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Are Stocks Too High? Or Not? Or Who Knows?
Old 08-18-2014, 01:28 AM   #1
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Are Stocks Too High? Or Not? Or Who Knows?

There's been a lot written recently about the dizzying heights of the market

Robert Shiller wrote this over the weekend in the NYT, which seemed unsettling.

I read an excellent response today, here

The bottom line, as usual, "... it would be very rash for anybody who is not certain that they can wait out the market to invest more than they can afford to lose. And past performance is not only not a guarantee it may not be an indicator of future results."

So keep enough liquid and cash-like that you can wait out bumps and crashes; don't get stampeded into selling into a bottom but hang on as long as you can; stay diversified; stay calm and disciplined.
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Old 08-18-2014, 02:18 AM   #2
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One more from the NYT today about "when", cough, to invest if you have money to put in. The answer today is put it in when you have it, as long as your portfolio is well diversified and you can wait before needing the money.
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Old 08-18-2014, 10:16 AM   #3
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i can't imagine being all in (equities) or all out....ever. It's all about balance and your risk tolerance. We could have a correction tomorrow (about due?) or we could keep climbing to 18,000 DOW. But the economy is growing albeit slowly.
I keep at least a year of cash and another in near cash, just in case
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Old 08-18-2014, 10:22 AM   #4
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Quote:
Originally Posted by Dd852 View Post
There's been a lot written recently about the dizzying heights of the market

Robert Shiller wrote this over the weekend in the NYT, which seemed unsettling.

I read an excellent response today, here

The bottom line, as usual, "... it would be very rash for anybody who is not certain that they can wait out the market to invest more than they can afford to lose. And past performance is not only not a guarantee it may not be an indicator of future results."

So keep enough liquid and cash-like that you can wait out bumps and crashes; don't get stampeded into selling into a bottom but hang on as long as you can; stay diversified; stay calm and disciplined.
Sounds like good advice to me.
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Old 08-18-2014, 12:02 PM   #5
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Thanks for posting the link to the Shiller article.

There was one bad market decline that occurred under similar benign interest rate conditions as now. That decline basically started in May 1962 (Kennedy years). The PE10 got up to similar 21.5 back then but was actually higher based on ranking back to 1920 (95% rank versus today's 90%). That decline was short and sharp, about 5 month. It was not accompanied by a recession.
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Old 08-18-2014, 07:52 PM   #6
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The answer is "who knows?"
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Old 08-18-2014, 09:44 PM   #7
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The answer is "who knows?"
The Shadow knows...
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Old 08-18-2014, 11:20 PM   #8
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Noone knows.

But if you're nice maybe he'll slip you some tips...
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Old 08-19-2014, 02:00 AM   #9
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Would the market have crashed in 2008 if not for Lehman, Bear Stearns, etc.?

Or did the market run up because of MBS, the housing bubble, but not the earnings of companies outside the housing sector and finance?

In the current market, housing prices have spiked up but apparently the banking sector is nowhere near as high as back then?
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Old 08-19-2014, 07:19 AM   #10
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If you can live, long term, off of stock dividends and bond interest, why worry?
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Old 08-19-2014, 07:22 AM   #11
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Looking at market indexes alone doesn't seem useful. "Dizzying heights?" Indexes can't provide positive long term returns unless they continue to reach new record highs (and inevitably retrench periodically) over and over, otherwise why would anyone invest in equities?

S&P 500 P/E thru yesterday...same AA here, still sleeping at night. Having 1-3 years worth in cash equivalents is a permanent part of our plan.
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Old 08-19-2014, 07:27 AM   #12
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Cullen Roche at Pragmatic Capitalism write this
Quote:
am going to be blunt – I have no idea if any of this is true. I don’t know what the “value” of stocks are today. And I don’t think anyone else really does. And I think trying to put a value on them through these sorts of metrics is just a big waste of time that leads some people to believe they’ve been able to pinpoint the “value” of stocks at present when the reality is that they’ve simply tried to calculate, with precision, something that is very imprecise (human perception). Therefore, if “value” is just another dynamic and evolving concept based largely on human perception then calculating it at any given time is likely to mislead you more than it’s likely to help you.
More Thoughts on the CAPE and Valulations | PRAGMATIC CAPITALISM
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Old 08-20-2014, 11:03 AM   #13
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My portfolio hit an all-time high in early July, then dropped about 2% in early August and yesterday hit a new all-time high.

So who knows, when it was peaking around the end of June, early July, there were many bullish prognostications on CNBC.

Then earlier this month, there wasn't much bullish talk.

Last week it was down or so, then may have had a good day on Friday and Schiller issues this warning over the weekend and the markets have been mostly up this week.

One year the major indices are up 20% or more. So you would think it can't continue to appreciate at this rate, with GDP only so-so and Europe really slogging along, Asia also so-so.
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Old 08-20-2014, 11:56 AM   #14
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Quote:
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Cullen Roche at Pragmatic Capitalism write this
More Thoughts on the CAPE and Valulations | PRAGMATIC CAPITALISM
This is pretty much the exact opposite of Benjamin Graham and other value investors pov. Graham famously said that in the short term, the market is a voting mechanism. In the long term, a weighing mechanism.

Until the last 25 years, the period of investment populism, few people thought that stocks were worth whatever the crowd thought. (What Cullen Roche seems to be calling human perception.) Back then this was commonly professed by those whose well being came from enticing the public to buy stocks and mutual funds come Hell or high water. Now, this seems to be the default view, at least it seems to be so on this board.

We'll see who is right, in the fullness of time.

Ha
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Old 08-20-2014, 12:43 PM   #15
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The next 12 month's returns have zero correlation with the previous 12 month's returns:

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Old 08-20-2014, 12:45 PM   #16
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The next 12 month's returns have zero correlation with the previous 12 month's returns:

Has someone asserted otherwise?

ha
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Old 08-20-2014, 12:59 PM   #17
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Another plot, next 12 month return versus PE10 rank for each month (since 1920). Current PE10 rank for July 2014 about 90%.


.
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Old 08-20-2014, 01:00 PM   #18
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Has someone asserted otherwise?

ha
I guess not but it helps to be reminded of this stuff.
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Old 08-20-2014, 01:08 PM   #19
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Another plot, next 12 month return versus PE10 rank for each month (since 1920). Current PE10 rank for July 2014 about 90%.
.
I don't get that chart. I thought PE10 usually was less than 30 or so, but that chart has most of the dots higher than 30.
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Are Stocks Too High? Or Not? Or Who Knows?
Old 08-20-2014, 01:33 PM   #20
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Are Stocks Too High? Or Not? Or Who Knows?

Here's the right answer. Because the future is unknown, prices are simultaneously too high and too low, depending on the future outcome. Schrodenger's cat paradox applies, therefore the current stock prices exist as a duality that cannot be defined until a result is available to inspect in hindsight.

Wow. Nerdy, but i think socrates would back me up.



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