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Stocks too generous for too long?
Old 02-16-2007, 08:22 AM   #1
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Stocks too generous for too long?

http://www.marketwatch.com/News/Stor...&dist=nwhfunds

Is anyone here afraid that equities are about to go south? They have never gone without a 2% dip for 7 months, the longest stretch in over 50 years (1954) and it's been four years since both the Dow and S&P took a 10% hit.

I personally do not think that the stock market reads it's press clippings and can't see much on the horizon that would cause it to slow.
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Re: Stocks too generous for too long?
Old 02-16-2007, 08:36 AM   #2
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Re: Stocks too generous for too long?

If they do go down..I'll just keep buying more.

If you don't have the stomach to handle a 2% "correction" you shouldn't own equities.

I bought my first stocks in early October of 1987 and watched them lose about 20% of their value in a couple weeks. I learned a long time ago to take the market fluctuations in stride.



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Re: Stocks too generous for too long?
Old 02-16-2007, 09:20 AM   #3
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Re: Stocks too generous for too long?

I started getting wiggly when the s&p crossed over 1400.

Its a little high...but not TOO high...it hasnt yet hit the levels that invoke the "sometimes things are stupid and you have to consider making a decision" level.
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Re: Stocks too generous for too long?
Old 02-16-2007, 09:52 AM   #4
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Re: Stocks too generous for too long?

It's been a great run.

It seems like generally, the market tanks for a few years every decade or so. Things have been going awfully well for the past four years. I would expect a substantial turnaround could happen in the next five years. I am concerned more about something like this happening than I am about a relatively minor correction.

Right now, I *think* my allocation is conservative enough (60/40) that I could hang on even when the market goes south. It's hard to do! As I venture into such things, I am learning about myself, as much as I am learning about investing. I am very much a novice and not an expert at all, but after reading Bernstein's The Four Pillars of Investing, and Swedroe's The Only Guide to a Winning Investment Strategy, and hanging out here and on the diehards forum, I think what I am reading makes more sense than anything else I've read. Consequently, I am working on diversification and not trying to time the market.
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Re: Stocks too generous for too long?
Old 02-16-2007, 09:58 AM   #5
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Re: Stocks too generous for too long?

Some investing genius, I can't remember who, said "I know the market is due for a correction when the cab driver is telling me about his hot stocks".

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Re: Stocks too generous for too long?
Old 02-16-2007, 10:14 AM   #6
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Re: Stocks too generous for too long?

You know 2000-2002 was a particularly nasty bear market. 3 down years in a row was unprecedented. If we have one big bear market per decade, seems like we've still paid our dues for a while. We've only just started year 5 of the recovery.

Even though S&P is above 1450, it's still 5% below its all time high of 1526 or so in 2000. That's 7 years and not even yet!

Other than major recessions, most market corrections seem minor. Even a 10% correction seems mild. We can also go sideways for a long time. You never know.

Personally, I'd love to see a 10% correction so that I can rebalance. Until then, I'm sitting on my hands and enjoying the ride.

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Re: Stocks too generous for too long?
Old 02-16-2007, 10:23 AM   #7
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Re: Stocks too generous for too long?

Quote:
Even though S&P is above 1450, it's still 5% below its all time high of 1526 or so in 2000. That's 7 years and not even yet!
And if you adjust for inflation, that high would be about 1787.
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Re: Stocks too generous for too long?
Old 02-16-2007, 10:33 AM   #8
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Re: Stocks too generous for too long?

I'm posting this chart without comment.

For those who like to talk about reversion to the mean, I've put in a few mean lines for you to choose from.
Attached Images
File Type: jpg SAndP.jpg (45.8 KB, 110 views)
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File Type: jpg_thumb SAndP.jpg_thumb (16.9 KB, 1 views)
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Re: Stocks too generous for too long?
Old 02-16-2007, 10:36 AM   #9
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Re: Stocks too generous for too long?

Quote:
You know 2000-2002 was a particularly nasty bear market. 3 down years in a row was unprecedented. If we have one big bear market per decade, seems like we've still paid our dues for a while.
well, I think that one was payment for the 90s (esp. the end of the decade) ...I thought around Katrina, there was about a 9% correction, close enough to 10 for me...
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Re: Stocks too generous for too long?
Old 02-16-2007, 10:39 AM   #10
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Re: Stocks too generous for too long?

There has been more hang-wringing and gnashing of teeth over this rally since last Nov than I have heard in a long, long time. The media anchors have been very anxious, and pundits quite cautious or downright negative. This, alone, makes me think the current little rally (since last July) will last longer than anyone expects. It's the most reluctant rally I have ever witnessed.

Ironically, if the Feds do end up easing this summer, that may finally cause a sell-off.

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Re: Stocks too generous for too long?
Old 02-16-2007, 01:03 PM   #11
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Re: Stocks too generous for too long?

Quote:
Originally Posted by audreyh1
Even though S&P is above 1450, it's still 5% below its all time high of 1526 or so in 2000. That's 7 years and not even yet!
Yep. The absolute number is not meaningful. Once it passes 1526, I would carefully monitor its rate of increase.
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Re: Stocks too generous for too long?
Old 02-16-2007, 07:38 PM   #12
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Re: Stocks too generous for too long?

Quote:
Once it passes 1526, I would carefully monitor its rate of increase.
You're kidding right? Of course the 500 stocks in the index have no memory of 1526 or 1527 or any other metric, so any additional monitoring would not produce a higher/lower market response.
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Re: Stocks too generous for too long?
Old 02-16-2007, 07:54 PM   #13
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Re: Stocks too generous for too long?

Quote:
Originally Posted by mickeyd
You're kidding right? Of course the 500 stocks in the index have no memory of 1526 or 1527 or any other metric, so any additional monitoring would not produce a higher/lower market response.
I think you're underestimating the degree to which investor psychology is tied to technical analysis. And let's not forget the financial pornography journalism efforts (on deadline) that'd be devoted to exceeding yet another all-time high.

If we were all rational investing Vulcans then daily trading volume would be zero... everyone would have exactly what they needed and no one would want to sell.
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Re: Stocks too generous for too long?
Old 02-16-2007, 08:56 PM   #14
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Re: Stocks too generous for too long?

Quote:
Of course the 500 stocks in the index have no memory of 1526 or 1527 or any other metric
... true, the stocks don't, but investors do ... and it's the latter than price the former!
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Re: Stocks too generous for too long?
Old 02-16-2007, 10:18 PM   #15
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Re: Stocks too generous for too long?

Quote:
Originally Posted by Nords
I think you're underestimating the degree to which investor psychology is tied to technical analysis. And let's not forget the financial pornography journalism efforts (on deadline) that'd be devoted to exceeding yet another all-time high.

If we were all rational investing Vulcans then daily trading volume would be zero... everyone would have exactly what they needed and no one would want to sell.
DING! DING! DING!

and

DING! DING! DING!

Somebody'll think the dog has hit the end of its leash and is headed back to sniff the other side of the street...
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Re: Stocks too generous for too long?
Old 02-16-2007, 10:45 PM   #16
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Re: Stocks too generous for too long?

Quote:
Originally Posted by mickeyd
Is anyone here afraid that equities are about to go south?...I personally do not think that the stock market reads it's press clippings and can't see much on the horizon that would cause it to slow.
I don't see equities heading south yet.

Cash is flowing into the stock market because it's not going anywhere else. Bank interest rates are in the neutral zone, for the most part. Real estate is not the investment it used to be. And bond returns are flat.

So, cash will keep flowing into equities until there is a shift in interest rates.

As long as there is no irrational buying frenzy by people that would otherwise not be in equities, I believe we are in good shape in the meantime.
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Re: Stocks too generous for too long?
Old 02-17-2007, 12:10 AM   #17
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Re: Stocks too generous for too long?

Quote:
Originally Posted by TromboneAl
I'm posting this chart without comment.

For those who like to talk about reversion to the mean, I've put in a few mean lines for you to choose from.
I think that makes it pretty clear what we all need to do.
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Re: Stocks too generous for too long?
Old 02-17-2007, 08:56 AM   #18
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Re: Stocks too generous for too long?

Quote:
Originally Posted by mickeyd
Is anyone here afraid that equities are about to go south? They have never gone without a 2% dip for 7 months, the longest stretch in over 50 years (1954) and it's been four years since both the Dow and S&P took a 10% hit.
Even if equities go south tomorrow, they'll eventually go north again!

That's what the chicken little "get out now!" people just can't seem to get their heads around.

If you have a diversified portfolio and are invested for the long term, all these "corrections" are just noise and you can take advantage of volatility by rebalancing when things get out of whack in either direction.

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Re: Stocks too generous for too long?
Old 02-17-2007, 10:28 AM   #19
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Re: Stocks too generous for too long?

Stocks are a function of:
- Earnings, and
- Price multiple

Earnings growth has been oustanding - but this is probably "peaking".

PE's are reasonable - and will probably expand upward while more money comes to stocks from other places.

Plus the "supply" of stocks has shrunk with all these private equity buyouts.

Morningstar does this "bottoms up" earnings / cost of capital total market valuation - link below of graph - suggests that stocks are a "little rich" right now.

http://www.morningstar.com/cover/pfvgraph.html

So I'm not buying more equities, but not selling either - rebalancing quarterly and "pruning" positions here and there....
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Re: Stocks too generous for too long?
Old 02-17-2007, 11:36 AM   #20
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Re: Stocks too generous for too long?

Price is, of course, based on supply and demand. I'm hoping that us boomers will put increasing money in the market as more of us realize that retirement is looming. I just don't know enough about this to determine if it will be a drop in the bucket or a wave that will actually push prices higher. Maybe we're already riding a wave. I'm guessing that it will be some years yet before most boomers begin shrinking their assets and, possibly, depressing prices.

I don't know that history is any guide because I don't know of a time when so many people had such ready access to stock investment. I also don't know much financial history (but my daddy never had a qualified plan while my sibs and children do).
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