Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 11-20-2013, 07:27 AM   #41
Thinks s/he gets paid by the post
2B's Avatar
 
Join Date: Mar 2006
Location: Houston
Posts: 4,330
Quote:
Originally Posted by NW-Bound View Post
"Please God, one more stock bubble" - Bumper sticker.

This time, I swear I will do better.

Pray tell, are we irrationally exuberant with the recent stock performance, or just plain exuberant?
In the 1980's the oil bust destroyed the Houston/oil patch economy. There was a bumper sticker that said about the same thing except it ended with "oil boom." I went through three jobs in 18 months. Worried about losing two different houses to forclosure. Why I bought another one after escaping the first, I'll never know.

I came out of it intact but effectively with few assets. That's when I had my Scarlett O'Hara moment and said "I'll never be poor again." That's when I started to save religiously and not depend on what had been an unlimited upside, stable employment environment. It was the best thing that ever happened to me.
__________________

__________________
The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane -- Marcus Aurelius
2B is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 11-20-2013, 09:13 AM   #42
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,380
Quote:
Originally Posted by photoguy View Post
Personally I'm more worried about non-stationarity.
I'm not worried about any of it. WE tend to forget that these are not coin tosses, they are businesses. If one has some understanding of businesses, this becomes much more clear. Tobin's Q comes from an understanding of the heart of capitalism. It does not depend on choosing periods of aggregation, yet it correlates very well with these other ways of looking at the problem of valuation. To me "return" is not some abstract figure that supposedly has come from owning x or y investment. It is the cash flows experienced internally by that business, and a rough cut at the market and other factors looking forward.
__________________

__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 11-20-2013, 09:18 PM   #43
Thinks s/he gets paid by the post
photoguy's Avatar
 
Join Date: Jun 2010
Posts: 2,301
I'm not much of a worrier (at least with respect to investing). I freely admit I don't have a good understanding of business operations but I'd like to think I have some knowledge of prediction and modeling.

I hadn't heard of tobin's q before but I went to wikipedia to look it up. One of my first thoughts was how do they compute book value and does it really mean the same thing now as a 100 years ago when accounting rules were different? I also imagine companies own much more in the way of intangible assets now which may impact it's interpretation (or not).

My concern with non-stationarity is that there will be some structural change that permanently impacts my investing returns for the worse. I don't know what it would be but could be something as simple as a change in tax law or maybe the US losing it's status as the reserve currency or something else I couldn't imagine.
__________________
photoguy is offline   Reply With Quote
Old 11-21-2013, 01:40 AM   #44
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2013
Posts: 5,326
Our basic plan assumes 0 - 1% real returns, which we should be able to get with an assortment of TIPS and I bonds, plus some other asset classes for diversity.
__________________
daylatedollarshort is offline   Reply With Quote
Old 11-23-2013, 11:44 PM   #45
Recycles dryer sheets
galeno's Avatar
 
Join Date: Nov 2002
Location: Alajuela, Costa Rica
Posts: 220
I used two different ways of calculating our port's expected long term net REAL return = 4.24%

From 1930-2010 a 60/40 stock/bond port delivered a real return of exactly 5%.
__________________
galeno is offline   Reply With Quote
Old 11-24-2013, 07:33 AM   #46
Recycles dryer sheets
 
Join Date: Nov 2003
Location: Charlotte
Posts: 360
Quote:
Originally Posted by eta2020 View Post
4% plus 2% dividend yield = 6%.
That is not too bad given current low inflation rate....
Doesn't the 4% include dividendS?
__________________
WilliamG is offline   Reply With Quote
Old 11-24-2013, 07:47 AM   #47
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,456
Quote:
Originally Posted by WilliamG View Post
Doesn't the 4% include dividendS?
Yes, probably, but the article is sloppy when later it mentions "the market having gone nowhere in a decade" when that is not true if you include dividends.

That's financial journalism for you!
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is offline   Reply With Quote
Old 11-24-2013, 10:26 AM   #48
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,391
Quote:
Originally Posted by eta2020 View Post
4% plus 2% dividend yield = 6%.
That is not too bad given current low inflation rate....
Quote:
Originally Posted by WilliamG View Post
Doesn't the 4% include dividendS?
Yes, a very important distinction.

So, I searched the Web, and found that Shiller meant real total return, not just price change. And Bogle himself predicted 7 to 7.5% nominal total return. Substract out an inflation of 2.5% and they are within 1% of another, with Shiller being less optimistic.

Of course this is over the next several years, not what's coming in the few months ahead.

By the way, Shiller CAPE says that at the market valuation in 2000, the next decade's return would be flat. Was that not the case with the "lost decade"?

Anyway, the 4% total real return may not look so bad, but combine that with an even lower real return for bonds and my planned WR of 3.5% now appears high.

I need some big market moves to make additional money by trading portfolio rebalancing.
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Old 11-24-2013, 10:33 AM   #49
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 5,675
I think for me the way we get to X% returns going forward is the key. If declines are "well behaved" with somewhat slow roll offs like in late 2007 then that is something I can avoid. Something like the 1937 quick decline and the 1987 crash, tough to avoid these.

So to me it is how the markets move just as much as the overall forward return guesses. Most prognosticators are stuck on just a number.
__________________
Lsbcal is offline   Reply With Quote
Old 11-24-2013, 11:26 AM   #50
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,391
I have always had mucho cash on hand, if I can tell when it is a good time to put it to use. I have done that with some success in the past, but being as cautious as I am, I have never ever gone "all in". Even so, in the past, I still picked up 5-10% extra return with large market movements, and with a 7-figure portfolio that extra money is worth the attention I paid to the market.
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Old 11-24-2013, 04:50 PM   #51
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
Quote:
Originally Posted by haha View Post
I'm not worried about any of it. WE tend to forget that these are not coin tosses, they are businesses. If one has some understanding of businesses, this becomes much more clear. Tobin's Q comes from an understanding of the heart of capitalism. It does not depend on choosing periods of aggregation, yet it correlates very well with these other ways of looking at the problem of valuation. To me "return" is not some abstract figure that supposedly has come from owning x or y investment. It is the cash flows experienced internally by that business, and a rough cut at the market and other factors looking forward.
+100

I don't think this can be emphasis enough.

What are the drivers of this growth, which result in increased cash flows to stock holders.

Population 1% a year slowly slightly

Productivity. As Bernstein discusses in his book the The birth of Plenty productivity growth has averaged nearly 2% for developed nations since the 1800s. I see no sign this is diminishing and many ways I think you can argue that internet age is accelerating productivity. 2% a year means productivity doubles in 36 years, and I am hard pressed to think of any job from supermarket checker,factory worker, hotel clerk, farmer, or nurse who's productivity has not more than double in the last 35 years. I think even government workers are significantly more efficient.

Rising middle class. This century saw at least a billion people move from subsistence level agricultural to the lower middle class in the emerging countries. China, India, Brazil and Indonesia have 3 billion people (or almost 1/2 the earth's population) combined and while they aren't going to continue to see double digit growth. High single digit real growth seems sustainable for many decades. The high growth in the emerging areas should more than make up for the slower growth in the developing countries.
__________________
clifp is offline   Reply With Quote
Old 11-24-2013, 06:35 PM   #52
Full time employment: Posting here.
 
Join Date: Oct 2012
Location: Reno
Posts: 556
Quote:
Originally Posted by Lsbcal View Post
Well that is the last time I feel sorry for you.

BTW, I think we might have similar portfolios.
Mine too. Mine centers on 55% stock allocation, but I'm allowing it to creep up to 63% if it makes it. I underperformed you by a percent last year, probably due to the high cash allocation (20%).
__________________
RobLJ is offline   Reply With Quote
Old 11-25-2013, 07:29 AM   #53
Recycles dryer sheets
 
Join Date: Feb 2010
Posts: 123
The fact that long term bond interest is near 4% tells me the outlook for stock returns must be higher than this.
LT- The market will reflect/expect some incremental return above bonds to account for the relatively higher equity risk.
So, to me, buying bonds to get what stocks will likely return (based on one or even a few forecast(s)) seems the wrong takeaway. Doing so you'd sacrifice both the equity return premium and diversification.
__________________
Ken11 is offline   Reply With Quote
Old 11-25-2013, 04:24 PM   #54
Thinks s/he gets paid by the post
robnplunder's Avatar
 
Join Date: Nov 2013
Location: Bay Area
Posts: 2,124
I figure as long as the world population is growing by 1 billion every so many years, the world economy (and equity price) will continue to grow over long term. So what if equity returns 4% a year for the next 5 year? I'd gladly take that. It's the unknown/unanticipated events which can drop global stock market by 30% - 40% that worries me. I've seen it twice already in my life time in fairly short time span (early 2000, 2008). And the chart looks like the camel has added another hump on its back.
__________________
robnplunder is offline   Reply With Quote
Old 12-01-2013, 09:28 PM   #55
Full time employment: Posting here.
 
Join Date: Oct 2012
Location: Reno
Posts: 556
Quote:
Originally Posted by karluk View Post
I don't necessarily agree with your interpretation of the thesis of people who disagree with using PE10 as a market timing tool. I personally have not participated in the PE10 threads because I feel that one can agree with Schiller about reduced stock performance in the future and still think that PE10 is a bad tool for making investment decisions. The underlying problem is that PE10 is currently predicting POSITIVE ten year stock market returns, in fact returns that are modest by historical standards, but that still handily beat inflation.

So if I decide to reduce my stock allocation based on PE10, it means that I either think a stock market correction is imminent, and that I'm smart enough to anticipate it, get out, and then buy back in at lower prices, or that I think I have a better alternative for investing over the next ten years. I don't buy the concept of selling stocks based on PE10 with the expectation of being able to buy back at lower prices some time in the future. Maybe it will happen and I'll look clairvoyant, but maybe I'm wrong and sell too soon and never have a chance to buy back in at the same price.

But I'm more amenable to reducing my stock holdings if I have a good alternative that doesn't reduce my long term expected return. The fact that long term bond yields are currently in the same ball park as Schiller's and others' predictions of ten year stock market returns is the first inkling I've had that there might be investment choices available that offer long term returns comparable to stocks.
+1
You hit the nail on the head
In ha's defence, I think the Cape10 very likely does a fine job of predicting future returns in "normal" environments.
I do not think the last 5 years were normal or even quasi-normal environments. That said, I'm not piling money into stock funds and in fact will take 3-6% rebalance over the next 3 months (I usually rebalance starting with what I think are the most overheated returns, which would be Biotech). The question is what bonds to rebalance into? Since I diversified out of longer term funds, that is the answer, but I'll cheat and choose intermediates.
__________________

__________________
RobLJ is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 02:57 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.