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Lessons Relearned --- Take Note
Old 01-27-2008, 06:28 AM   #1
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Lessons Relearned --- Take Note

The S&P 500 briefly broke through the peak [established] during the tech bubble (somewhere above 1500).

With the business down cycle, recession, sub-prime debacle (all linked). It will probably be 10 - 12 years (total) before the S&P is firmly above the tech bubble level. The NASDAQ is still way down about 1/2. It would not surprise me if it takes 25 years (from the tech bubble) for it to reach its previous high (which was speculative).

The real estate market bubble is a little different than the the tech bubble. But real estate is probably overvalued significantly ( more or less depending on the area of the country). Consider that many people who qualified for home loans will probably not get them again. Not to mention the many individual investors (fools) will be much less enthusiastic about buying single family dwellings as quick flip investments. There is probably so much excess inventory on the market and so many upside down loans out there that it is sickening.

Stay diversified and re-balance. If you get a pop in an investment or class of investments better take some profit and shift it to an under performing investment. Wise words... not just for survival, but thrival (thrive). If that is a word!

These two recent events prove the wisdom in the old saying "Sheep get sheered; Pigs get fat; Hogs get slaughtered"

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Old 01-27-2008, 07:16 AM   #2
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Nice post. It is good to see that you put in a time frame into the post. Many people do not do that which can make their statements correct or wrong - depending upon the time frame.

I think you can get an idea of the length of the underperformance by how the decline happens. Generally, short and sharp downturn- a relatively short term underperformance; long and slow downturn - a longer period of underperformance. This is because people can handle a sharp pain and stay in the market but constant pain causes people to get out and not invest.

So I think we need to get a bit more of the picture to know the time frame for the underperformance.

Sometimes death is not as tragic as not knowing how to live. This man knew how to live--and how to make others glad they were living. - Jack Benny at Nat King Cole's funeral
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Old 01-27-2008, 11:02 AM   #3
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My NASDAQ prediction is out there a bit. Another 18 years to double is a long time. One would think it could. Based on its growth pattern (stat/prob), I am likely wrong.

I am a little more confident in the S&P 500 prediction (fewer years). But who knows.

I hope I am wrong on both counts. I would rather be better off financially than right on the statement!

By the way. I intend to stay invested in equities and bonds... Sticking with the plan.

One thing. I do not need to rebalance this year and buy additional bonds. I increased my bond holding (% of portfolio) without doing anything. But I am still below my goal at ER. Most of our new money is going to fixed...
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Old 01-27-2008, 11:30 AM   #4
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no one ever went broke taking a profit, did they?
Light travels faster than sound. That is why some people appear bright until you hear them speak. One person's stupidity is another person's job security.
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Old 01-27-2008, 11:30 AM   #5
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The S&P 500 briefly broke through the peak [established] during the tech bubble (somewhere above 1500).
Not if you adjust for inflation.
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