My response was simply to the assertion that we are not in a bubble. Obviously there is no strict definition of bubble so I guess one can make whatever assertion they wish. At least with Grantham he has proposed a fairly clear definition of bubble, and from what I can tell there is some intellectual rigor behind it.Elysium wrote: ↑Sun Feb 06, 2022 10:56 am All that said, let's just say there is a bubble, and it means prices will come down, but how much? no one knows, and in what asset classes? no knows that either. Then the most important questions, for how long? and what is the recovery like? again, no one knows. So, a bubble and it's bursting itself are not events to be concerned too much about for long term investors, it's impact on someone who has been investing for 20-30-40 years, and on someone who is starting out, or someone who is 10-15 years into investing, all are different.
Everyone needs to evaluate their plans and always assume stock market can go down -10% correction almost any random year, a -20% bear market is to be expected almost every other 3 to 5 years, and a -30%, -40% should be expected at any random year every once in a decade or so. Finally, one should always be prepared for a great depression like drop with a long recovery period, or the Japanese stock market drawdown. This is the benchmark for risk according to me, and I invest my capital based on that knowledge, not some random risk assessment questionnaire posted by investment companies asking if stocks drop by X% what would you do, on and on. The risk everyone should be prepared is that stocks drop 80% or more in value and stay down for a long time, even longer than you needing the money.
That is why we invest, because there is that risk there is expected reward. If we can easily spot the bubble like Grantham thinks he can, and get in an out, avoid large losses, and make more gains than those others, then there won't be a risk premium. It would be so easy, we just follow a guru like Grantham and get in and out according to his fair value calculation. There is a reason why his formula based investing is yielding much much less than staying fully invested portfolio. It's called reward for taking the risk. Grantham and his formula based investing is not willing to take the risk, so they get less reward. In fact, they want to take risk only when the reward looks so attractive, such as in March 2009, but we don't get that sort of opportunity every time. They themselves have been waiting out since 2012, we can wait out since the risk is not acceptable to us, or we can accept the risk and get the reward.
Not taking risks may be fine with him and others who value preserving capital more than growing it, but that doesn't make it a good plan for the others, we have a goal to get to and for that invest we must. Sometimes you get there, sometimes you don't and we must make adjustments.
Also I was arguing against the assertion that the US is nothing like Japan late 80s. I hear this over and over again. I find that to be a dismissive point of view. If you look there are some similarities and there are differences. But the point about it’s different because Japan peaked at a much higher PE than now is not a reason to point blank dismiss the comparison. Back it up a couple of years and the PEs start to get more comparable and you are still faced with decades of future near zero returns.
To your latter points and post, identifying a bubble, and coming up with a strategy to exploit it are two different things, and Grantham's generally middling results are evidence of that. It’s the reason why I only use his musings to inform myself, not as a primary driver of strategy. The most useful purpose he serves for me is an indicator of the potential risk, and am I Ok with the result if what he says is true.
Also it’s easy for people to just say to stay the course when we’ve been in a 40 year cycle of falling interest rates and generally rising stock market. While we have had crashes they have generally recovered in a few years. Very few here have experienced a protracted downward or flat market. Only when you are in the middle of such a situation do you know how you will feel and what you may do.