Overconfidence In Market?

[Markola]

Note that the way Kahn doubled his money in the depression was by borrowing money to short sell some stocks. Huge risk, and he actually counted on doom and gloom happening and taking advantage of it. He not only had to be right, but he had to time it right. Are you suggesting we should be doing the same? Or what is the point here?

My point is that, of course, U.S. stocks are going to nosedive periodically, so one should be diversified into asset classes that might be less correlated with U.S. stocks . If you have some need to twist my optimistic comment into advocating short-selling, that’s your business.

 

[24601NoMore]

1) OK, let's go with a 90% drop due to the Great Depression.

I don't think anyone (even in our wildest nightmares) is expecting a repeat of 1929 - 1932. The real question becomes how we will all react to a much more likely scenario of a 50+% drop in equities that stays under-water for 10+ years.

I've only been on the forum for a couple of years, but during that time, I've seen a lot of ER and near-ER people here and elsewhere (eg: Bogleheads forum) with very high equity allocations (70+ percent) thinking the worst that can happen is that things will "usually" come back in 2-3 years (possibly amplified by the fact that's what happened in the recovery from 2008). Hopefully the discussion has made it clear that's frequently not the case, and you can easily be underwater (from peak) for 10+ years. I think the key point is..do we all TRULY realize that and if it does indeed happen in the next bear market - are we really going to be able to look at our portfolio value over a period of 10+ years and see it "less" than it was at peak without it seriously affecting us?

Speaking only for myself, this would stress the bajeebus out of me. I CAN (and would) pay the bills since I'm heavily (70+%) invested in FI..but watching a good part of a lifetime of savings evaporate and not come back anytime soon would probably put me into an early grave..

For "fun", go read some of the BH posts from the 2008-2009 meltdown. People were ready to jump out of windows. Many were the same people advocating high equity positions right before they became near suicidal. It does appear many of us have lived through many decades of investing and have the war scars and battle experience to prove it..but it also does seem (to OP's point) that there may indeed be some degree of over-confidence compared to what we may actually experience in a 50+% down market that does not recover from peak for quite some time..

 

[pb4uski]

As I stated previously, I'm not an investment advisor, so your opinion is as valid as mine. ....

In terms of specific investments, remember that with bonds you are guaranteed your money back if you hold to maturity. Thus nominally, you will not lose a cent. ....

Thus my concern that folks on the forum, conditioned by this bull, may have become overconfident that the market will support them in retirement.

But as I said, your opinion is as valid as mine.

Yup, and I happen to believe that you are way too pessimistic.

Now don't get me wrong, a correction or even a recession are likely sometime within the next 10 years, and perhaps even some sideways action. S&P 500 P/E and P/B metrics suggest that the market might be 30%-17% overvalued... a concern for sure for the near-term future of equities but hardly cause for doom and gloom.

You aren't guaranteed to get your money back at maturity on bonds... perhaps on full faith and credit bonds... arguably even for agencies, but certainly not for corporates.

I think you have a misimpression of our membership... very few members are relying on stocks in retirement... we're generally a pretty conservative bunch... many have little stock... many have significant equity positions but low WRs so they have plenty to weather a bad storm. Also, by design SWRs are based on bad case scenarios since they are typically pegged to less than 5% failures.... so if someone has a 3% WR with a 60/40 AA and stocks take a 50% dip then their AA becomes 43/57 and their WR increases to 4.2% with the same level of spending... hardly an imprudent position.

Besides, if the SHTF as you suggest, no matter what we'll be in better shape than the vast majoirty of Americans who have little savings, so we'll have more choices. In the recent great recession I was able to take advantage of a slow business environment to demolish and rebuild our lakefront home at a bargain price.

 

[redduck]

I don't think anyone (even in our wildest nightmares) is expecting a repeat of 1929 - 1932.

I know that I have better things to dream about.

 

[SnowBound]

Worst case scenario: Walking to the bank to deposit a fat wad of money, get hit by a pickup, live and spend the next year in the hospital recovering until they throw you out 'cause your health insurance has expired. Hobbling out of the hospital with 1000K in medical debt, then get hit by trash truck.

Stock market crash, deflation: Don't sweet the small stuff, enjoy those that love you.

 

[JimBob]

All, somehow I've created the impression that I'm here to "lecture" everyone and tell you what to do. Was not in the slightest my intention. In my last post I was trying to answer "copyright1997reloaded" when he/she asked "where can I put my accumulated wealth." I clearly said "your opinion is as good as mine."

I find the hostility from some,"why is it your concern," very curious. Isn't this an investment/retirement forum where people come to throw out ideas and have them discussed amongst others who are educated and experienced in investing and retirement?

I'm not selling anything, I'm not affiliated in any way and I don't get one cent from the articles I linked. My only purpose was to discuss an idea I've had reading the forum for the last year. I had no intention of offending anyone.

So I finally posted. My mistake.

If you can't post up ideas, even if some consider them outrageous or stupid, and discuss them openly and in a non-hostile manner, what is the purpose of this forum?

Thanks to those who contributed to the thread.

Life is too short, I will go back to lurking. Sorry for upsetting everyone. Best to all in your retirement and investing future.

 

[NW-Bound]

Worst case scenario: Walking to the bank to deposit a fat wad of money, get hit by a pickup, live and spend the next year in the hospital recovering until they throw you out 'cause your health insurance has expired. Hobbling out of the hospital with 1000K in medical debt, then get hit by trash truck.

Stock market crash, deflation: Don't sweet the small stuff, enjoy those that love you.

Well, this worst case scenario is much simpler, and perhaps a lot more likely.

You feel some pain in the back. Doctor says you have stage 4 cancer of an internal organ that already metastasized to the spine. You face the decision of either

1) spend the last few months of your life pursuing some advanced treatments that doctors say have horrible side effects, but have a small chance of extending your life for another year in debilitating agony, or

2) spend whatever time you have left on earth in decent shape to get a couple of items on your bucket list, or

3) go home and try to be peaceful in solitude while contemplating your fate and the meaning of life.

Whichever choice you make, the stock and bond markets will not be in your mind.

 

[target2019]

All, somehow I've created the impression that I'm here to "lecture" everyone and tell you what to do. Was not in the slightest my intention. In my last post I was trying to answer "copyright1997reloaded" when he/she asked "where can I put my accumulated wealth." I clearly said "your opinion is as good as mine."

I find the hostility from some,"why is it your concern," very curious. Isn't this an investment/retirement forum where people come to throw out ideas and have them discussed amongst others who are educated and experienced in investing and retirement?

I'm not selling anything, I'm not affiliated in any way and I don't get one cent from the articles I linked. My only purpose was to discuss an idea I've had reading the forum for the last year. I had no intention of offending anyone.

So I finally posted. My mistake.

If you can't post up ideas, even if some consider them outrageous or stupid, and discuss them openly and in a non-hostile manner, what is the purpose of this forum?

Thanks to those who contributed to the thread.

Life is too short, I will go back to lurking. Sorry for upsetting everyone. Best to all in your retirement and investing future.

I enjoyed the twists and turns of your topic. There's a lot of variance in responses among those who are affected by the topic. If you accept that nobody knows nothin' then it all becomes worthwhile diversion. There's an ebb and flow to certain threads, and when you get to page 6 you may forget the logic which began on page 1.

 

[RunningBum]

OP: If you're going to come in with a contrarian opinion, and tell people in at least a bit of a lecturing tone that they're being overconfident, you need a thicker skin.

Or take a different approach. Instead of telling us what we're doing wrong, which essentially is what you did, you could say that you see bad things on the horizon, you're not feeling safe with being in equities, give all the details why (I found that part interesting), here is your plan, what do people think? If we want to apply it to ourselves, we can. Or not. As has been stated, it's not your concern.

I hope you'll stick around.

 

[marko]

I hope you'll stick around.

+1

OP started a good discussion with an interesting point.
But it's a bit like someone showing up at a party not knowing anyone and trying to take over the evening.

The guy could be a financial genius or a complete fool, but with only 5 posts we don't know if we should pay attention or not; half-way through the thread we all wondered if we were being trolled...might still be.

Starting out with "Hi, I am" would've helped.

 

[audreyh1]

I would also caution people about listening to bears that talk about the longest bull market in history. The S&P dropped 20% in Q4 2018, which is officially a bear market, and breaks the streak. Yet, for so many it doesn't seem to "count". Ask yourself why? Is it because it recovered in 4 months? Is it because there was no recession to go with it? Any "yeah but..." is moving the goalposts, so the next question is "what is this person trying to sell me? Why are the so invested in scaring me?" or "Why am I trying to scare myself?"

The reason it didn’t “count” is that the market drops didn’t quite hit 20%. Very close, 19+%. But for some reason most financial media have decided it didn’t go far enough. Perhaps because it didn’t cross the threshold and stay down for a while. Instead there was an immediate bounce back. Does almost there fo only one day count?

 

[audreyh1]

My understanding is that the Dow Jones hit a new record sometime in 1929. And, it didn't break that record again until sometime in 1954. That's the only metric they're going for a "market recovery". But, it glosses over the fact that it's still possible to make money, even before the Dow Jones breaks a new record.

But, it wasn't until around March or April of 2013 when the SP500 got back to its October 2007 peak, around the 1560 range. going back to the previous recession, it looks like the SP500 peaked around 1500 in July of 2000. It didn't get back to that level until roughly May of 2007.

You absolutely cannot count it that way. You have to use an index chart that includes dividends. For the S&P 500 this is easy because there are tons of index funds that track it, and you can easily find a total return chart. Vanguard index funds are a good reference as they have a very low ER.

 

[audreyh1]

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.

I see that too, and it’s very wrong. Bear market duration is from peak to trough, and doesn’t include recovery time. You are usually looking at several more years.

 

[NW-Bound]

... Bear market duration is from peak to trough, and doesn’t include recovery time...

Yes. That's the definition, in investment parlance.

As for some numbers, I found this:

The shortest bear market for the S&P 500 was in 1990. It lasted almost three months, sliding 20 percent in that period. The longest was a 61-month bear that ended in March 1942 and cut the index by 60 percent.

 

[njhowie]

The guy could be a financial genius or a complete fool, but with only 5 posts we don't know if we should pay attention or not; half-way through the thread we all wondered if we were being trolled...might still be.

Interesting.

So, if a member has, say 10,000+ posts and she posts that everyone who holds no equity is a LOSER it carries more weight and you should pay attention?

Sorry to say, there is a tremendous amount of group think and "cliquiness" which takes place on this site and those with opinions which differ from the herd are often attacked and ganged up on. I messaged the OP after the original post, how I agreed with much of his thinking, and advising what the likely response would be from the community. True to form, it is exactly what has taken place.

Personally, I try to stay away from these threads, or after I post, I think to myself "Why get involved" and then delete it. Now I'll go back into the woodwork and stick to fluff topics which do not bring out the bully in people.

 

[pb4uski]

Interesting.

So, if a member has, say 10,000+ posts and she posts that everyone who holds no equity is a LOSER it carries more weight and you should pay attention? ...

Obviously no.... we have no idea if it is some wacko or Janet Yellen on the other end of the keyboard.

However, after 10,000+ posts we have an idea as to how credible the posters view might be.

As for me, see post#103.

 

[target2019]

So, if a member has, say 10,000+ posts and she posts that everyone who holds no equity is a LOSER it carries more weight and you should pay attention?

That seems to a bit extreme. After 10K posts I would probably know much more about her investing style and background. Can't say the same for OP.

I do know that the troll comments seem to always cause havoc in a thread.

There were some responses that agreed, in part, with the overconfidence premise. As the thread gains length, I see the point more clearly.

 

[NW-Bound]

The majority of people here advocates indexing and annual rebalancing. That is not bad, and should give satisfactory investment results.

However, I and a few others are not afraid to say that we pick stocks or sectors, and make fortuitous trades whenever we feel like it, and not waiting for any stinkin' New Year or some calendar marks like that to rebalance.

And people leave us alone.

I will not call anyone a loser though.

 

[HFWR]

The “market” is overvalued, IMHO, because:

1. Easy money in the form of low interest rates and quantitative easing;
2. Trillion dollar deficit spending.
3. To the extent that people use 401k-type plans, money invested usually is limited to equities, bonds, or cash, which may not be invested “wisely”, but has to go somewhere.

I would hate, but could survive, a fairly large, extended drop, but 90% is SHTF territory, and your allocation, rentals, PT job, paid-for home, etc. still might not “save” you.

 

[NW-Bound]

... I would hate, but could survive, a fairly large, extended drop, but 90% is SHTF territory, and your allocation, rentals, PT job, paid-for home, etc. still might not “save” you.

Do you have a modest motorhome for backup housing?

 

[RunningBum]

Interesting.

So, if a member has, say 10,000+ posts and she posts that everyone who holds no equity is a LOSER it carries more weight and you should pay attention?

The biggest difference is, after 10,000+ posts we know that poster isn't trying to sell us something and we know a lot about that person. I thought at first it was at least somewhat likely this poster was trying to direct traffic to their site, and possibly try to sell annuities. We've also have our share of new posters who come in with made up stories and play it out for a few posts before they are uncovered. So yes, there is some legitimacy to a long-time poster saying anything. Or at least a known factor. There are probably some 10K posters I don't pay much attention to based on their post history.

OP did not call anyone a LOSER so I'm not sure why you went there. The reaction would've been a lot stronger if they had.

 

[Markola]

Interesting.



So, if a member has, say 10,000+ posts and she posts that everyone who holds no equity is a LOSER it carries more weight and you should pay attention?



Sorry to say, there is a tremendous amount of group think and "cliquiness" which takes place on this site and those with opinions which differ from the herd are often attacked and ganged up on. I messaged the OP after the original post, how I agreed with much of his thinking, and advising what the likely response would be from the community. True to form, it is exactly what has taken place.



Personally, I try to stay away from these threads, or after I post, I think to myself "Why get involved" and then delete it. Now I'll go back into the woodwork and stick to fluff topics which do not bring out the bully in people.

It’s unfortunate that the internet has evolved this way, where complete strangers say things to each other that they’d never say face to face. It was supposed to bring us all together. LOL! I got off Facebook two years ago, because I decided it was not a net positive in my life. Now we know it’s a net negative for our very democracy. I never went near Twitter or Instagram, fortunately, which seem like genuine cesspools of vanity. E-R Forum is the only social media I go near regularly, because I have a goal to FIRE and I get value from the freely-given perspectives of people who are further down that path. I also judge it to be a relatively very well-behaved corner of the black hole of id and ego known as the internet, thanks to the moderators and some built-in standards for basic politeness that have evolved here. Yes, money talk can bring out the worst in people, even here sometimes, but one’s personal finances is such a taboo topic in everyday discussion that I value being able to share openly with the helpful internet strangers here. Over time, I have come to value the opinions of a select few posters whose style, smarts and greater experience appeal as guides for my own path so much that I try to read everything they say, whether they post once a month or once an hour. Most others, I skim over for pearls and leave the rest. Just my .02. We each have to come to terms with our own messy online identities these days so YMMV.

 

[njhowie]

OP did not call anyone a LOSER so I'm not sure why you went there. The reaction would've been a lot stronger if they had.

The site member who has 10,000+ posts and said that with regard to the subject I point to knows very well who she is. I went there as it was relevant to the post I replied to and utilizing the number of posts as an indicator...and there was no reaction when she made that post - the herd let it go and carried on.

 

[target2019]

The site member who has 10,000+ posts and said that with regard to the subject I point to knows very well who she is. I went there as it was relevant to the post I replied to and utilizing the number of posts as an indicator...and there was no reaction when she made that post - the herd let it go and carried on.

I didn't realize you were calling out some actual member?
Why not quote what was said, and offer some data that refutes what was posted? Just a suggestion.

 

[copyright1997reloaded]

All, somehow I've created the impression that I'm here to "lecture" everyone and tell you what to do. Was not in the slightest my intention. In my last post I was trying to answer "copyright1997reloaded" when he/she asked "where can I put my accumulated wealth." I clearly said "your opinion is as good as mine."

I find the hostility from some,"why is it your concern," very curious. Isn't this an investment/retirement forum where people come to throw out ideas and have them discussed amongst others who are educated and experienced in investing and retirement?

I'm not selling anything, I'm not affiliated in any way and I don't get one cent from the articles I linked. My only purpose was to discuss an idea I've had reading the forum for the last year. I had no intention of offending anyone.

So I finally posted. My mistake.

If you can't post up ideas, even if some consider them outrageous or stupid, and discuss them openly and in a non-hostile manner, what is the purpose of this forum?

Thanks to those who contributed to the thread.

Life is too short, I will go back to lurking. Sorry for upsetting everyone. Best to all in your retirement and investing future.

JimBob, since you referred to my post:

First, I hope you don't go back to lurking.

I learn something new every day on this site, including from other posters whose investment philosophy is dramatically different than mine.

It is also important to note that I have had people tell me "The sky is falling" since my very first day of investing. In the late 70's during stagflation, that the nations best days were behind. In the early 80's, the death of the stock market (1982). In 1987 the crash to end all crashes. In 1998 the Asian credit crisis. Year 2000. The attacks on the USA on 9/11. The bust of the dot com bubble. The bust of the real estate bubble in 2007 and the resulting great recession. The folks who said the economy would never recover. So on and so on.

Could we be there now where the dark days will be soon upon us? I guess so. One of my viewpoints is that we as humans have an interesting short run/long run bias. In the short run, we are too optimistic and frequently over estimate progress. In the long run, we are are too pessimistic, we think about the things that can go wrong, and can't see the things that can go right.

In my posts to you I wasn't trying to say that the market is overpriced, under priced, or in between. If pressed, I think we are deep in the cycle, but not quite at the peak. What I was trying to get across is that even if it was over-priced and a drastic downturn was coming, that peoples perceptions of 'safe' investments should be questioned, and that relying on what worked in the great depression might not work should we reach the tipping point in terms of central bank levitation.

Since I asked you where I should put my assets (to try to get you to see that your plan might not be as safe as you think it is), I will lay out where I have mine:

I am approximately 62% equities, 37% Fixed, 1% other (precious metals). Almost 20% is in FDIC/NCUA backed CD's, TIPS, IBONDS. (20% of assets, not just 20% of the 37% fixed portion). I have a pension (somewhat backed by ERISA) and can start social security fairly soon if required. These two (pension + social) would provide 'enough' for a somewhat tight baseline budget if required. A 3% WR on my existing equities/fixed would also be enough for a baseline budget. Oh, I work, which at least for now provides another source of income.

If the S really does hit the fan, I have 40+ acres of woods and fields. An old school tractor. Enough wood to heat winters, perhaps enough land for food supply (but not the best farmland). I have enough long term storage of food to last a year or so. I have other similar supplies - not a prepper but also believe in being prepared in times of shortage.