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2004 Declared Null and Void
Old 01-21-2005, 03:24 PM   #1
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2004 Declared Null and Void

This weeks Dow close wiped out the entire gain of 2004.

My guess is that this is not a dip one wants to be buying. An overvalued market can stay overvalued for a very long time. But since the dividend yield is low, there isn't much to keep it up other than investor hopes for more price gain. If progress stalls, timber!!!

Maybe the recent improvement in short term yields is causing some holders to consider selling?

Certainly has that effect on this wooly bear

Mikey
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Re: 2004 Declared Null and Void
Old 01-21-2005, 03:32 PM   #2
 
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Re: 2004 Declared Null and Void

mikey,

I see the potential for a long sideways movement for stocks. Like the 1966-1982 period.

But even though stocks 'went nowhere', they kept up with inflation, which was huge in the 70's.

When you have big moves in the stock market, we all know what to do. When the market moves sideways, it gets tougher.

Inertia has always been my friend

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Re: 2004 Declared Null and Void
Old 01-21-2005, 03:43 PM   #3
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Re: 2004 Declared Null and Void

Quote:
2004 Declared Null and Void
I thought this was a post-inauguration election headline!
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Re: 2004 Declared Null and Void
Old 01-21-2005, 04:38 PM   #4
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Re: 2004 Declared Null and Void

I don't plan on changing my allocation or contributions, but for the sake of discussion where would someone 15 years or more from early retirement put his or her retirement contributions in anticipation of a bear market or long stagnation, and when should he/she reallocate?
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Re: 2004 Declared Null and Void
Old 01-21-2005, 06:32 PM   #5
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Re: 2004 Declared Null and Void

For the sake of discussion only:

Buy Vanguard Wellesley and begin shifting into Wellington when the DOW yield passes north of 4%.

While you're waiting get a copy of Ben Graham's 'The Intelligent Investor' - the latest one edited by Jason Zweig.

My major action of course - is to do nothing - I'm already in retirement.
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Re: 2004 Declared Null and Void
Old 01-21-2005, 07:28 PM   #6
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Re: 2004 Declared Null and Void

Quote:
mikey,

I see the potential for a long sideways movement for stocks. Like the 1966-1982 period.

But even though stocks 'went nowhere', they kept up with inflation, which was huge in the 70's.
Cut-Throat, you sure might be right about what we might expect going forward.

As to the inflation adjusted performance of stocks from 1966 to 1982, that is a matter of history, but not easy to find unbiased data. I looked at Shiller's PPI adjusted S&P 500, from 1966 onward. (This is with no re-investment, just the index value, adjusted for PPI inflation. The figures are as of Jan 1 of the given year.

In 1966 the value was 532. It bottomed out at 225 in 1982, and did not best the 1966 value of 532 until 1991. At Jan 1, 1992 it was 546. These values are adjusted to the 2003 dollar.

Of course, there were dividends too. As best I can tell, the S&P 500 was yielding about 2.8 % on Jan 1, 1966. Gross dividends approximately tripled during the period from 1966 to 1992. So, if one were able to live on the dividend yield going in, and had no cause to sell stocks in the interim, by 1992 he would still be able to live on his dividends, as they would have increased in line with inflation. Also his principle would finally be back to its starting level in real terms.

Not too bad a result I guess. One could compare it to continually rolling 3 year bonds or something. I don't know which would have given the better result.

It appears though that the investor might have been in real trouble if he had to sell for emergencies, or if he lost hope.

I feel sure that it will be hard to hold if we get into either a protracted bear market or a long grinding erosion to inflation. The media will change their tune about stock investing. Our friends will change their outlooks. Possibly even our own spouses might have questions about what course to follow. Something will be in a bull market, so we will be able to watch other investors get fat in whatever asset class is climbing. Everyone will be talking up whatever that thing is. Maybe by then the US trade situation will look even worse than today. Many people may begin to feel that we cannot any longer hope to compete with Asia. There may be talk of tariffs.

None of these things has to happen. But some will, or at least appear to. If the stock market is going down, there will be plenty of plausible reasons why it should continue, whether or not the reasons have anything to do with causality.

If the stock market moves randomly, there may never be a reason to sell. If on the other hand it is mean reverting, I would rather take to the sidelines at times of apparent overvaluation than to test my nerve with the Chinese water torture later on.


Nords said:
Quote:
I thought this was a post-inauguration election headline!
Many of us wish it were!

Mikey




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