Overconfidence In Market?

[jjflyman]

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Originally Posted by copyright1997reloaded It is ironic that your "safe" stocks might be anything but. Full disclosure: I own T directly and BP/XOM via XLE. Let's just discuss your very first example: AT&T. While T looks inexpensive on a PE ratio, it's revenues are under pressure on a number of fronts. The landline business is dead, wireless now has low growth and is under pricing pressure due to competition. The Direct TV sat business is going down the drain. They have close to $200B in debt that they have to service on an operating income of about $33B, so that is 6X. They have a negative book of about $16/share due to assets they've had to write down/depreciate. I'm not saying that AT&T is going out of business, nor am I saying it is a bad investment. What I am saying is that just because something pays a good dividend doesn't mean it doesn't have LARGE risk. The fact at T's yield is 6.45% TELLS YOU that there is risk here.

I Totally agree. I never said in my post anything about those stocks being "SAFE" there is no "safe" stock, I said they paid a good dividend so I will take some risk. I was in several mutual fund and ETF's the past few years, and a majority of the growth from those funds were from FAANG stocks, and I think those stocks became over valued, so I got out before the "crash" from 2 years ago. Had I stayed in those funds, I would just now be back to about even.
I still do like AT&T long term, but I only have about 200 shares.

[DFDubb]

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Originally Posted by 24601NoMore Not sure why anyone would think this was a "dumb article on a nonsense subject" (or trolling) when discussing what actual recovery times from peak would be.

It's trolling because the OP didn't post this up in good faith to have a discussion. He simply joined here to post a link to his article for the clicks and will never be back to see what anyone had to say about it.

[dtbach]

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Originally Posted by DFDubb It's trolling because the OP didn't post this up in good faith to have a discussion. He simply joined here to post a link to his article for the clicks and will never be back to see what anyone had to say about it.

And he got a longer discussion (3 pages worth) than most folks do. Actually was a pretty good discussion I thought.

[COcheesehead]

I don't know if I would term it overconfidence, but I have seen folks on here and elsewhere say rebounds from bear markets only take a year or three, when in reality there are many 5 year and even some 10 year periods with negative equity returns.

[jjflyman]

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Originally Posted by DFDubb It's trolling because the OP didn't post this up in good faith to have a discussion. He simply joined here to post a link to his article for the clicks and will never be back to see what anyone had to say about it.

Darn, I got duped. I didn't even think of that

[pb4uski]

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Originally Posted by sengsational Did anyone fact check the market taking 25 years to recover from 1929? Posts like this sometimes use "facts" from clickbait articles that turn out to be less than complete. The "correct" measure would be reinvested dividends and inflation adjusted. If by overconfident one means I don't think the next downturn will span 25 years, then I am overconfident. I wouldn't be surprised if it took 10 years, though.

FWIW, the Portfolio Visualizer analysis of VFINX inflation adjusted with dividends, seems to confirm that left-most green line of a recovery period of 14 years on an inflation-adjusted basis with dividends reinvested.

[pb4uski]

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Originally Posted by dtbach And he got a longer discussion (3 pages worth) than most folks do. Actually was a pretty good discussion I thought.

Yes, the topic is a vailid one for members to deliberate irrespective of whether the OP is a troll or not. My gueis that the OPs peddling annuities.

[JimBob]

Appreciate all the comments. And no, I'm not Lance Roberts Just a normal joe. I wasn't trying to troll folks. Nor was I trying to criticize. We all have to make our own investment decisions. I claim no extraordinary wisdom. I was just making an observation.

I have no affiliation with Lance Roberts, I just saw the article and it clicked with my impressions and I thought would be a good topic of conversation for the forum.

I retired several years ago in my early 50s. I'm by no means rich, but we have enough. I will probably soon be going back to work, but out of a desire to remain productive, not out of a need for income. Retirement is great, but it can get boring. And why do wives who when you are working complain your never home, suddenly decide after retirement you are home way too much.

I'm in the camp that once the game has been played, stop playing. I do own some stocks, mostly dividend producers, in a Roth IRA, but overall its a small percentage of my portfolio.
I'm mostly invested in bonds.

I could be earning more, enjoying the return the market has produced, but again, if being conservative gives me sufficient income, why take the risk?

My purpose with the thread was merely to get folks opinions on if the forum is too optimistic about the market, and if we have been conditioned by this latest bull.

If, as I believe, we are in for very dark times ahead, when the Central Banks are unable to continue to levitate the economy and the markets, a lot of folks over invested will be severely hurt very late in life.

There is a lot of great thinkers in the forum, so I was just seeking to learn from others. Thanks again for your comments and for the great insights on the forum.

[DFDubb]

He's back! Well color me corrected!

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Originally Posted by JimBob If, as I believe, we are in for very dark times ahead, when the Central Banks are unable to continue to levitate the economy and the markets, a lot of folks over invested will be severely hurt very late in life.

Care to explain this further? What are the dark times ahead that you envision? What is the catalyst? Obviously another recession will be around at some point, but the crowd here probably has a very good handle on AA, personal risk tolerance, etc...

I'm like 95% equities, but I'm also only 40 and about 10 years away from pulling the plug. If the markets tank, that's good for me as I'll keep buying.

[marko]

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Originally Posted by sengsational Did anyone fact check the market taking 25 years to recover from 1929? .

Factual or not, (I would like to know, though) I think the demographic profile of investors from 1929 to 1954 is entirely different than it is now. Back then there weren't 401ks, MFs, instant information and so on. A lot more average people participating in the market now than then. It changes how the market behaves to a certain extent and there are better safeguards in place.

Having said that, I would suggest the OP print a chart of the Dow for any 25 year period, paste it on a wall and step back 15 feet. Despite the ups and downs, there is a clear upward trend that's been going on for over a century.

Personally, my faith in the market was solidified in early '09 when "the end of the world as we know it" Great Recession slowly moved into the rear view mirror.

[pb4uski]

Good point... as I recall the 1929 meltdown was fueled by a big run up prior to that based on a lot of margin borrowing and reforms were put in place to mitigate speculation with borrowed money.... meaning that the 1929 meltdown may no longer be as valid of a datapoint.

[copyright1997reloaded]

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Originally Posted by JimBob I'm in the camp that once the game has been played, stop playing. I do own some stocks, mostly dividend producers, in a Roth IRA, but overall its a small percentage of my portfolio. I'm mostly invested in bonds. I could be earning more, enjoying the return the market has produced, but again, if being conservative gives me sufficient income, why take the risk? My purpose with the thread was merely to get folks opinions on if the forum is too optimistic about the market, and if we have been conditioned by this latest bull. If, as I believe, we are in for very dark times ahead, when the Central Banks are unable to continue to levitate the economy and the markets, a lot of folks over invested will be severely hurt very late in life. .

I will repeat my first comment. If (as you say) we are in for very dark times ahead, then what makes you think conservative investments (e.g. bonds, fixed income) will do well?

I would maintain the ability to "print money" is the only real lever that central banks have if those dark times arrive. Thus, those who have retained wealth through instruments of trust (fiat currency) would be the ones most hurt. Those who controlled items that can't just be deemed into existence will be in (relatively) better shape.

[Cut-Throat]

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Originally Posted by copyright1997reloaded I will repeat my first comment. If (as you say) we are in for very dark times ahead, then what makes you think conservative investments (e.g. bonds, fixed income) will do well?

It's not that fixed income and bonds will "do well" ..... It's that they won't crash.... It's all about risk.

[JimBob]

Sorry, posted a reply but somehow got lost. Getting used to the interface.

Dark times. Yes, I believe we are headed for very dark times. We are living in an unprecedented period where the world's debt is simply out of control. Its naive to think this will have no effect on our lives, and our investing environment.

Look at the following chart of the Federal Funds rate since 1980:

https://www.macrotrends.net/2015/fed...storical-chart

With each successive economic downturn the Fed has lowered rates, and then when the economy recovered, the Fed could not return rates to their pre-crisis level. At the beginning of the Great Financial Crisis, Fed Funds were at 5 percent. Now, with full employment and low inflation, the economy and the market are so fragile that the Fed has only been able to return rates to 250 basis points.

In the next recession, and it is inevitable, the Fed will immediately cut to zero. Out of rate bullets, the Fed will then introduce some new form of stimulus, quantitative easing, helicopter money, negative rates, name your poison.

When in the history of this country has our economy and the market been completely dependent on the largesse of the Federal Reserve?

And the European Central Bank, the Bank of Japan, and the Bank of China are even worse.

Some, based on recent experience, believe that Fed stimulus will send the market off to the races again. But the studies show that each successive QE, had less and less effect. So its doubtful anything the Fed does will save the day. Being in the market at such a time will be catastrophic.

The Central Banks are out of ammunition and losing control.

I don't know when it will happen, but it will happen, and we will be looking back fondly at the Great Financial Crisis.

Noone will be immune, even those in fixed income. But at that moment the question will not be accumation of capital, it will be preservation of capital.

For most on this site, we are too old to recover from what I'm describing.

[24601NoMore]

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Originally Posted by marko Factual or not, (I would like to know, though) I think the demographic profile of investors from 1929 to 1954 is entirely different than it is now. Back then there weren't 401ks, MFs, instant information and so on. A lot more average people participating in the market now than then. It changes how the market behaves to a certain extent and there are better safeguards in place.

Excellent point, and I agree - but we now (unlike 1929-1954) have to deal with a much faster pace of market movement where a single tweet can wipe a trillion off global markets, and people can buy and sell in nanoseconds via a simple keystroke or click of the mouse.

My big fear (which I don't think is unfounded) is that once the herd starts to stampede (which it will someday "soon", IMHO, if recent reaction to relatively minor events and unfounded volatility have been any indication), that the ability of people to sell by literally clicking a button is going to create a downdraft and "stampede" effect like none of us and none that went before us have ever seen. Then, the 24x7 talking heads (which we also didn't have in 1929-1954) will pour gasoline on the fire..which will lead to more selling and more talking head coverage of the doom and gloom. It may not end well when it starts.

And, when the downdraft continues, the near instant ability to trade (unlike 1929-1954), the instant reaction to news, the computerized trading - is going to hammer the market like nothing ever before. Whether the buyers step in among the carnage is something we'll have to see - but I do think we are living in a MUCH different time than we were in 1929 - 1954, where you had to trade physical pieces of paper via a broker - and that process took TIME. Now? We can watch a trillion in global market values vaporized in a day or two.

So, agree - MUCH different..and not necessarily in a good way for those of us looking to protect our portfolios from being decimated.

Best of luck to all..but back to OP's point - I do think there is a tendency to not account for the risk that we all really do face in high equity positions, OR the time (often decades, not "2-3 years") that is needed to recover back to "even"..

[dtbach]

I guess the "Great Recession" wasn't "dark" enough for some folks here.

[W2R]

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Originally Posted by JimBob My purpose with the thread was merely to get folks opinions on if the forum is too optimistic about the market, and if we have been conditioned by this latest bull.

I don't think we are too optimistic at all. I do think that some here lean towards riskier investments than I would feel comfortable with, probably because they are younger and more risk tolerant than I am at this stage in my life, but then that's a different matter. I am perfectly comfortable with investing in broad index mutual funds, using a 42:58 AA.

Between my father, my brothers, and me, my family has been heavily invested in the stock market for at least 80 years, with quite satisfactory results and no regrets from anyone. We carry low risk, diversified investments with a long time frame in mind. I have absolutely no intention of pulling out my money from the NYSE and putting it into beanie babies, start-ups, or whatever other possibilities come to mind.

OK, I have been engaged in a peculiar train of thought about this so bear with me. I'll number the steps:

1) I was curious about how much the stock market dropped in 1929, so I googled it; this link is the first article that came up and says that the Dow dropped 25% in the crash of 1929. Surely it was more than that?

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The stock market crash of 1929 was a four-day collapse of stock prices that began on October 24, 1929. It was the worst decline in U.S. history. The Dow Jones Industrial Average dropped 25 percent.

But 25% is what it says so I guess I'll use that as at least a rough guess. If someone less lazy than me finds a more reliable percentage we can go with that, but for now that is what I have.

2) Only 42% of my portfolio is invested in equities anyway, so if we lost 25% of equities tomorrow and bonds/cash remained the same, then that would be a loss of only 10.5% of my portfolio.

3) Right now, I have been retired and spending money from my conservatively invested portfolio for 10 years. I have 137% of what I started out with in 2009.

4) Now this seems weird, but IF all of the above is correct (granted, a big "IF" since I haven't verified that 25% number), then I am thinking that even if we had a crash of the severity seen in 1929 then the very next day I would still have more in my portfolio than I did when I first retired.

5) SS and pension have kicked in by now, and cover almost all or all of my expenses (at last!) so I have made it past the bend in the curve.... all of this is so much less crucial than it was at the beginning of ER.

[joeea]

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Originally Posted by JimBob I've been struck since I started reading the forum at how many here seem to have exorbitant faith in the market, and allocate accordingly. After the longest bull market in history, historical gains, and a world economy and market almost completely dependent on Central Bank largesse, I'm wondering if there is not too much optimism on the forum?

This is an early retirement forum. It's not a surprise to me that many here are very optimistic about the market.

Only time will tell if they are too optimistic or not.

[joeea]

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Originally Posted by JimBob And why do wives who when you are working complain your never home, suddenly decide after retirement you are home way too much.

IMHO, those are the kinds of wives who should be out working.

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I'm in the camp that once the game has been played, stop playing. I could be earning more, enjoying the return the market has produced, but again, if being conservative gives me sufficient income, why take the risk?

If you are meeting your personal goals without taking risks, then there is absolutely no need to increase your risk.

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My purpose with the thread was merely to get folks opinions on if the forum is too optimistic about the market, and if we have been conditioned by this latest bull.

There is absolutely no doubt that the long bull run has caused some folks to forget that the market can come down, and that others never knew to begin with.

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If, as I believe, we are in for very dark times ahead, when the Central Banks are unable to continue to levitate the economy and the markets, a lot of folks over invested will be severely hurt very late in life.

I suppose it depends on what "over invested" means.

And while I don't agree that "the Central Banks are levitating the economy and the markets", I do believe that a few big mistakes by the Central Banks and/or the Executive Branch could certainly cause the market to tumble for a while.

[haha]

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Originally Posted by JimBob My purpose with the thread was merely to get folks opinions on if the forum is too optimistic about the market, and if we have been conditioned by this latest bull.

People, Including us, will always be influenced strongly by the dramatic and the recent. It is quite hard to avoid either one of these pulls.

Ha