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Re: How Expensive is the S&P, Really
Old 06-07-2005, 08:35 PM   #41
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Re: How Expensive is the S&P, Really

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Originally Posted by Nords
I'm with you, TH. We've let our cash position nearly double, from 2% all the way up to 3.5%.
Positively fuddy duddy fogey of you!
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Re: How Expensive is the S&P, Really
Old 06-07-2005, 11:45 PM   #42
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Re: How Expensive is the S&P, Really

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Originally Posted by th
I'm messing with you buddy...lighten up

FLIP FLOPPER!!!
Well you can't blame me for not understanding. It's so out of character for you to be less than serious on the boards.

I'm wiggling my butt with a fishcake on my head and blowing milk out my nose right now.
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Old 06-08-2005, 05:14 PM   #43
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How Expensive is the S&P, Really
In his May 2005 letter, "Canary in the Coalmine", Jeremy Grantham says that it is quite expensive indeed. He has studied 28 bubbles, as defined by an aggregate valuation in some market or other getting at least 2 SDs above trend. He says that so far (save the S&P 500) there is no example where the market did not get back to trend or below. He says that is approx. 750 on the S&P 500.

Note to BMJ- whatever people say, it is what they do that counts. Mutual fund cash is at very low levels, which suggests that at least some "bearishness" is protective coloration. If the market goes down, these guys can all say, "See, we knew it would happen."

I don't want to get re-involved in this debate because I suspect it is as much a personality matter as anything else. For me, there is a big difference between losing say $400,000 if the market makes a moderate drop, to perhaps gaining $400,000 if it goes up an equal amount.

Theoretically this idea applies no matter where the S&P or other investment target is, but I just don't think so in reality.

M
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Re: How Expensive is the S&P, Really
Old 06-08-2005, 05:17 PM   #44
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Re: How Expensive is the S&P, Really

HaHa, could you expound on your last paragraphs there, I'm not following.
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Re: How Expensive is the S&P, Really
Old 06-08-2005, 05:27 PM   #45
 
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Re: How Expensive is the S&P, Really

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For me, there is a big difference between losing say $400,000 if the market makes a moderate drop, to perhaps gaining $400,000 if it goes up an equal amount.
If you've got $4 Million in invested assets this is no big deal - it's only 10%. I can live with that!* *

However if you've only got one million, hopefully you are diversified enough to avoid 40% swings (unless you're under 30)! - Also to lose about 40% in the market, the Dow would have to drop about 4,000 points and you'd have to be 100% invested in stocks!

I think I'm gonna wait until San Francisco Real Estate drops about 40%! - I could be a absent landlord!

Just sticking to the basics!
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Re: How Expensive is the S&P, Really
Old 06-08-2005, 06:04 PM   #46
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Re: How Expensive is the S&P, Really

Laurence, I am not sure what you wanted me to expand on, so if this misses it just ask a question?

Quote:
Originally Posted by Cut-Throat
If you've got $4 Million in invested assets this is no big deal - it's only 10%. I can live with that!* *
I am bearish, so I don't have enough riding on S&P to do significant damage. But if Grantham is right, and someone has $1,000,000 in US equity, just a return to trend would leave him/her with only $628,000 from that equity position. So that is very near to a $400,000 loss, and not in any way insigificant.

But typically burst bubbles have not stopped at trend; they have gone below trend. I believe many people that post or read here have the sort of net worth that even a 60% equity position might easily expose them to a $400,000 or more loss on their equity positions.

Not attractive to Ol' Mikey.
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Re: How Expensive is the S&P, Really
Old 06-08-2005, 06:39 PM   #47
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Re: How Expensive is the S&P, Really

In the words of the late J. P. Morgan when asked about the market - 'it will fluctuate.'

Meanwhile back at the ranch - as long as the computers at Vanguard don't break down - 75% balanced index - let the Norwegian widow collect the dividends and soldier on. The other 25% - 10% REIT Index and individual stocks - is putz money.

Mr Markets fluctuation is not 'real money' - until you sell and the IRS comes calling.

I went through a modest 18 year or so flat from 1966 - 1982 with a few swings up and down inbetween. The recent 2000-2003 move was a knit. A 10- 20 year flat going forward would a livable pain in the butt for me - AND a golden accumulation opportunity for someone 20 yrs from ER.
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Re: How Expensive is the S&P, Really
Old 06-08-2005, 06:48 PM   #48
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Re: How Expensive is the S&P, Really

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Originally Posted by unclemick2
Mr Markets fluctuation is not 'real money' - until you sell and the IRS comes calling.
I traded commodities just enough to disabuse me of that idea. Money is money. Granted you have to be able to withstand adversity to be in place for gain, but I don't want a fair shake, I want an F-Me, can this be possible? kind of shake.

M

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Re: How Expensive is the S&P, Really
Old 06-08-2005, 07:01 PM   #49
 
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Re: How Expensive is the S&P, Really

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I am bearish, so I don't have enough riding on S&P to do significant damage.
Are you bearish enough to short the market? - Hey, I know I can't predict where it's going! - But how confident are you of your predictions?
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Re: How Expensive is the S&P, Really
Old 06-08-2005, 08:12 PM   #50
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Re: How Expensive is the S&P, Really

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Originally Posted by Cut-Throat
Are you bearish enough to short the market? - Hey, I know I can't predict where it's going! - But how confident are you of your predictions?
I should repeat-I am not making a prediction. I am just taking a position in accordance with my reading of risk/reward possibilities. If I am out hiking in the mountains, and come to a rope bridge across a chasm, I have to decide to cross, go back, or look for another route. If I decide not to attempt the crossing, I am not predicting that the bridge will necessarily fall.

Additionally, it is a fallacy to say that if you do not want to be long a market, then you should be short. The two positions are not absolute opposites. There are risk issues, tax issues, and liquidity issues that make me tend to stay far away from outright shorts. I feel no more problem with cutting back stock exposure than I feel with folding a weak poker hand. Sure, I might have won, but not often enough to be worth it.

In fact, I am short to a degree, in that I hold QQQQ puts (losing positions I might add.)

Anyway, I don't think you are wrong to invest the way you do. I think for you, it seems the best way to go. I am no smarter than you , and quite posibly not as smart. Yet I do see the risk/reward differently. For me, I believe my approach is best, regardless of how events may unfold going forward.

Since I am OK with this, why is it troubling to others?

M

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Re: How Expensive is the S&P, Really
Old 06-08-2005, 08:18 PM   #51
 
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Re: How Expensive is the S&P, Really

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Since I am OK with this, why is it troubling to others?
I am not troubled by this, anymore than you may be troubled with another's $400,000 loss.
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Re: How Expensive is the S&P, Really
Old 06-08-2005, 08:28 PM   #52
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Re: How Expensive is the S&P, Really

Last comment here. While I am not exactly troubled by someone else's loss, I do think that the idea of prudence is somewhat under-represented here. Many of us are very confident in our decisions and positions. There may be others who have plenty money, but less experience or understanding. They may want to see various viewpoints. There is a degree of altruistic sharing that goes with a good board.

I don't want to change anyone's mind. I don't need agreement. Not exactly true-I want people to agree 2 years hence with the POV that I am acting on today.

In any case, I personally am unlikely to be unhorsed by any financial event that wouldn't severely stress the whole system.

M
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Re: How Expensive is the S&P, Really
Old 06-08-2005, 09:02 PM   #53
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Re: How Expensive is the S&P, Really

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Originally Posted by - SG
Well you can't blame me for not understanding. It's so out of character for you to be less than serious on the boards.

I'm wiggling my butt with a fishcake on my head and blowing milk out my nose right now.
Better do a little ululating and throw out a couple of "death to america!"'s while you're doing that, and involve a dryer sheet somehow. Just dont tell us how you're using the dryer sheet please.
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Re: How Expensive is the S&P, Really
Old 06-08-2005, 09:09 PM   #54
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Re: How Expensive is the S&P, Really

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Originally Posted by HaHa
Last comment here. While I am not exactly troubled by someone else's loss, I do think that the idea of prudence is somewhat under-represented here. Many of us are very confident in our decisions and positions. There may be others who have plenty money, but less experience or understanding. They may want to see various viewpoints. There is a degree of altruistic sharing that goes with a good board.
Agreed. I just see a bit of bipolarism going on. A lot of folks go with the 'buy indexes, history says xyz and we will all be good'. History also says a lot of other things about where indexes go when they're valued like this. As you mentioned mikey...er...ha ha...we should be around 750-850. But as you also mention, we'll probably go well below that if and when we take that dive.

Theres another alternative...we go sideways for 10-15 years.

Or 'somethings different now' and valuations will remain painfully high and the market will continue to tick upwards. Of course, if somethings different now, then all that other conventional wisdom is just about as good for chucking out the window.

Its that "history says abc and xyz, I'll take the abc and pretend the xyz isnt going to happen" that makes me enter these debates. I want to know where the decoupling takes place.

I'm with the unclemick camp...high dividend stocks. I diverge by holding a fair bit of managed funds with good track records through rough patches instead of indexes.

But I hope its all goofy and everything works out great for everybody.
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Re: How Expensive is the S&P, Really
Old 06-08-2005, 09:40 PM   #55
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Re: How Expensive is the S&P, Really

Hmmmm

Perhaps - another way of stating the obvious is - once you step off into ER - how ya gonna play defense. In my case - not having to tap IRA in the first 12 years and getting to old age(62 this year) with SS available plus a small non cola pension that kicked in at 55 - I suspect my defense is different than others. I played with a 73-74 type drop on some old calculators to try and visualize worst case. Now I periodically noodle with a simple 50 - 60% stock drop and low interest rates to try and get a handle on how bad income would be dented. I am presuming some durability of dividends.

Without getting to take out land and the infamous S_ _ - I do putz with some worst case senarios from time to time - to test my nerves - so to speak.

Lifestrategy mod(quasi 60/40) might be leading with your chin for someone else - but it's my no 4 dark horse behind: pension, dividend stocks, SS. And 2.5% as Norwegian widow dividends could be extracted in the stretch.

Set up your defense with the players you gots. Notice - I have no real estate - except for a !0% REIT Index which I'm tending to lump with dividend stocks.
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Re: How Expensive is the S&P, Really
Old 06-08-2005, 09:42 PM   #56
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Re: How Expensive is the S&P, Really

If history repeated itself in the stock market then historians would be rich SOBs.
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Re: How Expensive is the S&P, Really
Old 06-08-2005, 09:46 PM   #57
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Re: How Expensive is the S&P, Really

If history doesnt repeat itself, all these index investors are in for a lot of trouble.

So are equity investors.

I guess the good and bad news is history most certainly does repeat itself. Its that dang timing thing that nobody can get right. And sometimes when its drunk it keeps going up until nobody listens to the folks who are ringing the alarm bell. And when its hungover sometimes it keeps dropping until everyone is too scared to buy in. Sometimes it doesnt get either drunk or hungover, and just sits there a long time.

Dividends pay, baby.
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Re: How Expensive is the S&P, Really
Old 06-08-2005, 10:02 PM   #58
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Re: How Expensive is the S&P, Really

Thanks Ha Ha, and to all, this thread has been a good one.

But one thing I do admit, this board has scared the crap out of me at times. And my investments show it! I've gone from "oooh, high tech, growth, and aggresive growth funds, pick a couple individual high risk stocks, ta da, diversified!" to "Wellington! Vanguard Value Vipers! Only 20% in S&P index because sky is falling! Foriegn and small cap in hopes of some return! Give me my dividends!" I hope this works out for the better.
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Re: How Expensive is the S&P, Really
Old 06-09-2005, 01:56 AM   #59
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Re: How Expensive is the S&P, Really

Well if nothing else Laurence, while you may not reach the sky while your toes are still touching the ground, but you wont burn to a crisp either...
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Re: How Expensive is the S&P, Really
Old 06-13-2005, 07:20 PM   #60
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Re: How Expensive is the S&P, Really

Is the S&P overvalued?

It depends.

It depends on how you evaluate value.* Mr. Market is always right.* So, tomorrow’s Market Value which will be marked to market at 4:00 PM will be neither overvalued or undervalued.* It’s what Mr. Market is willing to pay for those assets at 4:00PM.* Market Value is what it is. If you’re happy with Mr. Market’s valuation of these assets then buy them at that price, hold them in your portfolio and sleep well at night.

If you evaluate value by LOOKING BACKWARD over time and comparing Mr. Market’s market value against historical experience and traditional financial ratio analysis, you are probably a little concerned* right now.* You are asking: What gives, Mr. Market?* Your ratios look a little out of whack.* Bulls say-- no worries, things have changed, this time it’s different.* The historical valuation measures aren’t applicable anymore.* It’s a brave new wonderful world.* Trees, the economy, corporate earnings, dividends, and stock prices CAN grow to the sky. See Larry Kudlow for all the reasons why.* Bears say—this atypical, aberrant market valuation can’t last, it never has and things aren’t going to be different this time.* A day of reckoning is coming. Takes your pick.

If you attempt to measure the stock market’s* INTRINSIC VALUE as opposed to Mr. Market’s daily Market Value then you have a little work to do.* And nobody can do this work for you.* This is where folks on this Board start to get headaches and spots flashing before their eyes.* *Here is how Benjamin Graham distinguished the two measures:

“A general definition of intrinsic value would be “that value which is justified by he facts, e.g., assets, earnings, dividends, definite prospects, including the factor of management.” The primary objective in using the adjective “intrinsic” is to emphasize the distinction between value and current market price, but not to invest this “value” with an aura of permanence.* In truth, the computed intrinsic value is likely to change from year to year, as the various factors governing that value are modified.* But in most cases intrinsic value changes less rapidly and drastically than market price, and the investor usually has the opportunity to profit from any wide discrepancy between the current price and the intrinsic value as determined at the same time.”

What does computing this FORWARD LOOKING* intrinsic value entail?* What it involves, basically, for ANY asset is estimating the future revenues attributable to that asset, determining an appropriate capitalization rate, then finding the present value of the future income.* This is an entirely SUBJECTIVE and PERSONAL computation.* The inputs are yours and yours alone.*

We have discussed the Dividend Discount Model and the Gordon Equation ad nauseam on this Board, really to no avail. Generates too many headaches.* *Suffice it to say that I concur with TH’s assessment that the intrinsic value of the S&P, given any rational set of earnings and dividend growth inputs and a reasonable personal capitalization rate yields an intrinsic value south of 800 rather than* the 1200 Market Value which Mr. Market places on the S&P today.* That doesn’t mean that Mr. Market is going to come to his senses anytime soon and mark-to-market at 800 tomorrow at 4:00 PM.* *What it does suggest to me is that Ben Graham, in looking for an opportunity to profit from any wide discrepancy between the current market value as determined tomorrow at 4:00PM and the intrinsic value* would most likely be shorting this market.* He almost certainly would not be DCA’ing into S&P 500 index fund.* So what accounts for this large 50%+ premium to intrinsic value which we perceive to be baked into today’s Market Value?* Greenspan called it ”irrational exuberance” back in 1996.* Others call it “Animal Spirits”.* Many financial texts, in addressing the concept of Total Return refer to it simply as “Gains”.* Now, I will grant you that the daily Market Value may never reflect intrinsic value and may always contain a premium for exuberance.* We are Americans, after all.* But I will reiterate what I have said in another post –do you really want to pay for somebody else’s Animal Spirit? Or, more precisely,* how much Animal Spirit are you willing to pay for?

One of my favorite Warren Buffet sayings is: in the short run the market is a voting machine – in the long run the market is a weighing machine.* The short run is dominated by psychology, investor sentiment, momentum, daily headlines and, yes, volatile swings between fear and greed.* In the short run all of these factors are combining to give a thumbs up vote on the market at present.* I believe the long run is ultimately going to reflect the weight of the fundamentals, the intrinsic values,* a la Ben Graham.* Those fundamentals are not flashing an encouraging signal to the DCA buy and holders at this point in market history.

Just my take.

Donner




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