Overconfidence In Market?

[Clone]

I switched to 55/45 about 10 years ago and have been feeling like an idiot?

I have no issue with folks that have implemented whatever asset allocation they choose to live with. What I could not figure out is how to transition from 95/5 to something like 55/45 without having an element of Dirty Market Timing. The part of looking like the fool is not associated with the specific allocation, but rather the abrupt timing.

 

[HI Bill]

What I could not figure out is how to transition from 95/5 to something like 55/45 without having an element of Dirty Market Timing. The part of looking like the fool is not associated with the specific allocation, but rather the abrupt timing.

Reverse dollar cost averaging? How about making a 5% change per quarter, selling during a perceived high point?

 

[jjflyman]

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.

Actually, I think some member here need thicker skins. I've noticed time after time when anybody suggests uneasiness of concern of the markets being too high and wanting to get out, they are flamed and ridiculed and basically told they are the one who is wrong. Maybe being on the sideline with cash makes sense for some members, especially if they don't "need" to be in the market.

 

[HI Bill]

Actually, I think some member here need thicker skins. I've noticed time after time when anybody suggests uneasiness of concern of the markets being too high and wanting to get out, they are flamed and ridiculed and basically told they are the one who is wrong. Maybe being on the sideline with cash makes sense for some members, especially if they don't "need" to be in the market.

All we have is history. Bet against the markets, and you're likely to lose, based on all of the data we have for US markets to date. Yes, I firmly believe tha the markets/value of the dollar may eventually implode, or at least correct; but I also firmly believe that they will recover. The basis for my feeling is all of the market's past history, along with a strong faith in America's businesses and work ethics.

But, if you're prone to panic selling, have 'won the game', or won't sleep well at night, then by all means, buy an annuity, or gold, or bonds, or just stick with cash. Just realize the probable cost of the flight to 'perceived' safety in terms of inflation risk. I one has cost of living-adjusted pension or SS, they may be fine with all conservative investements (but they also may not, 30 to 50 years from now). I think most people here mean well, and text often gets conflated with unintended emotion or insensitivity.

 

[redduck]

Actually, I think some member here need thicker skins.

Thicker skin is not always a plus. Apparently, sometimes it just gets in the way. (See below).

Beverly Hills Profiles Blog
Rhinoplasty for Thick Skin

Posted by Dr. Litner and Dr. Solieman on December 14th, 2015


How is rhinoplasty for thick skin different?
When performing a rhinoplasty, Drs. Litner and Solieman of Beverly Hills Profiles must consider the quality and characteristics of the skin. The thickness of the skin affects both the surgical technique and how quickly the nose will heal. Thick skin can pose a surgical challenge for a few reasons:

• The structural tissues (bone and cartilage) can be heavily concealed by thick skin
• Swelling and inflammation can sometimes be more protracted in patients with thick skin.
• Thick skin often takes longer to settle in and conform to the new final shape of the nose. When it comes to how the skin will adjust, thick skin is sometimes less predictable than thin skin in terms of how well it will contract.

So, redduck suggests that people, no matter how well-meaning, should probably not suggest someone needs to obtain thicker skin unless the suggestor knows for sure that the suggestee is not contemplating getting a nose job.

 

[NW-Bound]

Thicker skin is not always a plus. Apparently, sometimes it just gets in the way. (See below)...

A quick Web search for thick skin reveals a congenital disease called Harlequin-type ichthyosis. This horrible condition is caused by a genetic disorder, and is said to affect 1 in 300,000 births.

With the world birth rate at 130 million each year, I shudder to think of the poor babies born with this painful and deadly condition.

See: https://en.wikipedia.org/wiki/Harlequin-type_ichthyosis.

 

[flintnational]

After reading the OP linked article and the 10 pages of posts (okay I just skimmed some posts), I have decided the OP and article author make a strong case. So I went back to the linked web site and did the following:

1) Signed up for the Financial Advisory services
3) Enrolled in the lunch and learn classes
4) Signed up for RIA Pro, a subscription service
5) Sent an inquiry to become an RIA Advisor (they want clients and advisors)

I think I did everything the site suggested. So, I should be in good shape. I feel better now.

ETA: Kidding aside, I appreciate the informative discussion. Thanks all.

 

[RenoJay]

But, if you're prone to panic selling, have 'won the game', or won't sleep well at night, then by all means, buy an annuity, or gold, or bonds, or just stick with cash. Just realize the probable cost of the flight to 'perceived' safety in terms of inflation risk.

I was trying to figure out why this quote struck me as condescending and awoke with the answer. There are plenty of us who are not panicked, do sleep fine and may or may not have won the game already who simply believe the US market will be flat for the next decade and that other asset classes offer a better opportunity. It’s not necessarily a 50 year choice but rather a decision based on what we see today. I for one have moved from mostly stock to mostly hard money lending in recent years and will happily wager on my total all in return for the next decade against someone who is 90% stocks. There’s nothing “panicky” about that statement.

 

[razztazz]

It was the word perceived, in quotes. Being in stocks, especially heavily in stocks, as a hedge against the future, is itself... wait for it... perceived safety.

I was trying to figure out why this quote struck me as condescending and awoke with the answer. There are plenty of us who are not panicked, do sleep fine and may or may not have won the game already who simply believe the US market will be flat for the next decade and that other asset classes offer a better opportunity. It’s not necessarily a 50 year choice but rather a decision based on what we see today. I for one have moved from mostly stock to mostly hard money lending in recent years and will happily wager on my total all in return for the next decade against someone who is 90% stocks. There’s nothing “panicky” about that statement.

 

[NW-Bound]

Ah, people tend to get bent out of shape when others do not agree with their own investment ideas. Don't people have the freedom to do what they wish with their own money, including burning it like some guys who burned a few million dollars some years back?

I don't think the market return is going to be that hot in the near future, but with bond yield barely matching inflation I cannot get too excited about that. With all the talk about government spending more money with MMT, the risk of inflation is significant. Many stocks have better dividend yield than bonds, and I'd rather hold them. Where else to put your money? Real estate? Perhaps gold? Maybe Hermès Birkin bags, which some Web sites say have appreciated better than stocks.

But I do not think people who bail all out of stocks are betting against the market. They just do not bet with the market. Fine with me. I do not bet for or against bitcoins, or Tesla. Anything wrong with that?

And if they really want to bet against the market, meaning shorting it, they can do that too. It's a free country. It's wonderful.

 

[jjflyman]

In 1999 the Dow hit just over 11,000
In 2009 the Dow hit around 10,500..basically a lost decade for growth
Now we're hovering around 26,000 (give or take)..a huge run up in the last 10 years, but the run up has flattened out in the last 18 months or so. The last 10 years have be unprecedented in the Dow, a faster run up than any other 10 year period, not even close.
So yeah, I don't believe you can go by history at this point, we are in uncharted waters for company valuations and PE ratios.

 

[RunningBum]

In 1999 the Dow hit just over 11,000
In 2009 the Dow hit around 10,500..basically a lost decade for growth
Now we're hovering around 26,000 (give or take)..a huge run up in the last 10 years, but the run up has flattened out in the last 18 months or so. The last 10 years have be unprecedented in the Dow, a faster run up than any other 10 year period, not even close.
So yeah, I don't believe you can go by history at this point, we are in uncharted waters for company valuations and PE ratios.

The Dow went from around 100 in the early 1920s (as low as 67 in 1921) to a peak of 362 in 1929.

More recently, the Dow went from below 3000 in 1990 to above 11,000 in 1999.

% is the only way to measure growth, so we are hardly in unprecedented territory. In fact I think it's fair to say that the last 10 years aren't even close to the fastest run up.

 

[jjflyman]

The Dow went from around 100 in the early 1920s (as low as 67 in 1921) to a peak of 362 in 1929.

More recently, the Dow went from below 3000 in 1990 to above 11,000 in 1999.

% is the only way to measure growth, so we are hardly in unprecedented territory. In fact I think it's fair to say that the last 10 years aren't even close to the fastest run up.

I don't want an argument, but just look at the chart of the history of the DOW. The last 10 years it's shot up like a rocket, no other 10 year period is even close. Just use your eyes.
Of course, we are very likely to lose most of that growth in the next couple years anyway.

 

[RobbieB]

Or not.

 

[NW-Bound]

... Of course, we are very likely to lose most of that growth in the next couple years anyway.

I expect to lose "some" of that gain. Already have.

But "most" of it? Darn, my WR will not be as low as it is now, at way under 3%. I won't like it.

 

[stepford]

I don't want an argument, but just look at the chart of the history of the DOW. The last 10 years it's shot up like a rocket, no other 10 year period is even close. Just use your eyes.

Of course to one's eyes a gain from 100 to 1000 looks far larger than one from 1 to 100, but I know which one I'd rather be invested in.

 

[RunningBum]

I don't want an argument, but just look at the chart of the history of the DOW. The last 10 years it's shot up like a rocket, no other 10 year period is even close. Just use your eyes.
Of course, we are very likely to lose most of that growth in the next couple years anyway.

Graphs are deceiving. Zoom in on those other periods I mentioned. The rise is steeper. Numbers don't lie. Would you rather have your stocks go up 2.5X (recent run), or 3.5X (1920s, 1990s)?

It's like Stepford says, 100 to 1000 looks like a bigger climb than 1 to 100 on a graph, but the rate of change from 1 to 100 is a lot more. All you'd have to do is invest in 100 units at 1, and you'd have 10,000 units at the end of that climb. A lot better than 1000, don't you think?

In any case, and in the spirit of not arguing, I think we're in agreement that the market has risen a lot over the last 10 years, which implies we're due for a drop. That may or may not happen, but it's foolish to assume this rapid appreciation will keep up.

When that drop happens, who knows? That's why I don't try to time the market, and stay invested to my AA. We may have another 10 years of growth before we see a drop, one that brings us only partway down to this level.

If somebody wants to change their AA because they have enough money to live out their days and they are worried about a big drop taking that away, there's nothing wrong with that. It's just not what I'm doing.

 

[Running_Man]

I think the average person is pretty well feeling the effects of the ZIRP since 2007 - this is the inflation that has not shown up in product pricing but in asset priceing - here it is in nominal dollars.

 

[revhappy]

I think the average person is pretty well feeling the effects of the ZIRP since 2007 - this is the inflation that has not shown up in product pricing but in asset priceing - here it is in nominal dollars.

Looks like you are following the same bear gang that I follow on Twitter

Yesterday I sold 3 SPY PUTs for December

 

[audreyh1]

I switched to 55/45 about 10 years ago and have been feeling like an idiot?

I have been that for the last 10 years (while retired) and don’t feel at all like an idiot.

I’ve always seen this forum as being a bit more conservative and a little wary in their investing and also suspicious of the recent market highs. But I think that’s from my long membership here and tending to give other long members higher weight. I do tend to filter out newer members a bit as many don’t stick around. It could be that newer members are more gung ho about equity markets due the recent 10 year bull run.

 

[Dtail]

I have been that for the last 10 years (while retired) and don’t feel at all like an idiot.

55/45 is my current allocation since 2018 and will stay there for the foreseeable future.

 

[copyright1997reloaded]

I don't want an argument, but just look at the chart of the history of the DOW. The last 10 years it's shot up like a rocket, no other 10 year period is even close. Just use your eyes.
Of course, we are very likely to lose most of that growth in the next couple years anyway.

If we are having a discussion in absolute number change of an index vs. % change, it means we are having a meaningless and silly discussion. If you want to seriously discuss this, you need to at least understand the fundamentals which includes looking at price charts as % change.

To all of those who think the market is overpriced, sell and/or go short and get on with your life.

Each of us need to make our own investment decisions and live with them. All I know is that since I was a young pup and bought my first security in 1978 that people have been telling me that the market was "fixed", that stocks were over priced, and that the world was coming to an end. Not listening to them allowed me to retire at 51.

I am not wildly bullish, in fact I have over $1M in cash, short term fixed and inflation adjusted bonds. But sell everything? Don't think so.