Bubbles all over the place

[haha]

When I read these market discussions, I am always struck by how perfectionistic many investors sound. For example, who is to say that the late 1999 level of Shiller's PE is meaningful, as anything other than a known past high.

A pretty good market timer, Jeremy Grantham, believes that there is little crash risk at present. His reasoning is essentially that there always will be mass stupidity, and that we can count on investors to get really, really stupid before a big move like the one from 2009 to present will end. He is very experienced, and has been quite effective over the years. Still, I prefer not to walk on a slippery mountain slope when it is not necessary. Just because people have walked here at other slippery times and not fallen does not quite cut it for me. Anyone who thinks that a reliable fence can be put around what can happen in markets is not quite home. Over many years, I have found a modestly misanthropic view of human rationality to be an aid to investing. The argument that "there is no other game in town" is specious. My guess is that 5 years of the delta between a very conservative, low duration fund and what an equity first strategy might return over this same 5 years could easily be lost in 6 months of bad luck in the equities.

I strongly prefer making the possible mistake of missing further overvaluation in an already quite overvalued market to getting my ass handed to me if that overvalued market should return to reason. The first error can seriously hurt me. The second can at worst make me miss some of the truffles and Dom Perignon that has recently achieved popularity among certain segments of our membership. I'd rather have $10 vodka and pickled pig's feet anyway, and this I could even buy with my SS payments

Ha

 

[Lsbcal]

When I read these market discussions, I am always struck by how perfectionistic many investors sound. For example, who is to say that the late 1999 level of Shiller's PE is meaningful, as anything other than a known past high.

A pretty good market timer, Jeremy Grantham, believes that there is little crash risk at present. His reasoning is essentially that there always will be mass stupidity, and that we can count on investors to get really, really stupid before a big move like the one from 2009 to present will end. ...

Well I tend to like numbers and data and if that sounds perfectionistic so be it.

You probably did not mean it to sound this way but "mass stupidity" is kind of demeaning to whoever is included in that statement.

We investors will differ in these markets and that is what sets prices. I think a gentlemanly respect is the best tack in these forums. I like to hear your opinions and others Ha.

It is a good idea to compare ideas, especially contrary ones. I also like to keep out of negativity which can pervade these discussions. And yes, I have been wrong at times and am (grudgingly) happy to admit it.

 

[RobbieB]

I just ordered up 4 ounces of fresh summer truffles. Cheap too, only $120.

Have fun!

 

[audreyh1]

At last, someone thinks like me! But then I've always been a practitioner of rubber math.

A bad habit of mine too. I always instinctively felt like our early 2005 RV purchase was free, LOL!

 

[audreyh1]

When a bubble's risk gets too high the standard approach is to hedge. For example, if you deem Treasuries too pricey you can short them via something like TBT. It's another way to diversify. One assets class that IMO is less bubbly is real estate.

Shorting overvalued markets is a risky strategy unless you have very deep pockets.

 

[Al18]

Lsbcal,
That's interesting P/E data from Vanguard. If they have posted mean P/E ratios as opposed to average P/E ratios, I would like to see that also. I think the mean values would be much smaller, as there's a few big name stocks with P/E ratios that are thru the roof - like Netflix, Amazon, etc.

 

[Dawg52]

I've yet to find Dom Perignon at my local Walmart. I guess I will have to stick with Bud Light. Oh well............

 

[cooch96]

The way I see it, folks are chasing yield because investment grade bonds aren't providing it. Once inflation creeps in (or shoots up), the fed should start to raise rates. Then folks will feel better about leaving cash in treasuries. That will provide impetus for bonds to increase rates. Once people can invest in bonds and get a decent return, yield alternatives will get dumped.

Is that theory sound? Seems like a market timer can wait until at least e fed raises rates closer to a historical norm, like 4-8%. Or maybe even something not ridiculous, like 2%.

 

[Lsbcal]

Lsbcal,
That's interesting P/E data from Vanguard. If they have posted mean P/E ratios as opposed to average P/E ratios, I would like to see that also. I think the mean values would be much smaller, as there's a few big name stocks with P/E ratios that are thru the roof - like Netflix, Amazon, etc.

All I have done is to copy the VG web page data. The VTV page is posted here: https://personal.vanguard.com/us/funds/snapshot?FundId=0966&FundIntExt=INT#tab=2

Here is the comparable page from May 2011:

Amazon and such would be in the LG category i.e. the page for VUG (VIGRX as a fund). I don't have that from 2011 but the top 10 holding now can be found on that VUG page here: http://www.early-retirement.org/forums/newreply.php?do=newreply&p=1766675

I notice that some articles have mentioned your concern about the popularity of these large cap growth stocks (Apple, Alphabet, Amazon, Facebook) and interestingly the PE for VUG has gone up the most since 2011 i.e. about 40%.

 

[Hamlet]

The market is fully valued now, with the high P/E maybe justified by the low interest rate and inflation.

The chance of it going up a bit is about the same as for it going down a little.

However, the chance of it going down a lot is higher than for it to go up a lot. What wonderful things can happen for stocks to go up a lot? Interest rate to go even lower, to negative? Corporate earnings to go through the roof? In contrast, all kinds of bad things can happen for it to go down a lot (and you do not even need an asteroid strike).

So, my perception of the risk level causes me to cut back my stock AA to 50%, while I traditionally ran 70% to 80%.

And I will continue to enhance my yield by writing covered calls on the stocks that I hold, and alternating that with writing cash-secured puts on my cash, as I see fit.

This is the way I see it as well. I don't think we are in bubble territory so much as at the very top of what you could rationally value the market at.

 

[Ed_The_Gypsy]

...I have only one horse in this race, and I am on him.

Ha

I am anxious for the same reasons, ha. As you know, I hurt myself in O&G.

As it happens, I have a fair cash position for the moment for conversion to Roths, but what to do next? My remaining equities are mostly in SCV.

Basically awaiting developments.

I dunno about a 1,200 year event, but this does seem to be uncharted territory though. Everything seems to have the same high valuation. If it is a bubble, it is a big one.

Cheers,
Ed


Sent from my SM-G900V using Early Retirement Forum mobile app

 

[nash031]

I'm not sure the word "bubble" is appropriate. General temperament is far more cautious in most areas than it was in 2000 or 2008. What may be more appropriate is "due". Due for a true Bear (20%+) in equities.

As an accumulator, I say, "One can only hope!"

I recently cashed out a little bit in my Roth to hold for buying opportunities, and stopped the automatic VTSAX investment in same account. So in a small way, I'm betting on being close to the top in that one account. The reality is I'm just trying to build a little bit of capital to work on some individual value stock investing. (It is NOT currently a good time to start that strategy!)

 

[RISP]

Yeah, I bought my first Berkshire class B share during that bubble, and it was priced at an extremely attractive valuation. Likewise with a bunch of "old economy" stuff like Allstate, REITs, Target, etc. It was a crazy market, but there were plenty of cheap stocks available.

These days, nothing I follow appears to be cheap.

Maybe not in the US, but there are still markets, even developed ones, that are closer to their average historical valuation: Global Stock Market Valuation Ratios (Shiller PE, CAPE, PB...)

Personally, I am heavily invested in the Eurostoxx600 and MSCI Emerging Markets indices, in addition to the MSCI World. But that's just my normal asset allocation and not due to the current market situation. And I will readily admit that my asset allocation has underperformed in recent years.

 

[ESRwannabe]

So, I re-arranged my portfolio a few months ago. I used to be essentially all in on cyclicals (MLPs specifically) thinking oil would "normalize", but after three years of being wrong I threw in the towel for a relatively small loss.

So I have tried to diversify things a bit even though I am still 80% or more stocks. I am using equity CEFs broken up into roughly three categories: (1) standard equity CEFs that use leverage and are roughly 80/20 AA. (2) conservative equity CEFs that are roughly 50/50 qualified common/preferred stocks, also using leverage, and purposely keep a positive UNII to grow distribution yearly, and lastly (3) covered call equity CEFs that do not use any leverage.

All CEFs are tax-managed, paying primarily qualified divs, long term capital gains, or ROC (primarily the covered call CEFs). I'm also roughly 50/50 for US focused vs global focused equity CEFs.

I do plan to add MLPs back in at some point, along with muni CEFs. Possibly I will even add non-tax advantaged stuff like equity/mortgage REITs, BDCs, and high yield, but I'm leaning towards keeping it 100% tax efficient for now. This is in a taxable brokerage account. 401k and Roth IRA are in vanguard target retirement income fund and vanguard managed payout fund respectively.

I don't know if there is a bubble or not, but I plan to stay fully invested and just roll with whatever happens. I've decided to keep working full time at least another five years (age 45). I'll have 20 years in gov pension by then. Worst case scenario I have to stick around 10 more years after that and retire at 55 on the pension.

Its possible ER from savings/investing will not be possible for me, which will mean I chose wisely when I decided to get a gov job 15 years ago, but chose poorly to save money instead of spending it while younger.