What a Great Moment to Invest!

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
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willthrill81
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Re: What a Great Moment to Invest!

Post by willthrill81 »

JohnDoh wrote: Mon May 09, 2022 7:27 am
willthrill81 wrote: Sun May 08, 2022 3:04 pm
TomatoTomahto wrote: Sun May 08, 2022 11:52 am
willthrill81 wrote: Sat May 07, 2022 11:03 am Correct! I've often said in prior years that accumulators should be begging for times like this.
We are still accumulators, but relative to our existing portfolio new funds aren’t moving the needle much. I’m hoping that we recover before we become decumulators.
Even if the additional contributions aren't significant, the mere fact that you experience poor returns now vs. retirement is a significant benefit.
OTOH, I wonder if the fact that an ever-increasing share of the population is in retirement (and thus with relatively shortened time horizons) and actually living off their portfolios, will affect the course of events. It seems there's a greater chance of panic selling, etc. In any case, a 50/50 retiree would seem to be in a boatload of trouble at the moment.
That theory was proposed long ago, but it hasn't been predictive at all.

Beyond that, bonds are doing about as badly as stocks. Long-term bonds are doing significantly worse. Where are those who panic going to hide, cash paying .5%?
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
ValuationsMatter
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Re: What a Great Moment to Invest!

Post by ValuationsMatter »

willthrill81 wrote: Mon May 09, 2022 7:57 am
JohnDoh wrote: Mon May 09, 2022 7:27 am
willthrill81 wrote: Sun May 08, 2022 3:04 pm
TomatoTomahto wrote: Sun May 08, 2022 11:52 am
willthrill81 wrote: Sat May 07, 2022 11:03 am Correct! I've often said in prior years that accumulators should be begging for times like this.
We are still accumulators, but relative to our existing portfolio new funds aren’t moving the needle much. I’m hoping that we recover before we become decumulators.
Even if the additional contributions aren't significant, the mere fact that you experience poor returns now vs. retirement is a significant benefit.
OTOH, I wonder if the fact that an ever-increasing share of the population is in retirement (and thus with relatively shortened time horizons) and actually living off their portfolios, will affect the course of events. It seems there's a greater chance of panic selling, etc. In any case, a 50/50 retiree would seem to be in a boatload of trouble at the moment.
That theory was proposed long ago, but it hasn't been predictive at all.

Beyond that, bonds are doing about as badly as stocks. Long-term bonds are doing significantly worse. Where are those who panic going to hide, cash paying .5%?
I parked what I could in checking offers that returned an annualized 2-3%, and a small portion of my portfolio is in an agreement with private, non-traded firm returning 8% with a 1 year lock. So, I made a little before starting to dip my toes back in individual stocks last month. So far, it's no surprise that it's going very badly. Fortunately, I'm 30/70 stocks to cash, now. I hope the market continues to correct so I can move back to a very aggressive allocation. I think we're finally seeing the correction that should have happened in 2020. Only, this is likely to be worse.
NoRegret
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Re: What a Great Moment to Invest!

Post by NoRegret »

willthrill81 wrote: Mon May 09, 2022 7:57 am
JohnDoh wrote: Mon May 09, 2022 7:27 am
OTOH, I wonder if the fact that an ever-increasing share of the population is in retirement (and thus with relatively shortened time horizons) and actually living off their portfolios, will affect the course of events. It seems there's a greater chance of panic selling, etc. In any case, a 50/50 retiree would seem to be in a boatload of trouble at the moment.
That theory was proposed long ago, but it hasn't been predictive at all.

Beyond that, bonds are doing about as badly as stocks. Long-term bonds are doing significantly worse. Where are those who panic going to hide, cash paying .5%?
We're not there yet, give it time. Individual investors become forced sellers for two reasons:

1. for accumulators: job loss
2. for decumulators: portfolio value is threatening to go below a value that supports a minimum life style

Let's see how it plays out if we have a really bad bear market. Maybe Fed will come to their rescue, may be not.

I maintain that the Bengen study is a hypothetical: there has not been an actual case where the majority of retirees rely on the stock market to fund their retirement, any time in history, anywhere in the world. Boomers will be the first real case study.
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Shallowpockets
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Re: What a Great Moment to Invest!

Post by Shallowpockets »

That all sounds great, OP. Are you buying? With what money? If you are working and doing all the inputs into your ROTH, IRAs, and 401, then go for it. Bank it up. Otherwise where will you money come from? You going to sell what you have and then buy?
Seems Like optimism backed by no cash to go the route of your enthusiasm.
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mrspock
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Re: What a Great Moment to Invest!

Post by mrspock »

Shallowpockets wrote: Thu May 12, 2022 12:48 am That all sounds great, OP. Are you buying? With what money? If you are working and doing all the inputs into your ROTH, IRAs, and 401, then go for it. Bank it up. Otherwise where will you money come from? You going to sell what you have and then buy?
Seems Like optimism backed by no cash to go the route of your enthusiasm.
Maybe OP has bonds and they are able to rebalance? That's pretty much my position. This is all free money as far as I'm concerned. I'm just rebalancing per my AA as I did in 2020, and I'll overbalance all the way back up (I won't rebalance back to bonds on the way back up until ATHs).

Some of us have plenty of cash, and/or inflation proof assets which are not leveraged. Not to mention "human capital", if folks are still in accumulation stage.

Dream scenario for some of us 3-10 years out from retirement. Exciting times, each day of red fills me with glee. We get TLH "coupons", and now 20% more shares for the same money, what's not to like here for accumulators?
secondopinion
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Re: What a Great Moment to Invest!

Post by secondopinion »

ValuationsMatter wrote: Wed May 11, 2022 10:02 pm
willthrill81 wrote: Mon May 09, 2022 7:57 am
JohnDoh wrote: Mon May 09, 2022 7:27 am
willthrill81 wrote: Sun May 08, 2022 3:04 pm
TomatoTomahto wrote: Sun May 08, 2022 11:52 am
We are still accumulators, but relative to our existing portfolio new funds aren’t moving the needle much. I’m hoping that we recover before we become decumulators.
Even if the additional contributions aren't significant, the mere fact that you experience poor returns now vs. retirement is a significant benefit.
OTOH, I wonder if the fact that an ever-increasing share of the population is in retirement (and thus with relatively shortened time horizons) and actually living off their portfolios, will affect the course of events. It seems there's a greater chance of panic selling, etc. In any case, a 50/50 retiree would seem to be in a boatload of trouble at the moment.
That theory was proposed long ago, but it hasn't been predictive at all.

Beyond that, bonds are doing about as badly as stocks. Long-term bonds are doing significantly worse. Where are those who panic going to hide, cash paying .5%?
I parked what I could in checking offers that returned an annualized 2-3%, and a small portion of my portfolio is in an agreement with private, non-traded firm returning 8% with a 1 year lock. So, I made a little before starting to dip my toes back in individual stocks last month. So far, it's no surprise that it's going very badly. Fortunately, I'm 30/70 stocks to cash, now. I hope the market continues to correct so I can move back to a very aggressive allocation. I think we're finally seeing the correction that should have happened in 2020. Only, this is likely to be worse.
A correction did happen in 2020. Why should it be worse than COVID? Unless you think that a recession from increasing rates will chop more than 20% on top of what has already been lost, I am not seeing doom and gloom here.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
ValuationsMatter
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Re: What a Great Moment to Invest!

Post by ValuationsMatter »

secondopinion wrote: Thu May 12, 2022 2:22 am
ValuationsMatter wrote: Wed May 11, 2022 10:02 pm
willthrill81 wrote: Mon May 09, 2022 7:57 am
JohnDoh wrote: Mon May 09, 2022 7:27 am
willthrill81 wrote: Sun May 08, 2022 3:04 pm

Even if the additional contributions aren't significant, the mere fact that you experience poor returns now vs. retirement is a significant benefit.
OTOH, I wonder if the fact that an ever-increasing share of the population is in retirement (and thus with relatively shortened time horizons) and actually living off their portfolios, will affect the course of events. It seems there's a greater chance of panic selling, etc. In any case, a 50/50 retiree would seem to be in a boatload of trouble at the moment.
That theory was proposed long ago, but it hasn't been predictive at all.

Beyond that, bonds are doing about as badly as stocks. Long-term bonds are doing significantly worse. Where are those who panic going to hide, cash paying .5%?
I parked what I could in checking offers that returned an annualized 2-3%, and a small portion of my portfolio is in an agreement with private, non-traded firm returning 8% with a 1 year lock. So, I made a little before starting to dip my toes back in individual stocks last month. So far, it's no surprise that it's going very badly. Fortunately, I'm 30/70 stocks to cash, now. I hope the market continues to correct so I can move back to a very aggressive allocation. I think we're finally seeing the correction that should have happened in 2020. Only, this is likely to be worse.
A correction did happen in 2020. Why should it be worse than COVID? Unless you think that a recession from increasing rates will chop more than 20% on top of what has already been lost, I am not seeing doom and gloom here.
Not the correction that should have happened. We shut the economy down and stocks went UP! The blip on March in no way represented the truth. We "fed" the economy through fiscal policy, and now we're pulling back the reins. Valuations are still very stretched (CAPE 31, TMC/GDP 157%) and a 20% further correction from here would just bring us back to "high" from "extreme" valuations. The fed protects employment and price stability. They won't save us, this time. Their goals run counter to what would prop up the market.
Creditcardguy
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Re: What a Great Moment to Invest!

Post by Creditcardguy »

Dude, you’re killing my Great Moment Buzz…. :mrgreen:
harvestbook
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Re: What a Great Moment to Invest!

Post by harvestbook »

It doesn't really feel that different to me. But maybe because I've learned (to try to) exterminate my feelings about money.

I came back back to Bogleheads after a couple of years away to see if anything much has changed due to X and X and X, but it hasn't. If I have cash, I buy, just like always. I have a plan to sell one day hopefully in the far future, but I doubt life and the markets will perfectly fit my plan. I guess it's more accurate to say I have multiple plans, including super-austerity, and I don't dread any of them.

I'm basically retired (with some residual income still coming in) and my still-working wife and I are discussing a switch--I've been the "saver" and she's been the "spender." Now, with great glee, I get to say "Time for the austerity budget!" My excitement about this suggests maybe I haven't fully conquered my emotions.
I'm not smart enough to know, and I can't afford to guess.
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Re: What a Great Moment to Invest!

Post by z3r0c00l »

SP 500 P/E ratio below 20, there is solace to be had in stock valuations getting back to normal. At least for those of us with 10+ years of work ahead of us.
70% Global Stocks / 25% Bonds / 5% cash
ge1
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Re: What a Great Moment to Invest!

Post by ge1 »

Not sure about "great" - but I get where you are coming from and agree, investors can finally invest and expect "normal" long term returns, certainly when investing in value stocks (growth stocks have further to fall in my opinion). I was ridiculously heavy in cash coming into this year, I certainly enjoy buying both stocks and bonds at much better valuations.
lawrun21
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Re: What a Great Moment to Invest!

Post by lawrun21 »

William Million wrote: Fri May 06, 2022 7:22 pm - Some of the most dynamic companies are down 50% or so. NASDAQ has lost a quarter of its value. Among great companies,you can take your pick. For instance, Starbucks pays 2.5% dividend, after having steadily raised its dividend since 2010 from a nickel to.49. Does anyone seriously believe that company won't be profitably selling coffee 20 years from now?
I am all for the overall sentiment that better to buy now than at the beginning of the year, but buying the market is the way to go. As an example, you mention Starbucks - if most of Starbucks' workforce becomes unionized, which is a real possibility now, that would be likely be a permanent problem for the company moving forward that it has not faced before (under the National Labor Relations Act, it is extremely difficult to get rid of a union once you have one, and unions tend to spread throughout a company once they are in). I think the union issue is a potentially major problem for Starbucks and may leave room for a material competitor to emerge.
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Re: What a Great Moment to Invest!

Post by LadyGeek »

I removed a contentious interchange. As a reminder, see: General Etiquette
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RoadThunder
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Re: What a Great Moment to Invest!

Post by RoadThunder »

William Million wrote: Fri May 06, 2022 7:22 pm After several tough investing years, when investors bemoaned how everything was overpriced,it seems we now have almost the perfect entry point for stocks and bonds:

- Many bond funds haven't reached levels this low since the Great Recession. Last time Vanguard Total Bond Index was this low was 2008.

- Some of the most dynamic companies are down 50% or so. NASDAQ has lost a quarter of its value. Among great companies,you can take your pick. For instance, Starbucks pays 2.5% dividend, after having steadily raised its dividend since 2010 from a nickel to.49. Does anyone seriously believe that company won't be profitably selling coffee 20 years from now?

- Want more international equity or REIT exposure? The US dollar is now almost at parity with the Euro. Amazing buying power.

- As soon as inflation tumbles, investors will flee TIPS with a vengeance.We might well soon see +2% real rates.

-10 year treasuries are back to where they were in 2011. If they rise to 5%, 1st time since 2007, they could prove a reliable long-term portfolio stabilizer.

In sum, the next year could bring the best forward investment climate in a decade or more. War in Ukraine, high inflation, lockdowns in China, COVID weariness, etc have spooked many investors when they should be strategically buying.
I won’t touch REITs with a 10 foot pole - in my area many commercial office leases are being bought out - the cost savings of pushing the work office to the employees home is huge for many companies. Covid may have kicked it off, but the savings are real and tangible.
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Re: What a Great Moment to Invest!

Post by AerialWombat »

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Nathan Drake
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Re: What a Great Moment to Invest!

Post by Nathan Drake »

z3r0c00l wrote: Thu May 12, 2022 7:20 am SP 500 P/E ratio below 20, there is solace to be had in stock valuations getting back to normal. At least for those of us with 10+ years of work ahead of us.
Shiller PE still 2x historical average at 30

We could have a whole lot more correction ahead of us
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Californiastate
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Re: What a Great Moment to Invest!

Post by Californiastate »

I purchased some GE bonds during the GFC. IIRC they paid 8% for an intermediate duration. Their price recovered over a few years and I sold them for a nice profit. I thought GE was a stalwart for generations.
ValuationsMatter
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Re: What a Great Moment to Invest!

Post by ValuationsMatter »

Nathan Drake wrote: Thu May 12, 2022 6:12 pm
z3r0c00l wrote: Thu May 12, 2022 7:20 am SP 500 P/E ratio below 20, there is solace to be had in stock valuations getting back to normal. At least for those of us with 10+ years of work ahead of us.
Shiller PE still 2x historical average at 30

We could have a whole lot more correction ahead of us
I appreciate that someone else made this point. I hope this time it will be allowed it to remain in place.
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Artful Dodger
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Re: What a Great Moment to Invest!

Post by Artful Dodger »

JohnDoh wrote: Mon May 09, 2022 7:27 am
willthrill81 wrote: Sun May 08, 2022 3:04 pm
TomatoTomahto wrote: Sun May 08, 2022 11:52 am
willthrill81 wrote: Sat May 07, 2022 11:03 am Correct! I've often said in prior years that accumulators should be begging for times like this.
We are still accumulators, but relative to our existing portfolio new funds aren’t moving the needle much. I’m hoping that we recover before we become decumulators.
Even if the additional contributions aren't significant, the mere fact that you experience poor returns now vs. retirement is a significant benefit.
OTOH, I wonder if the fact that an ever-increasing share of the population is in retirement (and thus with relatively shortened time horizons) and actually living off their portfolios, will affect the course of events. It seems there's a greater chance of panic selling, etc. In any case, a 50/50 retiree would seem to be in a boatload of trouble at the moment.
Really? The 50/50 retiree has a bunch of cash and bonds to live off while their equities are tanking. Plus pension plus SS with a COLA.
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Re: What a Great Moment to Invest!

Post by Nathan Drake »

ValuationsMatter wrote: Thu May 12, 2022 8:57 pm
Nathan Drake wrote: Thu May 12, 2022 6:12 pm
z3r0c00l wrote: Thu May 12, 2022 7:20 am SP 500 P/E ratio below 20, there is solace to be had in stock valuations getting back to normal. At least for those of us with 10+ years of work ahead of us.
Shiller PE still 2x historical average at 30

We could have a whole lot more correction ahead of us
I appreciate that someone else made this point. I hope this time it will be allowed it to remain in place.
This graph should give any investor a cautious outlook

https://www.multpl.com/shiller-pe

Importantly, the period of the late 60s before inflation took hold. Inflation, and the consequences of rates that MUST rise and stay elevated, is a SIGNIFICANT risk. Stocks and equities will get revalued aggressively. It seems that there's a little too much comfort that many people have with stocks P/E ratios being meaningfully in the 20s and 30s as "typical".

Shiller CAPE got down to 8 in 1982 after a peak of roughly 25 in 1966.

The longer it takes for inflation to tame, the more this revaluation will deeply entrench itself into equity valuations. And the inflation risk may ultimately be completely outside the ability of the Fed to control. It's a serious risk.
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Dry-Drink
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Re: What a Great Moment to Invest!

Post by Dry-Drink »

Nathan Drake wrote: Thu May 12, 2022 10:09 pm It seems that there's a little too much comfort that many people have with stocks P/E ratios being meaningfully in the 20s and 30s as "typical".
The comfort we get is that, with fixed-income rates being what they are, a P/E in the 20-30 means a reasonable equity risk premium (in fact, perhaps a little larger than historical). That is, those willing to take on risk with stocks, would appear to have reasonable expected compensation over safe assets.
Nathan Drake wrote: Thu May 12, 2022 10:09 pm Inflation, and the consequences of rates that MUST rise and stay elevated, is a SIGNIFICANT risk. Stocks and equities will get revalued aggressively.
If rates rise, then stock valuations will probably fall somewhat. And if rates start hitting their historical levels, then maybe we'll see stock valuations go back to more historical levels too. Sure.

Many of us, however, don't think rates "MUST" rise. We think they are as likely to rise as to fall and no one knows any better. With such an outlook, I'm quite comfortable staying invested in stocks, hopefully reaping a nice equity risk premium. And I don't feel I'm "a little too comfortable" with them.
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Re: What a Great Moment to Invest!

Post by Nathan Drake »

Dry-Drink wrote: Thu May 12, 2022 10:31 pm
Nathan Drake wrote: Thu May 12, 2022 10:09 pm It seems that there's a little too much comfort that many people have with stocks P/E ratios being meaningfully in the 20s and 30s as "typical".
The comfort we get is that, with fixed-income rates being what they are, a P/E in the 20-30 means a reasonable equity risk premium (in fact, perhaps a little larger than historical). That is, those willing to take on risk with stocks, would appear to have reasonable expected compensation over safe assets.
Nathan Drake wrote: Thu May 12, 2022 10:09 pm Inflation, and the consequences of rates that MUST rise and stay elevated, is a SIGNIFICANT risk. Stocks and equities will get revalued aggressively.
If rates rise, then stock valuations will probably fall somewhat. And if rates start hitting their historical levels, then maybe we'll see stock valuations go back to more historical levels too. Sure.

Many of us, however, don't think rates "MUST" rise. We think they are as likely to rise as to fall and no one knows any better. With such an outlook, I'm quite comfortable staying invested in stocks, hopefully reaping a nice equity risk premium. And I don't feel I'm "a little too comfortable" with them.
It's fine to believe stocks are likely to be the best investment from a probabilistic standpoint, but if you're only investing in one country and one equity factor you are more exposed to very prolonged periods of poor performance should that risk show up. Not all areas of the investable landscape are at significantly elevated historical CAPE.

If rates rise significantly, as mentioned, and stay elevated - there will be an alternative to stocks that is commanding a high level of return. Capital flows will likely adjust accordingly with sharp revaluations of the priciest equities.
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Dry-Drink
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Re: What a Great Moment to Invest!

Post by Dry-Drink »

Nathan Drake wrote: Thu May 12, 2022 10:39 pm It's fine to believe stocks are likely to be the best investment from a probabilistic standpoint, but if you're only investing in one country and one equity factor you are more exposed to very prolonged periods of poor performance should that risk show up. Not all areas of the investable landscape are at significantly elevated historical CAPE.

If rates rise significantly, as mentioned, and stay elevated - there will be an alternative to stocks that is commanding a high level of return. Capital flows will likely adjust accordingly with sharp revaluations of the priciest equities.
I'm a little confused. I didn't argue for investing only in the US (neither did poster z3r0c00l by the looks of their signature) so not sure where that's coming from. I was just saying I am comfortable with a PE 20 in USA stocks because it entails a reasonable equity risk premium.

I think what you're saying is "US bonds and US stocks are expensive vs history but International stocks are not. So if rates rise and both US bonds and US stocks get repriced, International stocks will not as much". Is that it?
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Re: What a Great Moment to Invest!

Post by Nathan Drake »

Dry-Drink wrote: Thu May 12, 2022 10:55 pm
Nathan Drake wrote: Thu May 12, 2022 10:39 pm It's fine to believe stocks are likely to be the best investment from a probabilistic standpoint, but if you're only investing in one country and one equity factor you are more exposed to very prolonged periods of poor performance should that risk show up. Not all areas of the investable landscape are at significantly elevated historical CAPE.

If rates rise significantly, as mentioned, and stay elevated - there will be an alternative to stocks that is commanding a high level of return. Capital flows will likely adjust accordingly with sharp revaluations of the priciest equities.
I'm a little confused. I didn't argue for investing only in the US (neither did poster z3r0c00l by the looks of their signature) so not sure where that's coming from. I was just saying I am comfortable with a PE 20 in USA stocks because it entails a reasonable equity risk premium.

I think what you're saying is "US bonds and US stocks are expensive vs history but International stocks are not. So if rates rise and both US bonds and US stocks get repriced, International stocks will not as much". Is that it?
My original post was using the US CAPE10 chart.

I think that equities still have the brightest outlook, but the most richly valued areas are at much higher risk of significant revaluation due to persistently high inflation

So think QQQ and US TSM to a lesser extent.
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Dry-Drink
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Re: What a Great Moment to Invest!

Post by Dry-Drink »

Nathan Drake wrote: Thu May 12, 2022 11:00 pm
Dry-Drink wrote: Thu May 12, 2022 10:55 pm
Nathan Drake wrote: Thu May 12, 2022 10:39 pm It's fine to believe stocks are likely to be the best investment from a probabilistic standpoint, but if you're only investing in one country and one equity factor you are more exposed to very prolonged periods of poor performance should that risk show up. Not all areas of the investable landscape are at significantly elevated historical CAPE.

If rates rise significantly, as mentioned, and stay elevated - there will be an alternative to stocks that is commanding a high level of return. Capital flows will likely adjust accordingly with sharp revaluations of the priciest equities.
I'm a little confused. I didn't argue for investing only in the US (neither did poster z3r0c00l by the looks of their signature) so not sure where that's coming from. I was just saying I am comfortable with a PE 20 in USA stocks because it entails a reasonable equity risk premium.

I think what you're saying is "US bonds and US stocks are expensive vs history but International stocks are not. So if rates rise and both US bonds and US stocks get repriced, International stocks will not as much". Is that it?
My original post was using the US CAPE10 chart.

I think that equities still have the brightest outlook, but the most richly valued areas are at much higher risk of significant revaluation due to persistently high inflation

So think QQQ and US TSM to a lesser extent.
Ok I follow. Personally, I always think of whichever area being the most richly valued as being at higher risk. USA stock CAPE10 could be at the historical norm and if Ex-USA was even lower, I still would have that concern. It seems like you believe this is more of an issue if USA CAPE10 is elevated vs its own history and, were the CAPE10 at 15, then you wouldn't care much about it (even if Int. CAPE10 were even lower).

I only care about the CAPE10 of USA stocks in so far as to how it compares to bonds (for the ERP) or to other stocks (to judge relative value). I don't think it's worth paying much attention to how the CAPE10 compares to its own value decades ago.
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Re: What a Great Moment to Invest!

Post by Nathan Drake »

Dry-Drink wrote: Thu May 12, 2022 11:15 pm
Nathan Drake wrote: Thu May 12, 2022 11:00 pm
Dry-Drink wrote: Thu May 12, 2022 10:55 pm
Nathan Drake wrote: Thu May 12, 2022 10:39 pm It's fine to believe stocks are likely to be the best investment from a probabilistic standpoint, but if you're only investing in one country and one equity factor you are more exposed to very prolonged periods of poor performance should that risk show up. Not all areas of the investable landscape are at significantly elevated historical CAPE.

If rates rise significantly, as mentioned, and stay elevated - there will be an alternative to stocks that is commanding a high level of return. Capital flows will likely adjust accordingly with sharp revaluations of the priciest equities.
I'm a little confused. I didn't argue for investing only in the US (neither did poster z3r0c00l by the looks of their signature) so not sure where that's coming from. I was just saying I am comfortable with a PE 20 in USA stocks because it entails a reasonable equity risk premium.

I think what you're saying is "US bonds and US stocks are expensive vs history but International stocks are not. So if rates rise and both US bonds and US stocks get repriced, International stocks will not as much". Is that it?
My original post was using the US CAPE10 chart.

I think that equities still have the brightest outlook, but the most richly valued areas are at much higher risk of significant revaluation due to persistently high inflation

So think QQQ and US TSM to a lesser extent.
Ok I follow. Personally, I always think of whichever area being the most richly valued as being at higher risk. USA stock CAPE10 could be at the historical norm and if Ex-USA was even lower, I still would have that concern. It seems like you believe this is more of an issue if USA CAPE10 is elevated vs its own history and, were the CAPE10 at 15, then you wouldn't care much about it (even if Int. CAPE10 were even lower).

I only care about the CAPE10 of USA stocks in so far as to how it compares to bonds (for the ERP) or to other stocks (to judge relative value). I don't think it's worth paying much attention to how the CAPE10 compares to its own value decades ago.
The data decades ago may point to how equities can perform during a time of prolonged inflation.

The bottom line is that when inflation soars, multiples tend to correct sharply

That still may not happen in this case (inflation may not be persistent for nearly as long), but it does pose a risk in the sense that this may NOT be a great time to buy just one set of stocks that have already performed abnormally well this decade and currently have the highest multiples by significant margin
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freyj6
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Re: What a Great Moment to Invest!

Post by freyj6 »

Nathan Drake wrote: Thu May 12, 2022 10:09 pm
ValuationsMatter wrote: Thu May 12, 2022 8:57 pm
Nathan Drake wrote: Thu May 12, 2022 6:12 pm
z3r0c00l wrote: Thu May 12, 2022 7:20 am SP 500 P/E ratio below 20, there is solace to be had in stock valuations getting back to normal. At least for those of us with 10+ years of work ahead of us.
Shiller PE still 2x historical average at 30

We could have a whole lot more correction ahead of us
I appreciate that someone else made this point. I hope this time it will be allowed it to remain in place.
This graph should give any investor a cautious outlook

https://www.multpl.com/shiller-pe

Importantly, the period of the late 60s before inflation took hold. Inflation, and the consequences of rates that MUST rise and stay elevated, is a SIGNIFICANT risk. Stocks and equities will get revalued aggressively. It seems that there's a little too much comfort that many people have with stocks P/E ratios being meaningfully in the 20s and 30s as "typical".

Shiller CAPE got down to 8 in 1982 after a peak of roughly 25 in 1966.

The longer it takes for inflation to tame, the more this revaluation will deeply entrench itself into equity valuations. And the inflation risk may ultimately be completely outside the ability of the Fed to control. It's a serious risk.
What’s your take on value right now?

On one hand, we are still at 95th percentile spreads and funds like QVAL and AVUV look very cheap right now by most measures. On the other hand it looks like the speculative stuff still has a long way to fall and strangely the cheap stuff just seems to keep falling with it.

In the past I would have salivated at the chance to buy a quality value fund at 6x earnings. I suppose that gun prices always come with a lot of uncertainty though.
Nathan Drake
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Re: What a Great Moment to Invest!

Post by Nathan Drake »

freyj6 wrote: Fri May 13, 2022 12:40 am
Nathan Drake wrote: Thu May 12, 2022 10:09 pm
ValuationsMatter wrote: Thu May 12, 2022 8:57 pm
Nathan Drake wrote: Thu May 12, 2022 6:12 pm
z3r0c00l wrote: Thu May 12, 2022 7:20 am SP 500 P/E ratio below 20, there is solace to be had in stock valuations getting back to normal. At least for those of us with 10+ years of work ahead of us.
Shiller PE still 2x historical average at 30

We could have a whole lot more correction ahead of us
I appreciate that someone else made this point. I hope this time it will be allowed it to remain in place.
This graph should give any investor a cautious outlook

https://www.multpl.com/shiller-pe

Importantly, the period of the late 60s before inflation took hold. Inflation, and the consequences of rates that MUST rise and stay elevated, is a SIGNIFICANT risk. Stocks and equities will get revalued aggressively. It seems that there's a little too much comfort that many people have with stocks P/E ratios being meaningfully in the 20s and 30s as "typical".

Shiller CAPE got down to 8 in 1982 after a peak of roughly 25 in 1966.

The longer it takes for inflation to tame, the more this revaluation will deeply entrench itself into equity valuations. And the inflation risk may ultimately be completely outside the ability of the Fed to control. It's a serious risk.
What’s your take on value right now?

On one hand, we are still at 95th percentile spreads and funds like QVAL and AVUV look very cheap right now by most measures. On the other hand it looks like the speculative stuff still has a long way to fall and strangely the cheap stuff just seems to keep falling with it.

In the past I would have salivated at the chance to buy a quality value fund at 6x earnings. I suppose that gun prices always come with a lot of uncertainty though.
Value looks great in my view, 95th percentile spreads and discounted 25% from historical valuations relative to itself

Recall that value also got hit along the way in the early 00s. Most assets during big market sell offs will be correlated, but the recoveries can be wildly different

But ultimately it recovered quickly and went on a tear while the market was flat.

Value due to the nature of its low multiples does very well in an inflationary environment as investors seek immediate cash flows rather than those projected far out into the future

I agree with this thread that it’s an amazing time to invest - just NOT in those investments that have performed the best over the last 10 years, including popular names like VTSAX…precisely because their valuations still look incredibly high even after this recent selloff
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mrspock
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Re: What a Great Moment to Invest!

Post by mrspock »

Image

Hey can somebody explain to me again how dividend ETFs tank just like broad market ETFs, so there's no point in holding them? :D

Loving my SCHD holdings right now. :moneybag :moneybag :moneybag
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Re: What a Great Moment to Invest!

Post by Apathizer »

Nathan Drake wrote: Fri May 13, 2022 12:49 am
freyj6 wrote: Fri May 13, 2022 12:40 am
Nathan Drake wrote: Thu May 12, 2022 10:09 pm
ValuationsMatter wrote: Thu May 12, 2022 8:57 pm
Nathan Drake wrote: Thu May 12, 2022 6:12 pm

Shiller PE still 2x historical average at 30

We could have a whole lot more correction ahead of us
I appreciate that someone else made this point. I hope this time it will be allowed it to remain in place.
This graph should give any investor a cautious outlook

https://www.multpl.com/shiller-pe

Importantly, the period of the late 60s before inflation took hold. Inflation, and the consequences of rates that MUST rise and stay elevated, is a SIGNIFICANT risk. Stocks and equities will get revalued aggressively. It seems that there's a little too much comfort that many people have with stocks P/E ratios being meaningfully in the 20s and 30s as "typical".

Shiller CAPE got down to 8 in 1982 after a peak of roughly 25 in 1966.

The longer it takes for inflation to tame, the more this revaluation will deeply entrench itself into equity valuations. And the inflation risk may ultimately be completely outside the ability of the Fed to control. It's a serious risk.
What’s your take on value right now?

On one hand, we are still at 95th percentile spreads and funds like QVAL and AVUV look very cheap right now by most measures. On the other hand it looks like the speculative stuff still has a long way to fall and strangely the cheap stuff just seems to keep falling with it.

In the past I would have salivated at the chance to buy a quality value fund at 6x earnings. I suppose that gun prices always come with a lot of uncertainty though.
Value looks great in my view, 95th percentile spreads and discounted 25% from historical valuations relative to itself

Recall that value also got hit along the way in the early 00s. Most assets during big market sell offs will be correlated, but the recoveries can be wildly different

But ultimately it recovered quickly and went on a tear while the market was flat.

Value due to the nature of its low multiples does very well in an inflationary environment as investors seek immediate cash flows rather than those projected far out into the future

I agree with this thread that it’s an amazing time to invest - just NOT in those investments that have performed the best over the last 10 years, including popular names like VTSAX…precisely because their valuations still look incredibly high even after this recent selloff
I agree. So many investors don't seem to consider returns of large growth have been atypically high over the last decade or so, and as you say many stocks still seem expensive whereas ex-US markets seem undervalued.
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Re: What a Great Moment to Invest!

Post by donaldfair71 »

:sharebeer
mrspock wrote: Fri May 13, 2022 1:01 am Image

Hey can somebody explain to me again how dividend ETFs tank just like broad market ETFs, so there's no point in holding them? :D

Loving my SCHD holdings right now. :moneybag :moneybag :moneybag

Dividend funds are value funds in disguise, and behave accordingly.
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Re: What a Great Moment to Invest!

Post by RobLyons »

I agree with OP and I'm investing heavily (for me) now! At age 41, this could be the last time in my lifetime we see VTSAX under $100. Just wish I hadn't purchased that $30k solar system in March, otherwise I'd be better positioned for more buys. :oops:
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Re: What a Great Moment to Invest!

Post by surfinagin »

As of 3/31/22, the top 10 holdings of Total Mkt Index VTI were 25.6% of the index.
As of 5/13/22, VTI is down approx 14% from 3/31.
Of the top 10 holdings: top 4 are down approx 20%. Of the rest: 3 down approx 15%, another by 43%, and one by 6%.

Shrinking the >25% proportion of the top 10 "hot" stocks is a positive from my perspective.
Understand that this isn't important for many investors.
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Re: What a Great Moment to Invest!

Post by carminered2019 »

Yep, this is the best time to dump 100% of my TB and put them in TSM for the next 10+ years.
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Re: What a Great Moment to Invest!

Post by incognito_man »

I'm still in the camp that historically this is still a "bad" time to buy value-wise. If S&P hits 3650, it will be about neutral value I think. Below that, good value.

*note that "bad" still means "good" with a long-enough outlook. I'm in my mid-30s and haven't changed my contribution amounts whatsoever. If it dips below 3650, I'll start to increase my bi-weekly contributions and cut-back elsewhere on my day-to-day spending to take advantage of "good" value.
Samuel Glover
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Re: What a Great Moment to Invest!

Post by Samuel Glover »

anon_investor wrote: Sat May 07, 2022 4:47 pm
Samuel Glover wrote: Sat May 07, 2022 11:22 am I continue on the path of investing for income, so I don't have to rely on the market price of stocks for my retirement. I am well on the way toward retiring in 3-4 years and living off of Social Security, dividends, and bond interest, with room to spare.

John Bogle urged retirees to tilt toward blue chip dividend-paying stocks in retirement. He advised them to rely on dividends, not the speculative market. I agree. Therefore, ups and downs don't upset me too much.

So all that being said, it's always a great time to invest.
What do you invest in?
I tilt a portion of my portfolio toward higher income with Wellesley Income Fund (VWIAX) and Schwab US Dividend Equity ETF (SCHD). The latter is essentially a high dividend-paying proxy for the S&P. It has worked well and helped me sleep at night. I ignore the dividend arguments.
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Re: What a Great Moment to Invest!

Post by 000 »

NoRegret wrote: Wed May 11, 2022 11:56 pm We're not there yet, give it time. Individual investors become forced sellers for two reasons:

1. for accumulators: job loss
2. for decumulators: portfolio value is threatening to go below a value that supports a minimum life style

Let's see how it plays out if we have a really bad bear market. Maybe Fed will come to their rescue, may be not.

I maintain that the Bengen study is a hypothetical: there has not been an actual case where the majority of retirees rely on the stock market to fund their retirement, any time in history, anywhere in the world. Boomers will be the first real case study.
Interesting point. Do you have any thoughts on how this might inform asset allocation or strategy for either of the above cases?
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Re: What a Great Moment to Invest!

Post by randomguy »

Normchad wrote: Fri May 06, 2022 7:59 pm I like your spirit! I did in fact buy today; I had a few bucks sitting in the settlement fund, so I hit some more VTSAX.

Since people have been bemoaning the PE of the S&P, where does it stand today? Is it just like 32 - 15%?

How low does it have to go before we can stop saying future lower returns are a certainty?
Down in the low 20s.😁 Imagine the next 30 years is like 4%real. How bad will the start have to be for the remaining years to return an average 7%? A -50% start goes a long way....
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Re: What a Great Moment to Invest!

Post by freyj6 »

Nathan Drake wrote: Fri May 13, 2022 12:49 am
Value looks great in my view, 95th percentile spreads and discounted 25% from historical valuations relative to itself

Recall that value also got hit along the way in the early 00s. Most assets during big market sell offs will be correlated, but the recoveries can be wildly different

But ultimately it recovered quickly and went on a tear while the market was flat.

Value due to the nature of its low multiples does very well in an inflationary environment as investors seek immediate cash flows rather than those projected far out into the future

I agree with this thread that it’s an amazing time to invest - just NOT in those investments that have performed the best over the last 10 years, including popular names like VTSAX…precisely because their valuations still look incredibly high even after this recent selloff
I tend to agree, although it always gives me caution seeing things that already appear to be cheap drop in tandem with things that are expensive. For example, I hold a lot of VSS due to 401k constraints. It certainly looked cheap compared to TSM or SPY but still dropped a lot more than either during the past 12 months.

I also find the different implementations of value pretty interesting right now. The post-vaccine value rally was strongest in junky funds like RZV (although AVUV did almost as well) and EBIT/TEV-based funds like QVAL have lagged significantly. I'm curious as to whether this gap will close or if it'll turn out more like Cambria's GVAL, which has returned 0% before fees over 8 years.

I own a lot of AVUV and a bit of QVAL. Although AVUV has certainly been the star thus far, QVAL dipped to P/Es in the 5s last week and scores quite well on measures of quality. I'm cautiously optimistic for it :)
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Re: What a Great Moment to Invest!

Post by Nathan Drake »

freyj6 wrote: Wed May 18, 2022 12:29 am
Nathan Drake wrote: Fri May 13, 2022 12:49 am
Value looks great in my view, 95th percentile spreads and discounted 25% from historical valuations relative to itself

Recall that value also got hit along the way in the early 00s. Most assets during big market sell offs will be correlated, but the recoveries can be wildly different

But ultimately it recovered quickly and went on a tear while the market was flat.

Value due to the nature of its low multiples does very well in an inflationary environment as investors seek immediate cash flows rather than those projected far out into the future

I agree with this thread that it’s an amazing time to invest - just NOT in those investments that have performed the best over the last 10 years, including popular names like VTSAX…precisely because their valuations still look incredibly high even after this recent selloff
I tend to agree, although it always gives me caution seeing things that already appear to be cheap drop in tandem with things that are expensive. For example, I hold a lot of VSS due to 401k constraints. It certainly looked cheap compared to TSM or SPY but still dropped a lot more than either during the past 12 months.

I also find the different implementations of value pretty interesting right now. The post-vaccine value rally was strongest in junky funds like RZV (although AVUV did almost as well) and EBIT/TEV-based funds like QVAL have lagged significantly. I'm curious as to whether this gap will close or if it'll turn out more like Cambria's GVAL, which has returned 0% before fees over 8 years.

I own a lot of AVUV and a bit of QVAL. Although AVUV has certainly been the star thus far, QVAL dipped to P/Es in the 5s last week and scores quite well on measures of quality. I'm cautiously optimistic for it :)
I’m personally not a fan of concentrated value strategies, but to each their own
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Re: What a Great Moment to Invest!

Post by nigel_ht »

UpperNwGuy wrote: Fri May 06, 2022 7:36 pm
William Million wrote: Fri May 06, 2022 7:22 pm In sum, the next year could bring the best forward investment climate in a decade or more. War in Ukraine, high inflation, lockdowns in China, COVID weariness, etc have spooked many investors when they should be zealously buying.
What should we be zealously buying? Total Stock index funds? Developed Markets? Emerging Markets? Small Cap Value? Growth funds? Intermediate bond funds? Please elaborate on your enthusiastic post at the top of this thread.
Eh...probably individual stocks (heresy!). But as a poster above noted Verizon PE is low.
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Re: What a Great Moment to Invest!

Post by nigel_ht »

whodidntante wrote: Fri May 06, 2022 10:29 pm I haven't heard anyone say "bonds are for safety" on this forum for a while. It remains to be seen if people learned that just ain't so.
They are, but not in all circumstances. Gold is in the same boat but probably cover fewer scenarios than bonds.

I don't go all permanent portfolio but I don't expect bonds to always work hence gold and real estate also being in the mix.

I bet permanent portfolio is beating the heck out my portfolio...this year...but not over the last 20 years...
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Re: What a Great Moment to Invest!

Post by nigel_ht »

TomatoTomahto wrote: Sun May 08, 2022 11:52 am
willthrill81 wrote: Sat May 07, 2022 11:03 am Correct! I've often said in prior years that accumulators should be begging for times like this.
We are still accumulators, but relative to our existing portfolio new funds aren’t moving the needle much. I’m hoping that we recover before we become decumulators.
Well SORR is a thing...although amusingly a lot of the strategies aren't working great in 2022...except for amusingly dividend shield isn't faring too poorly which was shown to not work in a lot of cases.

Of course no mitigation strategy (other than being excessively rich) works 100% of the time.
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Re: What a Great Moment to Invest!

Post by HomerJ »

Nathan Drake wrote: Fri May 06, 2022 11:21 pm Not really, PE10 was low 10 years ago, and somewhat reasonable even if a tad elevated up until a few years ago
PE10 has not been "low" since 1988, the year it was formulated.

It was around the median in 1991 and 2009, and the rest of the time it's been "high".

It broke back up above 25 in 2015, which is around when you starting warning us about it, and making moves (admittedly, small moves) to your portfolio.

That was 7 years ago (when SP500 was around 2000). A signal that is 7 years too early is a worthless signal.
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Re: What a Great Moment to Invest!

Post by sschullo »

not yet. There are more, deeper, and black swan type "Great Moments" to come! The market may break more records going down OR UP! who knows?
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Re: What a Great Moment to Invest!

Post by Nathan Drake »

HomerJ wrote: Wed May 18, 2022 10:36 am
Nathan Drake wrote: Fri May 06, 2022 11:21 pm Not really, PE10 was low 10 years ago, and somewhat reasonable even if a tad elevated up until a few years ago
PE10 has not been "low" since 1988, the year it was formulated.

It was around the median in 1991 and 2009, and the rest of the time it's been "high".

It broke back up above 25 in 2015, which is around when you starting warning us about it, and making moves (admittedly, small moves) to your portfolio.

That was 7 years ago (when SP500 was around 2000). A signal that is 7 years too early is a worthless signal.
Adjusting for yields it has been a lot cheaper throughout this period
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Re: What a Great Moment to Invest!

Post by HomerJ »

ivgrivchuck wrote: Fri May 06, 2022 11:40 pm
William Million wrote: Fri May 06, 2022 11:12 pm Stocks are very expensive now if you use PE10. My question is, why on earth would any sane person use such a discredited metric as PE10? You could have missed the bull markets of the past 10 years.
There are pros and cons in every metric. Earnings fluctuate a lot year over year, CAPE evens them out. 1/CAPE has been a good predictor of future stock market returns in the past, and while it might be a data mined artifact, I still think there is something in it...
1/CAPE did not exist when Shiller formulated CAPE. Because it does not match the 100 years of old data... CAPE of 20 and 25 in the far past did not give 5% and 4% 10-year returns... More like 2% and 0%.

But in the past 30 years (basically since CAPE was invented), CAPE values have drifted much higher and the past 30 years 10-year returns roughly match 1/CAPE. But that doesn't make it some new law.
I'm not saying that anybody should base their investment decisions on the current CAPE values...
Good, good.
And regarding missing the bull market run, CAPE stayed under 30 until around 2018.
CAPE of 30 was not the cut-off point of "high" in the past. I remember 25 years of people warning us that anything above 20 was "high". And based on the old data they were right. But then we got 25 years of mostly good 10-year returns anyway.

now they've all changed their formulas and they are saying 30+ is "high" now? (which is fine, if that's what the data says now - but one can't pretend that CAPE has worked in the past - the original equation failed to predict, so the equation has been modified - maybe it work going forward now)

Anyway, CAPE is currently at 31... so if 30 is the new cut-off point, then I guess the OP is close to right. CAPE might be back to the (new) good numbers soon.
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Re: What a Great Moment to Invest!

Post by HomerJ »

Nathan Drake wrote: Sat May 07, 2022 12:27 am That’s Shiller, he’s since taken to the CAPE10 fair value which accounts for interest rates
Yes, Shiller himself has said that his original equation failed to predict returns, and so he's added another variable.

So CAPE alone never worked as a predictor. The guy who won the Nobel prize for formulating CAPE has said this.

So let's all stop pretending that CAPE has been a useful real-time predictor in the past.
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Re: What a Great Moment to Invest!

Post by HomerJ »

Nathan Drake wrote: Wed May 18, 2022 10:40 am
HomerJ wrote: Wed May 18, 2022 10:36 am
Nathan Drake wrote: Fri May 06, 2022 11:21 pm Not really, PE10 was low 10 years ago, and somewhat reasonable even if a tad elevated up until a few years ago
PE10 has not been "low" since 1988, the year it was formulated.

It was around the median in 1991 and 2009, and the rest of the time it's been "high".

It broke back up above 25 in 2015, which is around when you starting warning us about it, and making moves (admittedly, small moves) to your portfolio.

That was 7 years ago (when SP500 was around 2000). A signal that is 7 years too early is a worthless signal.
Adjusting for yields it has been a lot cheaper throughout this period
So which is it?
Nathan Drake wrote: Thu May 12, 2022 6:12 pm Shiller PE still 2x historical average at 30

We could have a whole lot more correction ahead of us
If 15 is still the average you base everything off, doesn't one have to be below 15 to be considered "low"?

Or if the equation has changed, then why do you warn 30 is 2x historical average? Is the historical average of 15 important or not?

You sure didn't think CAPE was reasonable in 2014-2015-2016... You posted that CAPE was high back then, and suggested people make (small) portfolio changes based on CAPE.

But now you say CAPE was reasonable back then.. back when it was around 25-26. Very confusing, I'm afraid.

How can you state that 30 is TWICE the average (which seems to indicate it's still super high!), but also say in this same thread that 25-26 was reasonable back in 2014-2016 (which is not what you said at the time)

Which is it? Is 30 still really high? Or is 25-26 reasonable?
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Nathan Drake
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Re: What a Great Moment to Invest!

Post by Nathan Drake »

HomerJ wrote: Wed May 18, 2022 11:06 am
Nathan Drake wrote: Wed May 18, 2022 10:40 am
HomerJ wrote: Wed May 18, 2022 10:36 am
Nathan Drake wrote: Fri May 06, 2022 11:21 pm Not really, PE10 was low 10 years ago, and somewhat reasonable even if a tad elevated up until a few years ago
PE10 has not been "low" since 1988, the year it was formulated.

It was around the median in 1991 and 2009, and the rest of the time it's been "high".

It broke back up above 25 in 2015, which is around when you starting warning us about it, and making moves (admittedly, small moves) to your portfolio.

That was 7 years ago (when SP500 was around 2000). A signal that is 7 years too early is a worthless signal.
Adjusting for yields it has been a lot cheaper throughout this period
So which is it?
Nathan Drake wrote: Thu May 12, 2022 6:12 pm Shiller PE still 2x historical average at 30

We could have a whole lot more correction ahead of us
If 15 is still the average you base everything off, doesn't one have to be below 15 to be considered "low"?

Or if the equation has changed, then why do you warn 30 is 2x historical average? Is the historical average of 15 important or not?

You sure didn't think CAPE was reasonable in 2014-2015-2016... You posted that CAPE was high back then, and suggested people make (small) portfolio changes based on CAPE.

But now you say CAPE was reasonable back then.. back when it was around 25-26. Very confusing, I'm afraid.

How can you state that 30 is TWICE the average (which seems to indicate it's still super high!), but also say in this same thread that 25-26 was reasonable back in 2014-2016 (which is not what you said at the time)

Which is it? Is 30 still really high? Or is 25-26 reasonable?
Fair CAPE was low in the early 2010s

Fair CAPE was moderate slightly high in mid 2010s, and became scorching the past few years

Given this year’s revaluation back down I’d say that reversion is a reasonable expectation when valuations get stretched. Hard to time, but of course “in the short term the market is a voting machine, long-term a weighing machine” generally applies
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