the stock market? They INCLUDE the crashes. Read that again. You didn't have to market time to get good long-term returns from the stock market.

If you DO try to market-time, you might beat that 10%, or you might trail it. Most people trail it.

Me, I'll take the 10%. And own some bonds and rebalance to manage short-term risk.
Um, did your 50-50 guy wait (e.g. time the market) to "rebalance" until after the full 50% decline?

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HomerJ
Posts: 11827
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Re: Why Bull Markets Are Dangerous

Post by HomerJ » Wed Sep 12, 2018 10:04 am

CraigTester wrote:
Wed Sep 12, 2018 9:55 am
Um, did your 50-50 guy wait (e.g. time the market) to "rebalance" until after the full 50% decline?
Sure, I rebalanced perfectly, just like your 2015 guy switched to 100% stocks perfectly.

It's all stupid made-up numbers anyway.

In theory, theory works in practice. In practice, it doesn't.

Edit: Actually I did the numbers wrong anyway... I didn't start from $468,000/$468,000 (50/50 of the $937,000 after the crash).

So actually, your hypothetical guy does beat the 50/50 guy.

The 50/50 guy comes up with $702,000 ($468,000 x 1.5) + $468,000 = $1,170,000.. Of course we're assuming 0% bond returns here.

Hope everything works out perfectly for that 2015 guy going forward! The nice thing about the 50/50 guy is he's doing well in most scenarios, not just one.

If the stock market keeps going up, he's doing decent. If the market crashes 50%, and stays down, he's still okay, if the market crashes 50% and then goes back 50%, he's still making money.
Last edited by HomerJ on Wed Sep 12, 2018 10:16 am, edited 2 times in total.
The J stands for Jay

CraigTester
Posts: 80
Joined: Wed Aug 08, 2018 6:34 am

Re: Why Bull Markets Are Dangerous

Post by CraigTester » Wed Sep 12, 2018 10:12 am

HomerJ wrote:
Wed Sep 12, 2018 10:04 am
CraigTester wrote:
Wed Sep 12, 2018 9:55 am
Um, did your 50-50 guy wait (e.g. time the market) to "rebalance" until after the full 50% decline?
Sure, I rebalanced perfectly, just like your 2015 guy switched to 100% stocks perfectly.

It's all stupid made-up numbers anyway.

In theory, theory works in practice. In practice, it doesn't.
Always interesting trading perspectives with you, Homer.

And in so doing, at least for me, answer's the OP's question.

Independent George
Posts: 301
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Re: Why Bull Markets Are Dangerous

Post by Independent George » Wed Sep 12, 2018 12:39 pm

gmaynardkrebs wrote:
Tue Sep 11, 2018 4:38 pm
Nor for me. I recommended an "age-appropriate" Target Date fund for a friend in 2004, and it performed terribly in 2008, just as he was about to retire. We are no longer friends. I still feel terrible about it. Never again....
But just about all funds would have performed terribly in 2008 - and an age-appropriate fund for someone at that age (say, 60-40) should have lost less than something more aggressive. A more conservative 40-60 portfolio would have had a max drawdown of -20% - bad, but hardly terrible, and far better than a 100% stock portfolio would have done. And, like everyone else, would have recovered its nominal value by 2010.

Were you expecting no possibility of losses whatsoever? Is that what you sold him on?

ETA:
In the ten years from 2004-2013, an aggressive 90/10 portfolio would have had a max drawdown of -43.16%, but by 2013 would have averaged a nominal 7.86% annual gain. 60/40 would have had a max drawdown of 30.72%, and a nominal 7.12% annualized gain. 40/60 had a max drawdown of 19.36%, and a nominal 6.39% annualized gain.

I can't help but think the problem was a question of expectations rather than performance. I just hope that he didn't sell at the trough and buy up a bunch of bonds when rates at near-zero interest, because that would be the worst outcome of all.

gmaynardkrebs
Posts: 922
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Re: Why Bull Markets Are Dangerous

Post by gmaynardkrebs » Wed Sep 12, 2018 2:19 pm

Independent George wrote:
Wed Sep 12, 2018 12:39 pm
gmaynardkrebs wrote:
Tue Sep 11, 2018 4:38 pm
Nor for me. I recommended an "age-appropriate" Target Date fund for a friend in 2004, and it performed terribly in 2008, just as he was about to retire. We are no longer friends. I still feel terrible about it. Never again....
But just about all funds would have performed terribly in 2008 - and an age-appropriate fund for someone at that age (say, 60-40) should have lost less than something more aggressive. A more conservative 40-60 portfolio would have had a max drawdown of -20% - bad, but hardly terrible, and far better than a 100% stock portfolio would have done. And, like everyone else, would have recovered its nominal value by 2010.

Were you expecting no possibility of losses whatsoever? Is that what you sold him on?

ETA:
In the ten years from 2004-2013, an aggressive 90/10 portfolio would have had a max drawdown of -43.16%, but by 2013 would have averaged a nominal 7.86% annual gain. 60/40 would have had a max drawdown of 30.72%, and a nominal 7.12% annualized gain. 40/60 had a max drawdown of 19.36%, and a nominal 6.39% annualized gain.

I can't help but think the problem was a question of expectations rather than performance. I just hope that he didn't sell at the trough and buy up a bunch of bonds when rates at near-zero interest, because that would be the worst outcome of all.
Sadly, he stopped speaking to me after that, so I don't know if he held on. I sure hope he did.

Vanguard Fan 1367
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Re: Why Bull Markets Are Dangerous

Post by Vanguard Fan 1367 » Fri Sep 14, 2018 8:00 am

mrspock wrote:
Sat Sep 08, 2018 10:57 pm
Wow, seniors wanting to push “all in”.... if my Starbucks barista starts giving me hot stock tips I’m selling everything.
My 92 year old mother in law is pretty comfortable being all in. I did talk her into buying 10K worth of a Vanguard Bond Fund ETF.

bgf
Posts: 633
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Re: Why Bull Markets Are Dangerous

Post by bgf » Fri Sep 14, 2018 8:06 am

for 2018, 20% of my portfolio is an actual real life bear market (ROOOAR), a larger portion of it is break even. my US Total Market portion is up like double digits. and i have a tiny option position that is up like 1000%.

how exactly am i supposed to feel?

i see people say stuff like, "wait til people here go through another bear market..." am i not going through one right now with emerging markets? its 20% of my portfolio. all of my contributions this year have been to international as it goes down. does it not count because it isn't a US bear market? :confused
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

lostdog
Posts: 1237
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Re: Why Bull Markets Are Dangerous

Post by lostdog » Fri Sep 14, 2018 8:42 am

Grt2bOutdoors wrote:
Tue Sep 11, 2018 5:13 pm
gmaynardkrebs wrote:
Tue Sep 11, 2018 4:38 pm
lukestuckenhymer wrote:
Tue Sep 11, 2018 4:31 pm
dwickenh wrote:
Sun Sep 09, 2018 8:08 am
Call_Me_Op wrote:
Sun Sep 09, 2018 6:50 am
Rick,

Perhaps time for a Lifestrategy fund.
+1
Or Target Date. Always a solid choice when your friend/relative starts asking for financial advice.
Nor for me. I recommended an "age-appropriate" Target Date fund for a friend in 2004, and it performed terribly in 2008, just as he was about to retire. We are no longer friends. I still feel terrible about it. Never again....
When friends ask for advice, I point them to a book. If they have ten minutes a night for the news, then they have ten minutes to read a few pages. Over the course of a month, they should be able to read and finish the book, if they have questions, I'm glad to talk about it with them. If they still don't get it, I direct them here. But......they never have the time for the book, they never browse the website, they do have time to pay someone for advice that is almost always questionable, like the nice feller at the bank who offered them a cup of coffee and some cookies...while talking about this variable :annoyed or a high expense ratio fund..... :annoyed

I gave one of my friends "if you can" PDF. He said he hasn't had time but I find him constantly scrolling through Facebook. I mean the PDF is only 16 pages. Annoyed also but I learned over the years most people are reactive instead of proactive.

lostdog
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Re: Why Bull Markets Are Dangerous

Post by lostdog » Fri Sep 14, 2018 8:47 am

bgf wrote:
Fri Sep 14, 2018 8:06 am
for 2018, 20% of my portfolio is an actual real life bear market (ROOOAR), a larger portion of it is break even. my US Total Market portion is up like double digits. and i have a tiny option position that is up like 1000%.

how exactly am i supposed to feel?

i see people say stuff like, "wait til people here go through another bear market..." am i not going through one right now with emerging markets? its 20% of my portfolio. all of my contributions this year have been to international as it goes down. does it not count because it isn't a US bear market? :confused
I feel the same with Total World Equity Index. It hasn't gone anywhere this year. It's been flat or down a bit. I'm staying the course and piling money into it per my plan. Another 2017 will happen again. I just don't know when.

bgf
Posts: 633
Joined: Fri Nov 10, 2017 9:35 am

Re: Why Bull Markets Are Dangerous

Post by bgf » Fri Sep 14, 2018 8:51 am

lostdog wrote:
Fri Sep 14, 2018 8:47 am
bgf wrote:
Fri Sep 14, 2018 8:06 am
for 2018, 20% of my portfolio is an actual real life bear market (ROOOAR), a larger portion of it is break even. my US Total Market portion is up like double digits. and i have a tiny option position that is up like 1000%.

how exactly am i supposed to feel?

i see people say stuff like, "wait til people here go through another bear market..." am i not going through one right now with emerging markets? its 20% of my portfolio. all of my contributions this year have been to international as it goes down. does it not count because it isn't a US bear market? :confused
I feel the same with Total World Equity Index. It hasn't gone anywhere this year. Just staying the course and piling money into it per my plan. Another 2017 will happen again. I just don't know when.
exactly. maybe it is naive or just plain wrong, but i feel like at this point EVERYONE KNOWS that the next financial panic will be another worldwide contagion like in 2008. but financial markets dont always do what you expect them to. i would not be surprised at all if the next US bear market coincides with a surging emerging market or european bull market.

who knows? but it seems like everyone right now thinks US is a win-win because they 1) assume its returns will outperform international and 2) more importantly, they assume that anything that knocks down the US markets will knock everything else down too...

i do not feel comfortable making those assumptions.

we shall see.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

lostdog
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Joined: Thu Feb 04, 2016 2:15 pm

Re: Why Bull Markets Are Dangerous

Post by lostdog » Fri Sep 14, 2018 9:05 am

bgf wrote:
Fri Sep 14, 2018 8:51 am
lostdog wrote:
Fri Sep 14, 2018 8:47 am
bgf wrote:
Fri Sep 14, 2018 8:06 am
for 2018, 20% of my portfolio is an actual real life bear market (ROOOAR), a larger portion of it is break even. my US Total Market portion is up like double digits. and i have a tiny option position that is up like 1000%.

how exactly am i supposed to feel?

i see people say stuff like, "wait til people here go through another bear market..." am i not going through one right now with emerging markets? its 20% of my portfolio. all of my contributions this year have been to international as it goes down. does it not count because it isn't a US bear market? :confused
I feel the same with Total World Equity Index. It hasn't gone anywhere this year. Just staying the course and piling money into it per my plan. Another 2017 will happen again. I just don't know when.
exactly. maybe it is naive or just plain wrong, but i feel like at this point EVERYONE KNOWS that the next financial panic will be another worldwide contagion like in 2008. but financial markets dont always do what you expect them to. i would not be surprised at all if the next US bear market coincides with a surging emerging market or european bull market.

who knows? but it seems like everyone right now thinks US is a win-win because they 1) assume its returns will outperform international and 2) more importantly, they assume that anything that knocks down the US markets will knock everything else down too...

i do not feel comfortable making those assumptions.

we shall see.
Totally agreed with you. Your use of the word "assume" is spot in. Assumptions are dangerous in long term investing. Buy the haystack.

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Re: Why Bull Markets Are Dangerous

Post by Vanguard Fan 1367 » Sat Sep 15, 2018 9:01 am

bgf wrote:
Fri Sep 14, 2018 8:06 am
for 2018, 20% of my portfolio is an actual real life bear market (ROOOAR), a larger portion of it is break even. my US Total Market portion is up like double digits. and i have a tiny option position that is up like 1000%.

how exactly am i supposed to feel?

i see people say stuff like, "wait til people here go through another bear market..." am i not going through one right now with emerging markets? its 20% of my portfolio. all of my contributions this year have been to international as it goes down. does it not count because it isn't a US bear market? :confused
When I read your post I am grateful for the advice of the person who this forum is named after. In The John Bogle Reader which was the best 22 bucks I have ever spent, John recommends avoiding international investing. I know that Bogleheads recommend some sort of international investing. I do have a Vanguard Global Fund but I am only keeping it to avoid capital gains taxes. I don't reinvest the dividends.

bgf
Posts: 633
Joined: Fri Nov 10, 2017 9:35 am

Re: Why Bull Markets Are Dangerous

Post by bgf » Sat Sep 15, 2018 3:46 pm

Vanguard Fan 1367 wrote:
Sat Sep 15, 2018 9:01 am
bgf wrote:
Fri Sep 14, 2018 8:06 am
for 2018, 20% of my portfolio is an actual real life bear market (ROOOAR), a larger portion of it is break even. my US Total Market portion is up like double digits. and i have a tiny option position that is up like 1000%.

how exactly am i supposed to feel?

i see people say stuff like, "wait til people here go through another bear market..." am i not going through one right now with emerging markets? its 20% of my portfolio. all of my contributions this year have been to international as it goes down. does it not count because it isn't a US bear market? :confused
When I read your post I am grateful for the advice of the person who this forum is named after. In The John Bogle Reader which was the best 22 bucks I have ever spent, John recommends avoiding international investing. I know that Bogleheads recommend some sort of international investing. I do have a Vanguard Global Fund but I am only keeping it to avoid capital gains taxes. I don't reinvest the dividends.
ummm, congrats?
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

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fortyofforty
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Re: Why Bull Markets Are Dangerous

Post by fortyofforty » Sat Sep 15, 2018 4:20 pm

Vanguard Fan 1367 wrote:
Fri Sep 14, 2018 8:00 am
mrspock wrote:
Sat Sep 08, 2018 10:57 pm
Wow, seniors wanting to push “all in”.... if my Starbucks barista starts giving me hot stock tips I’m selling everything.
My 92 year old mother in law is pretty comfortable being all in. I did talk her into buying 10K worth of a Vanguard Bond Fund ETF.
I work with a lot of people who are very comfortable being "all in" now. They either didn't have skin in the game in 2008, or have forgotten. I haven't.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

Vanguard Fan 1367
Posts: 757
Joined: Wed Feb 08, 2017 3:09 pm

Re: Why Bull Markets Are Dangerous

Post by Vanguard Fan 1367 » Sat Sep 15, 2018 5:17 pm

bgf wrote:
Sat Sep 15, 2018 3:46 pm
Vanguard Fan 1367 wrote:
Sat Sep 15, 2018 9:01 am
bgf wrote:
Fri Sep 14, 2018 8:06 am
for 2018, 20% of my portfolio is an actual real life bear market (ROOOAR), a larger portion of it is break even. my US Total Market portion is up like double digits. and i have a tiny option position that is up like 1000%.

how exactly am i supposed to feel?

i see people say stuff like, "wait til people here go through another bear market..." am i not going through one right now with emerging markets? its 20% of my portfolio. all of my contributions this year have been to international as it goes down. does it not count because it isn't a US bear market? :confused
When I read your post I am grateful for the advice of the person who this forum is named after. In The John Bogle Reader which was the best 22 bucks I have ever spent, John recommends avoiding international investing. I know that Bogleheads recommend some sort of international investing. I do have a Vanguard Global Fund but I am only keeping it to avoid capital gains taxes. I don't reinvest the dividends.
ummm, congrats?
They used to say, "when E.F. Hutton talks people listen." These days I listen when John Bogle talks and so far it has worked out extremely well. The man has incredible wisdom and has a heart for the investor.

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