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Re: How Expensive is the S&P, Really
Old 06-06-2005, 03:11 PM   #21
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Re: How Expensive is the S&P, Really

I would welcome a nice drop. *Just adds to my dollars down the road. *In the meantime I am sticking with international flavors and large value with the divi's. *No fear.
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Re: How Expensive is the S&P, Really
Old 06-06-2005, 05:47 PM   #22
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Re: How Expensive is the S&P, Really

IMO markets are overvalued enough, that returns over the next decade or two are likely to be much worse than historical returns.

But I don't know when the underperformance will happen, and I think that stocks will greatly outperform cash and bonds over the next 50 years, so I'm not holding excess cash or bonds. In fact, only 5% short term bonds/ibonds, rest is stocks or commodity futures.

Grantham gives a good arguement about the US market being overvalued: it seems that we are at peak earnings, and the P/E is high compared to historical numbers. E may also be inflated, which was harder to do when so much of E went into dividends, when div rates were much higher in the past.

We can hope he's wrong, and earnings will increase from here at a good rate (bringing the P/E back to a safe territory and/or causing rising stock prices).
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Re: How Expensive is the S&P, Really
Old 06-06-2005, 06:03 PM   #23
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Re: How Expensive is the S&P, Really

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Originally Posted by lazyday
IMO markets are overvalued enough, that returns over the next decade or two are likely to be much worse than historical returns.

But I don't know when the underperformance will happen, and I think that stocks will greatly outperform cash and bonds over the next 50 years, so I'm not holding excess cash or bonds. In fact, only 5% short term bonds/ibonds, rest is stocks or commodity futures.

Grantham gives a good arguement about the US market being overvalued: it seems that we are at peak earnings, and the P/E is high compared to historical numbers. E may also be inflated, which was harder to do when so much of E went into dividends, when div rates were much higher in the past.

We can hope he's wrong, and earnings will increase from here at a good rate (bringing the P/E back to a safe territory and/or causing rising stock prices).
This sounds like a prudent strategy - simple and effective.
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Re: How Expensive is the S&P, Really
Old 06-06-2005, 06:52 PM   #24
 
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Re: How Expensive is the S&P, Really

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The new generation will develop and embrace a music style that will be unmusical and offensive to people who listen to rap today.
Is that why you're taking out your trumpet to practice?

Q. Why did God invent rap music?
A. So that country music fans would have something to look down on.

Enjoy your trumpet playing!
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Re: How Expensive is the S&P, Really
Old 06-06-2005, 07:48 PM   #25
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Re: How Expensive is the S&P, Really

"We have both kinds of music: country AND western.."
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Re: How Expensive is the S&P, Really
Old 06-06-2005, 10:17 PM   #26
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Re: How Expensive is the S&P, Really

Country music is in vogue. The most recent winner of the American Idol is a country singer - Carrie Underwood from Oklahoma.
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Re: How Expensive is the S&P, Really
Old 06-06-2005, 11:07 PM   #27
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Re: How Expensive is the S&P, Really

Bo should have won!
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Re: How Expensive is the S&P, Really
Old 06-06-2005, 11:26 PM   #28
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Re: How Expensive is the S&P, Really

I personally don't see anything wrong with a little tactical asset
allocation tweaking. I was about 60/40 stock to bond at the
end of 2004 and have moved to 40/60. This is not as drastic as
it may seem as I shifted money from iShares Pacific ex Japan and
iShares China 25 to Templeton Global Income, making my international
AA 50% stock to 50% bond.

Cheers,

Charlie
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Re: How Expensive is the S&P, Really
Old 06-07-2005, 12:00 AM   #29
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Re: How Expensive is the S&P, Really

Quote:
Originally Posted by Laurence
Bo should have won!* *
Hey, I watched that record executive smile at him, and I know that Bo is winning no matter who got the prize.

But he's no David Clayton-Thomas...
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Re: How Expensive is the S&P, Really
Old 06-07-2005, 05:55 AM   #30
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Re: How Expensive is the S&P, Really

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Bo should have won!* *
I thought he did. He played pro baseball and football and made a pile of money before his knees went. Bo knows!

JG
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Re: How Expensive is the S&P, Really
Old 06-07-2005, 10:10 AM   #31
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Re: How Expensive is the S&P, Really

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Originally Posted by - SG
All indicators use rearview mirror analysis unless someone's come up with a crystal ball that works recently. The valuation indicators work only to the extent that it is true that "tomorrow will be pretty similar to yesterday." My experience tells me that this statement is not true that often. The past three years is a good example. Doom and gloomers have been pointing to the high valuation levels (as measured by their various rearview mirrors), predicting a massive decline, and encouraging everyone to get out of stocks. Meanwhile, the valuation indicators have been steadily coming down without the catastrophe. If there is a massive decline in the near future, I will not get out in time and will suffer the paper losses. But, on the other hand, I won't have to worry about timing the market right to get back in. I'll be there.

I'm sure there are market timers who will do better than I do. And there will be many who do worse. I can live with that. In fact, I think I can probably live pretty well with that.
Hmm...so for some arguments you favor that historic data is predictable for future returns, at least in approximation. In other arguments, you dont?

FLIP FLOPPER!

The historic returns display a mean return rate and valuation level. We're way above that. That clearly says that if the future is like the past, we have not only a big drop ahead of us to get back to 'the mean', we have many years of levels below the mean in order to compensate for all these past years spent above it.

For those without calculators, we should be at about S&P500 ~800-850 range to be at the mean. We'd have to spend about 5 years at s&p500 ~300-400 to compensate for the time spent above the mean.

I dont have any bias towards arguing one way or the other, that the mean is meaningless or that the future may not be like the past or anything else of that ilk. I just sort of like consistency. Either the machinations of future market movements will be similar to those of the past or they wont.
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Re: How Expensive is the S&P, Really
Old 06-07-2005, 10:33 AM   #32
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Re: How Expensive is the S&P, Really

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Originally Posted by th
The historic returns display a mean return rate and valuation level. We're way above that. That clearly says that if the future is like the past, we have not only a big drop ahead of us to get back to 'the mean', we have many years of levels below the mean in order to compensate for all these past years spent above it.
Borrowing from the dog-on-a-leash analogy in the other thread, who's to say the dog doesn't stay on this side of the man for 5, 10 or 15 years? How long does it behoove you to stay in other asset classes while the mean for this one goes up?

Actually I thought you were playing both sides of the fence by telling OAP that keeping a steady asset allocation beats the market over market timers, yet you've been telling the rest of us (I'm paraphrasing/interpreting here) that we shouldn't be putting money into equities and should shift some out of equities into cash.


Anyway, from my point of view--which is admittedly less experienced and less educated than many others here--I can see that in the past maintaining a set allocation based on long-term strategy can work well. I can see that making moves at the wrong time can cause drops that are difficult to recover from without taking risk. (Staying put can have drops, but historically they are followed by runups; if I'm not changing allocations then I don't have to worry about the timing of those drops and runups.) I have my debt paid off, I have my nest egg started, I have a reliable income stream and I have a workable long term plan. I basically have it made, so I see no need to risk losing a significant portion of my nest egg by moving it around and learning the markets the hard way. I could retire earlier if I made the moves well (or luckily), but I could delay retirement if I made moves poorly (or unluckily).

Back in 2000 when fool.com was my hero and the market was going well I was wanting to start investing in individual stocks. I kept putting it off because I didn't take the time to research the companies' fundamentals, but I knew I wanted to invest in companies like Intel, Cisco and Nortel. Nortel especially...they had new voice-over-IP phones that I knew were going to explode into the market very soon, and they were poised to make a bundle on it. And Cisco was the defacto standard in network equipment...they couldn't go anywhere but up. These were the companies that would benefit no matter which software vendor or big-dollar website had a good year. Thank God the market crashed before I got around to buying in!
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Re: How Expensive is the S&P, Really
Old 06-07-2005, 04:53 PM   #33
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Re: How Expensive is the S&P, Really

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Hmm...so for some arguments you favor that historic data is predictable for future returns, at least in approximation.* In other arguments, you dont?

. . .
No. I'm not sure how you read that into what I've said. I'm not trying to optimize my future returns, I'm trying to avoid large mistakes. The worst case analysis of historical simulation is an attempt to predict the future only in that you are counting on the finanical drives and forces that have shaped the economic history in the past to continue to produce highs and lows. When the economy swings too low, adjustments are made and things improve. When the economy flies too high, rationality returns and things fall. To the extent that these forces are caused by human nature and human created governments, we assume they will continue to happen. By looking at how bad we've let things get in the past before corrections were made, we estimate how bad it could possibly get in the future. We aren't predicting the future. We're bracing for the worst that's ever happened. (And in my case, for something even worse. I'm at about a 2.5% withdrawal rate.)

I don't really think things will get that bad. But I prepare for it. If things are better than the worst case, I'll increase my lifestyle in a few years. I don't know if stocks will rise or fall over any given time period in the future. I don't know if inflation will rise or fall over any given time period in the future. In fact, I believe that even if capitalism were like some deterministic physics experiment, predictions would be thwarted constantly by non-capitalistic interference from governments. That interference can turn a normally inflationary time into a deflationary time. It can cause a stock market destined to rise to colapse . . .

Every series has a mean and that mean will change with every data point you add to it. The fact that the mean keeps changing is a fact that many seem to miss. Noisy series' will move above and below the mean. This isn't a causal and predictive relationship, it's simply an observation. Sometimes the noise is additive. Sometimes it is subtractive. I don't try to predict when it will flip, only prepare for the continual flipping.

Ususally, the dog goes back and forth, left and right. I could try to predict those movements and try to switch hands I'm holding the leash with in advance, but I'm likely to be wrong a lot. When I'm wrong I could be pulled off balance or have the leash tugged free from my hand. But sometimes the dog walks almost all the way to the park with the leash stretched in one direction from it's owner. I don't count on that happening, or take action based on that possibility, but I'm prepared for it.

Maybe the difference between the two uses of historical data is subtle. Or maybe you don't see a difference at all. But I feel very comfortable with my understanding of the distinction. I think that if I'm so wrong that I run out of money, then we are all going to have serious problems. But I think that betting on a specific future could cause me to have serious problems while the economy, in gernal, fairs okay
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Re: How Expensive is the S&P, Really
Old 06-07-2005, 05:00 PM   #34
 
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Re: How Expensive is the S&P, Really

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I think that if I'm so wrong that I run out of money, then we are all going to have serious problems.* But I think that betting on a specific future could cause me to have serious problems while the economy, in gernal, fairs okay*
Very well said!* - The biggest impediment to investing is your Ego or your Emotions.
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Re: How Expensive is the S&P, Really
Old 06-07-2005, 05:06 PM   #35
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Re: How Expensive is the S&P, Really

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Borrowing from the dog-on-a-leash analogy in the other thread, who's to say the dog doesn't stay on this side of the man for 5, 10 or 15 years? How long does it behoove you to stay in other asset classes while the mean for this one goes up?
The numbers seem to indicate that over the longer time periods the dog doesnt prevail, the man walking it does. Clearly these people have never met my dogs. However the markets 'drunkenness' over the last 10 years has a hangover waiting for it. Might be a while though, but not 10-15 years methinks.

Quote:
Actually I thought you were playing both sides of the fence by telling OAP that keeping a steady asset allocation beats the market over market timers, yet you've been telling the rest of us (I'm paraphrasing/interpreting here) that we shouldn't be putting money into equities and should shift some out of equities into cash.
Both are true. One can buy a basic balanced fund and over the long haul do well, and almost certainly better than an active trading financial planner or one that slaps you into high fee funds that thrash trade. I gave several examples of balanced funds, some active managed value based bond heavy and some index/equity heavy. I didnt say which one I'd pick (WELLESLEY!) What the hell was that? Anyhow, theres also sane thinking and whatever the hell it is that I do.

Quote:
Anyway, from my point of view--which is admittedly less experienced and less educated than many others here--I can see that in the past maintaining a set allocation based on long-term strategy can work well. I can see that making moves at the wrong time can cause drops that are difficult to recover from without taking risk.
I think there are two, maybe three times in an investors investing life where a very macroscopic decision to get in or get out can make a world of difference. I'm not talking about times like now when we may or may not be a little expensive or one asset class or another is out of whack. I'm talking about nasdaq 5000, which come on, was a little insane, or the market right after 9/11 when all the 'pros' said to stick it to the terrorists and stay fully invested and then sold in droves the minute the stock market opened. In the latter case, you'd have to believe that we were about to fall down and not get up again, or that our position in the world would be forever changed for the worse with no reasonable recovery in the near to intermediate term. I sold at nasdaq 5000 and bought a week or so after the 9/11 dump. The difference between where I am now and where I'd be if I had 'stayed the course' and remained fully invested throughout is ridiculously large.
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Re: How Expensive is the S&P, Really
Old 06-07-2005, 05:08 PM   #36
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Re: How Expensive is the S&P, Really

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No. I'm not sure how you read that into what I've said.
I'm messing with you buddy...lighten up

FLIP FLOPPER!!!
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Re: How Expensive is the S&P, Really
Old 06-07-2005, 05:10 PM   #37
 
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I sold at nasdaq 5000 and bought a week or so after the 9/11 dump. The difference between where I am now and where I'd be if I had 'stayed the course' and remained fully invested throughout is ridiculously large.
TH,

I think all you've proved here is that you are smarter than everyone else in the investing world. Why don't you just short the market and rub our noses in it!
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Re: How Expensive is the S&P, Really
Old 06-07-2005, 05:22 PM   #38
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Re: How Expensive is the S&P, Really

No smartness at all about it. It was 111000% gut. Nasdaq 4000 looked incredibly dumb to me. I wanted to get out then. But I waited until after the first of the year to delay the capital gains another tax year. Imagine how I felt about nasdaq 5000.

The buy-in after 9/11 was just as gut based. I believe in this country and our economy, and our resilience to bounce back.

This is not one of those macroscopic times. I dont know whats going to happen. I cant guess. I can say that I'm having some considerable trepidation about what broad based equities will do over the next few years, especially considering the economic house of cards we're teetering on.

So I'm staying with the cheap stuff, keeping a lot of cash, and will wait and see what my gut tells me.

One thing you arent C-T...you're not a FLIP FLOPPER!

(can anyone tell that I'm desperately sleep deprived)
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Re: How Expensive is the S&P, Really
Old 06-07-2005, 05:43 PM   #39
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Re: How Expensive is the S&P, Really

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Originally Posted by Cut-Throat
Why don't you just short the market and rub our noses in it!
It's called "short & distort".* Many "professional" investors have probably already done the first part, now they just have to talk the rest of us clueless individuals into stampeding for the exits!

(Edited after a data search.) I'm with you, TH. We've let our cash position nearly double, from 2% all the way up to 3.5%.
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Re: How Expensive is the S&P, Really
Old 06-07-2005, 05:50 PM   #40
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Re: How Expensive is the S&P, Really

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Nasdaq 4000 looked incredibly dumb to me. I wanted to get out then. But I waited until after the first of the year to delay the capital gains another tax year. Imagine how I felt about nasdaq 5000.
I thought it was ridiculous to see most of the Nasdaq 100 stocks had an average P/E of over 300!
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