There are various ways to look at valuations. For example, I think CAPE increased the last 5 years. Page 35 of Vanguard's 2020 outlook labels the S&P 500 "Overvalued, maybe, but not a bubble".
https://pressroom.vanguard.com/nonindex ... k_2020.pdf
There are various ways to look at valuations. For example, I think CAPE increased the last 5 years. Page 35 of Vanguard's 2020 outlook labels the S&P 500 "Overvalued, maybe, but not a bubble".
Well, that literally happened to me in my last Uber ride about two weeks ago so...quantAndHold wrote: ↑Wed Feb 12, 2020 11:02 am You’ll know it’s a bubble when Uber drivers are giving you stock tips. Every bubble I’ve lived through (dotcom, real estate, bitcoin, etc) has had the same feature. Someone at the bottom of the economic ladder was telling me how to make money on the bubbling financial product.
Until then, not a bubble.
Recognize that rearward looking PE is not based in PRESENT reality. Those earnings ALL occurred in the past.MathWizard wrote: ↑Wed Feb 12, 2020 12:30 pmPierre Delecto wrote: ↑Wed Feb 12, 2020 8:51 am And if your looking at PE values, it’s the forward PE that matters. The rear-looking PE value is largely meaningless.
You know what the current price is
You know what the last year's earnings were
You can only guess what the earning for the next year will be.
So the traditional rear-looking PE is based in reality,
and the forward-looking PE is a guess.
If you think about it, forward PE should be right around 1/return
where return is the return that investors expect to get.
Since the price is always positive, and investors would never want
negative earnings, forward PE will never be negative, though the rear-looking PE in a year could be.
In fact, I would venture that forward PE will always be positive, but less than 25 , corresponding to
an expected rate of return in excess of 4%.
As far as actionable goes, maybe its best to stop reading financial news or what the S&P500 is doing. If you are shaking as-we-speak, feel free to do a little market timing. Maybe increase your bonds percentage by 5% in 2020. If you are still really worried in 2021 add another 5%.PoultryMan wrote: ↑Wed Feb 12, 2020 8:45 am I know to stick with a plan and rebalance as needed. Having said that, when Warren buffett cant find anything to invest in, PE ratios seem high, when is it a bubble and time to take some money off the table?
Maybe my unease is an irrational emotion?
Im trying to make this post actionable, so I guess Im asking, is it reasonable to be concerned? Does this tell me my rebalancing bands are too wide? Too narrow? Anyone else wondering the same?
It's certainly a compelling visual. However, a 60/40 or 40/60 portfolio would have done just as well, if not better, than total bond.JonnyB wrote: ↑Wed Feb 12, 2020 12:01 pmIf you sold your stocks in 1997 and invested in the Vanguard Total Bond Fund instead, you would have been ahead in 2013. That's 16 years later. And if you had decided to reinvest in stocks any time between 2008 and 2013, a 5-year span, when PEs were much lower, you would come out way ahead.nisiprius wrote: ↑Wed Feb 12, 2020 11:23 am I learned this in 1997. Alan Greenspan made his "irrational exuberance" speech in December 1996. I didn't go to cash, but I did pull back on our stock allocation. The crash happened around April, 2000, more than three years later, during which time the Dow rose from 7,000 almost to 12,000. Now, this wasn't a disaster at all, but the point is that it didn't do me much good, either. Because of having lowered our stock allocation, we partly missed out on the crash, but we partly missed out on three years of fantastic growth, too. Overall it didn't do much good or much harm. I don't kick myself for doing it.
Stock prices matter. Investors can be irrational. Bubbles exist, can be recognized and can be avoided.
Very interesting. I own a Tesla and I didn't think about this.1130Super wrote: ↑Wed Feb 12, 2020 12:28 pmWhy do you assume Tesla is in a bubble? Btw don’t say they are bigger than GM and Ford combined, Tesla is not just a car Manufacture, again Tesla is not just a car manufacturer they are a tech company with an ecosystem. They supply the fuel for their ecosystem, they make the fuel for their ecosystem. They sell the cars directly to the consumer.ge1 wrote: ↑Wed Feb 12, 2020 9:00 am I agree that certain part of the markets most definitely seem to be in a bubble (Tesla with a market cap of almost 150bn for example), primarily US Tech. Other part of the markets seem fine (international, energy for example).
The difficult part is what to do with it. In my portfolio I overweigh US value and small cap value, but I do this knowing that I may underperform the broader index for longer periods of time. There are no guarantees.
good luck
Tesla = Exxon + 7-Eleven + Ford dealerships + Ford. Not just Ford
I'm not sure how valuable this argument is. I can remember when WeWork said it wasn't just a real estate company, but a tech company. Enron was not just an energy company, but a tech company. And I can remember when a pet food store said it wasn't just a pet food company, but a tech company.
So we're there then. Like when my tennis pro, a guy who worked part time teaching old ladies to hit forehands, told me he bought a condo. That was 2007.onourway wrote: ↑Wed Feb 12, 2020 12:43 pmWell, that literally happened to me in my last Uber ride about two weeks ago so...quantAndHold wrote: ↑Wed Feb 12, 2020 11:02 am You’ll know it’s a bubble when Uber drivers are giving you stock tips. Every bubble I’ve lived through (dotcom, real estate, bitcoin, etc) has had the same feature. Someone at the bottom of the economic ladder was telling me how to make money on the bubbling financial product.
Until then, not a bubble.
Third choice, have part of the portfolio dedicated to mechanical equity trend. Conservative long-only investors will doggedly follow the market down 30%, 40%, 50%, 60%, thus providing eventual profit for the trend follower who buys back in at a lower entry.rbaldini wrote: ↑Wed Feb 12, 2020 3:24 pm Bubbles, by their very nature, are elusive. If everyone knew we were in a bubble, we wouldn't be in a bubble. You don't know until after it has popped.
You have basically two choices. You can go with your gut / analysis / whatever, and pull some money out of the market. Or you can stick to an asset allocation that you believe will help you weather the bubbles over the long term. Usually the former doesn't work out because humans are stupid, but sometimes it does, by luck or skill.
That is true, but the sun came up yesterday, and the day before, etc. Lacking any other data, it will probably come up tomorrow.Pierre Delecto wrote: ↑Wed Feb 12, 2020 12:46 pmRecognize that rearward looking PE is not based in PRESENT reality. Those earnings ALL occurred in the past.MathWizard wrote: ↑Wed Feb 12, 2020 12:30 pmPierre Delecto wrote: ↑Wed Feb 12, 2020 8:51 am And if your looking at PE values, it’s the forward PE that matters. The rear-looking PE value is largely meaningless.
You know what the current price is
You know what the last year's earnings were
You can only guess what the earning for the next year will be.
So the traditional rear-looking PE is based in reality,
and the forward-looking PE is a guess.
If you think about it, forward PE should be right around 1/return
where return is the return that investors expect to get.
Since the price is always positive, and investors would never want
negative earnings, forward PE will never be negative, though the rear-looking PE in a year could be.
In fact, I would venture that forward PE will always be positive, but less than 25 , corresponding to
an expected rate of return in excess of 4%.
You should have shorted countrywide and home builders in 2007.quantAndHold wrote: ↑Wed Feb 12, 2020 3:20 pmSo we're there then. Like when my tennis pro, a guy who worked part time teaching old ladies to hit forehands, told me he bought a condo. That was 2007.onourway wrote: ↑Wed Feb 12, 2020 12:43 pmWell, that literally happened to me in my last Uber ride about two weeks ago so...quantAndHold wrote: ↑Wed Feb 12, 2020 11:02 am You’ll know it’s a bubble when Uber drivers are giving you stock tips. Every bubble I’ve lived through (dotcom, real estate, bitcoin, etc) has had the same feature. Someone at the bottom of the economic ladder was telling me how to make money on the bubbling financial product.
Until then, not a bubble.
The problem is that knowing there's a bubble, and being able to profit from it, are two different things. I *knew* about the housing bubble in 2007. But I had no idea what to do with that knowledge. I still don't.
I don't know if there is an equity bubble, but I'm pretty sure the fed can't stop supporting the economy. They raised rates and trimmed the balance sheet a wee bit, and the market tanked, causing a prompt reversal.
The EMH does not state or claim that things are "properly" priced. It states that the price reflects all available information.MathWizard wrote: ↑Wed Feb 12, 2020 3:54 pm
stuff deleted
I am not a believer in the EMH. Things get improperly priced all the time. The problem is that one often cannot take advantage of that, at least in the short term. All you can do is to buy either bonds or stocks, or some other investment based upon which will provide the best return on investment long term.
This brings up a good point. Even if you correctly recognize a bubble, and correctly determine how to profit from it, you still don't know when it will pop, how long you'd have to hold your short position.manatee2005 wrote: ↑Thu Feb 13, 2020 3:47 am You should have shorted countrywide and home builders in 2007.
I agree. I was just replying to someone who said he still doesn't know how he could have profited from the housing bust. This was one of the ways. Another one was to keep renting, hoard cash and then buy foreclosures in 2010.mega317 wrote: ↑Thu Feb 13, 2020 9:55 amThis brings up a good point. Even if you correctly recognize a bubble, and correctly determine how to profit from it, you still don't know when it will pop, how long you'd have to hold your short position.manatee2005 wrote: ↑Thu Feb 13, 2020 3:47 am You should have shorted countrywide and home builders in 2007.
"The market can stay irrational longer than you can stay solvent.” is a quote I vaguely remembered and just now Googled.
You don't necessarily have to profit from a bubble. You just need to avoid getting burned by a bubble.quantAndHold wrote: ↑Wed Feb 12, 2020 3:20 pm The problem is that knowing there's a bubble, and being able to profit from it, are two different things. I *knew* about the housing bubble in 2007. But I had no idea what to do with that knowledge. I still don't.
I <3 this.quantAndHold wrote: ↑Wed Feb 12, 2020 11:02 am You’ll know it’s a bubble when Uber drivers are giving you stock tips. Every bubble I’ve lived through (dotcom, real estate, bitcoin, etc) has had the same feature. Someone at the bottom of the economic ladder was telling me how to make money on the bubbling financial product.
Until then, not a bubble.
I'm pretty sure he's been wrong for at least 16. In 2004 he was calling for gold and interest rates to spike and the dollar to collapse.
I shorted countrywide in 2008. Unfortunately the trade went against me and I closed my position at a 20% loss. That was the high point of the stock and it was acquired by Bank of America several months later.mega317 wrote: ↑Thu Feb 13, 2020 9:55 amThis brings up a good point. Even if you correctly recognize a bubble, and correctly determine how to profit from it, you still don't know when it will pop, how long you'd have to hold your short position.manatee2005 wrote: ↑Thu Feb 13, 2020 3:47 am You should have shorted countrywide and home builders in 2007.
"The market can stay irrational longer than you can stay solvent.” is a quote I vaguely remembered and just now Googled.
I don't think it's true that "Warren Buffett can't find anything to invest in", while he may not be finding any really big buyout deals, he's been continuing to buy common stocks. It will be interesting to see what he has to say in his letter coming out soon.PoultryMan wrote: ↑Wed Feb 12, 2020 8:45 am I know to stick with a plan and rebalance as needed. Having said that, when Warren buffett cant find anything to invest in, PE ratios seem high, when is it a bubble and time to take some money off the table?
Maybe my unease is an irrational emotion?
Im trying to make this post actionable, so I guess Im asking, is it reasonable to be concerned? Does this tell me my rebalancing bands are too wide? Too narrow? Anyone else wondering the same?
Schiff has probably been right all along, just not very good at investing (yet?). For those guys, it's all timing, so he's basically failed miserably. Not sure how his clients would fare even if his future came to pass. Would they catch up? Surpass?unclescrooge wrote: ↑Thu Feb 13, 2020 11:45 pmI'm pretty sure he's been wrong for at least 16. In 2004 he was calling for gold and interest rates to spike and the dollar to collapse.
Seeing three of these four conditions met would be a warning sign. Clearly, we are not there yet.(1) Everyone around you is talking about stocks (or real estate or whatever the fad asset of the day is). And you should really start worrying when the people talking about getting rich in certain areas of the market don’t have a background in finance.
(2) When people begin quitting their jobs to day trade or become a mortgage broker.
(3) When someone exhibits skepticism about the prospects for stocks and people don’t just disagree with them, but they do so vehemently and tell them they’re an idiot for not understanding things.
(4) When you start to see extreme predictions. The example Bernstein gives is how the best-selling investment book in 1999 was Dow 36,000.
The whole melt up is based on expectation that Fed is ready to support the expansion. Much of the market expects 1 cut from the Fed this year.
https://www.cnbc.com/2020/02/05/fed-rat ... mist.html
No, it is telling you that your AA is not the right one for you.PoultryMan wrote: ↑Wed Feb 12, 2020 8:45 am I know to stick with a plan and rebalance as needed. Having said that, when Warren buffett cant find anything to invest in, PE ratios seem high, when is it a bubble and time to take some money off the table?
Maybe my unease is an irrational emotion?
Im trying to make this post actionable, so I guess Im asking, is it reasonable to be concerned? Does this tell me my rebalancing bands are too wide? Too narrow? Anyone else wondering the same?
Oh man, Ben Stein. I remember reading his column on Yahoo Finance saying how the whole subprime mortgage market was only $300 mil and even if it all collapsed it won't affect economy. Boy was he wrong.unclescrooge wrote: ↑Thu Feb 13, 2020 11:50 pmI shorted countrywide in 2008. Unfortunately the trade went against me and I closed my position at a 20% loss. That was the high point of the stock and it was acquired by Bank of America several months later.mega317 wrote: ↑Thu Feb 13, 2020 9:55 amThis brings up a good point. Even if you correctly recognize a bubble, and correctly determine how to profit from it, you still don't know when it will pop, how long you'd have to hold your short position.manatee2005 wrote: ↑Thu Feb 13, 2020 3:47 am You should have shorted countrywide and home builders in 2007.
"The market can stay irrational longer than you can stay solvent.” is a quote I vaguely remembered and just now Googled.
I had also shorted XLF (financial sector ETF) but then I heard Ben Stein in the radio. He was proposing going long that same ETF. I figured he probably knew better than I did so I closed by short in April 2008.
Since then I don't listen to anyone. I also moved away from event-based investing. That's a losing position.
I remember that like it was yesterday. To his defense though, he didn’t realize how much portfolio insurance had been created on it.manatee2005 wrote: ↑Fri Feb 14, 2020 3:36 pm Oh man, Ben Stein. I remember reading his column on Yahoo Finance saying how the whole subprime mortgage market was only $300 mil and even if it all collapsed it won't affect economy. Boy was he wrong.
While Nobel prizewinning "economist" Paul Krugman predicted the crash that never came, way back in 2016. The hardest thing for economists to do is predict the future. It doesn't stop them from trying, obviously, since that's how they get published and make money from television appearances.firebirdparts wrote: ↑Fri Feb 14, 2020 4:22 pmI remember that like it was yesterday. To his defense though, he didn’t realize how much portfolio insurance had been created on it.manatee2005 wrote: ↑Fri Feb 14, 2020 3:36 pm Oh man, Ben Stein. I remember reading his column on Yahoo Finance saying how the whole subprime mortgage market was only $300 mil and even if it all collapsed it won't affect economy. Boy was he wrong.