Why I am optimistic about stocks

[RetireAge50]

This might be totally meaningless but I keep track of stock returns since I started investing. Returns are all over the place but positive in 23 years and negative in 6 years. Overall return tends to want to go back to about 10%.

 

[street]

That is very interesting chart and I sure can see the pattern. Thanks

 

[travelover]

Yea, but this time it is different.

 

[LOL!]

Normally, I am long-term optimistic, but today I turned long-term pessimistic.

Normally, after a 10% to 20% drop so quickly, I get very optimistic. Now I see that GDP growth rates cannot be goosed so high anymore. So growth is slowing and fundamentally, stocks go up because of general economic growth. The slowdown is a long-term problem.

The short-term problems will get played out rather quickly. I think they are

1. FOMC will raise FFR tomorrow as expected.

2. Budget will get passed in some form and government will not be shutdown.

3. Trade war will take a little longer, but it will be attenuated.

4. Coal miners will die of black lung disease, so trying to keep coal mines open will become a non-issue.

5. Congress will do its job and help prevent some reckless decisions by others.

6. Brexit will not happen and another referendum will send Europe into a tizzy which is a positive.

So short-term looks excellent, but longer-term of 2 to 3 years out doesn't look good to me.

 

[pb4uski]

....5. Congress will do its job...

LOL, are you on planet Earth? or somewhere else?

 

[sengsational]

I wonder what that chart would look like June 30 to June 30, for instance, as opposed to calendar year. Same average, of course, but I wonder if would have a similar pattern.

 

[Sunset]

Normally, I am long-term optimistic, but today I turned long-term pessimistic.

Normally, after a 10% to 20% drop so quickly, I get very optimistic. Now I see that GDP growth rates cannot be goosed so high anymore. So growth is slowing and fundamentally, stocks go up because of general economic growth. The slowdown is a long-term problem.

The short-term problems will get played out rather quickly. I think they are

1. FOMC will raise FFR tomorrow as expected.

2. Budget will get passed in some form and government will not be shutdown.

3. Trade war will take a little longer, but it will be attenuated.

4. Coal miners will die of black lung disease, so trying to keep coal mines open will become a non-issue.

5. Congress will do its job and help prevent some reckless decisions by others.

6. Brexit will not happen and another referendum will send Europe into a tizzy which is a positive.

So short-term looks excellent, but longer-term of 2 to 3 years out doesn't look good to me.

Next time could you put a SPOILER ALERT on your post.
You've just ruined all the anxiety, anger, and suspense of reading the news for the next 3 months... .

 

[kgtest]

positive in 23 years and negative in 6 years.

3 of the 6 being the .com bust. So basically if you retired end of 1999, you were one unlucky sap...unless you had 3 years of living expenses liquid...then you bounced back in 2003!


Moral of the story, have three years of options when drawing down your folio.

 

[easysurfer]

Nice chart. I like the color choice too.

 

[Rianne]

My optimistic question:

Can we live on 50% of our portfolio for 30 years, reasonably comfortable? This is my go-to question. I'm saying 50% of our portfolio today. After the deep dive. We may inch up over the next 5 years but highly unlikely we'll get back to the high it was in the time we'll WD. Living on outside cash and I bonds for 4 years. Still deciding when to take SS. Small pension at 65.

 

[jazz4cash]

My optimistic question:

Can we live on 50% of our portfolio for 30 years, reasonably comfortable? This is my go-to question. I'm saying 50% of our portfolio today. After the deep dive. We may inch up over the next 5 years but highly unlikely we'll get back to the high it was in the time we'll WD. Living on outside cash and I bonds for 4 years. Still deciding when to take SS. Small pension at 65.

If I thought stocks would not recover for 30 yrs, I’d go to cash now and just live on 100% and accept inflation risk in doing so. I can go 10 yrs without selling stocks and probably longer with SS. I fully expect equities will recover in less than 10 yrs (or we have much more serious issues and holding assets does not help) and offset inflation in the future.

 

[joeea]

Normally, I am long-term optimistic, but today I turned long-term pessimistic.

So short-term looks excellent, but longer-term of 2 to 3 years out doesn't look good to me.

I imagine we have different definitions of what constitutes "long-term".

 

[El Magnifico Loco]

I too am optimistic on stocks, but I think the growth will slow to a rate of between 8% and 9%. Here’s my rationale:

Market gurus will tell you an economy can’t grow any faster than the sum of its labor force growth and productivity growth. The gov is forecasting the US labor force to grow by 0.5% annually over the near term. I think it will be slightly higher (0.6%-0.8%) due to immigration patterns. I also think productivity will increase to near 3% annually going forward, due to past and future technology investments. So a real increase in GDP of 3.6%-3.8%. Tack on another 3% for inflation, and you get nominal economic growth of between 6 and 7%.

Add to that an overall US stock market dividend yield of around 2%, you get an 8-9% return for US stocks. JMHO.

 

[RetireAge50]

Makes sense to me, I hope you are right. A range of 8-10 percent seems like a low bogey to reach for well-run companies.

 

[WestUniversity]

This might be totally meaningless but I keep track of stock returns since I started investing. Returns are all over the place but positive in 23 years and negative in 6 years. Overall return tends to want to go back to about 10%.

Read an article sometime back that said on average we have negative returns 1 out of every 4 years and that the positive years far outpace the negative years. This seems to track with that article...

 

[RenoJay]

Normally, I am long-term optimistic, but today I turned long-term pessimistic.

Normally, after a 10% to 20% drop so quickly, I get very optimistic. Now I see that GDP growth rates cannot be goosed so high anymore. So growth is slowing and fundamentally, stocks go up because of general economic growth. The slowdown is a long-term problem.

The short-term problems will get played out rather quickly. I think they are

1. FOMC will raise FFR tomorrow as expected.

2. Budget will get passed in some form and government will not be shutdown.

3. Trade war will take a little longer, but it will be attenuated.

4. Coal miners will die of black lung disease, so trying to keep coal mines open will become a non-issue.

5. Congress will do its job and help prevent some reckless decisions by others.

6. Brexit will not happen and another referendum will send Europe into a tizzy which is a positive.

So short-term looks excellent, but longer-term of 2 to 3 years out doesn't look good to me.

You'll likely get flamed for the audacity not to jump on the "stocks always" bandwagon, but I completely agree with you. My main reason why I've sold ou of most of my long held positions this year (I am down to 8% equity, the lowest I've EVER been, by far, since I started investing in 1992) is because valuations by metrics I believe in look very high. So regardless of the catalyst, I expect at best a very flat decade ahead. Sure, plenty of people will make fun of us, but that's ok. Vanguard shows my personal IRR at 14% per year for the past decade, and I'm happy to be mostly out at this point. I'll get back in when I no longer see posts starting with "Why I am optimistic about stocks" but rather posts starting with "I'm scared, should I dump everything." When there's true blood in the streets, I'll go all in.

 

[flintnational]

Based on today's S&P close and Yardeni's year end S&P earnings of 162.66, the PE ratio is 15.

 

[RenoJay]

Based on today's S&P close and Yardeni's year end S&P earnings of 162.66, the PE ratio is 15.

Yup. Current ratios are very reasonable. I’m referring to MarketCap to GDP and CAPE which are very high. In short, I’m betting the “E” in PE is unsustainably elevated due to a 10 year credit binge party and that the hangover will occur in the not too distant future and is already being reflected in plummeting stock prices.

 

[Dtail]

Yeah unfortunately the Cape 10 is still above 25 vs. around 15 in Mar 2009. So for the Cape 10 followers, not so good.

 

[SnowBound]

Okay, stocks look iffy. I'm thinking bonds are scary. Anyone else want to add their two cents?

 

[Cut-Throat]

Okay, stocks look iffy. I'm thinking bonds are scary. Anyone else want to add their two cents?

I might have agreed with you, if you said; Stocks looks scary, bonds look iffy. Why do you think Bonds are "scary"....

 

[Bir48die]

Plan A - reallocate. Done
Plan B - put additional year in cash (18 months total). Done
Plan C - in case of emergency claim SS. Not even in the cards

 

[njhowie]

Okay, stocks look iffy. I'm thinking bonds are scary. Anyone else want to add their two cents?

Bonds are never scary if you 1) do your research, 2) buy quality, and 3) hold to maturity.

 

[audreyh1]

Bonds don’t bother me. After a tough year like 2018 they usually have a good year. In fact my bond funds have rebounded some over the past 2 months.

Stocks - well I’ve been a nervous nelly since CAPE10 approached and exceeded 30. Way high, higher than 2007, and only exceeded by late 90s levels.

It’s given back some with this recent selloff. Finally just now dropped below 28. The current 27.29 level still matches the 2007 peaks before the prior nasty bear, so still relatively high.....

 

[target2019]

When I look at the Big Picture and trim to just my lifetime, it still looks good from a distance. The latest blip will be significant, but we'll adjust.

The Big Picture 2018
Investments Illustrated Charts | CRSP - The Center for Research in Security Prices

It's the first link.