Longest Bull Market in History! Woo-hoo!

[NW-Bound]

What are you doing to celebrate the Longest Bull Market in History?

Longest Bull, Ever? | Meb Faber Research - Stock Market and Investing Blog

The author shows the period of 1982-2000 as 4 pieces: 1982-1987, 1987-1990, 1990-1998, 1998-2000. This is correct using the standard definition of a 20% market drop to define a bear market to punctuate the above 17-year period.

During this 17-year period, I was not following the market much, and never did any change in AA of my 401k contributions, nor make any rebalancing. Hence, I look back at the 1982-2000 period as one long bull market. I still kick myself for not paying attention, else I would have more money.

Anyway, if the market drops 10% now for a correction, do I dare plow all of my 30% cash into it? When the market recovers, that will give me just 3.3% gain as computed over the entire portfolio. For a bear market of 20% drop, at full recovery I would have a 7.5% gain.

When you sit down and compute it, the gain is not as much as you would think. How many people have a 30% cash AA, and the courage to drop it all into a bear market and the perfect timing to choose the right point, in order to get a 7.5% gain?

 

[W2R]

That would be wonderful! I am taking a similar approach. I have a new "baseline value" for my portfolio established in my head. It is the median figure for my balances in 2016. Although my portfolio value spent a fair amount of time both above and below this figure, it seemed to spend the most time pretty close to this particular number. For this reason, all the gains above it are not fully "established" in my head and therefore, don't really feel like "my money".

The more my portfolio value continues to rise in the next few months, the better I'll be able to psychologically ride out a severe correction, as all recent gains merely feel like froth that I could bear to see "blown off the top", if that makes any sense.

That makes a lot of sense to me. I'm thinking along the same lines. My spending level has finally settled back down to what it was before I bought my house, and that is quite a relief because I didn't know if it would or what. The more froth that builds, the better we can withstand a huge percentage drop.

 

[CardsFan]

I have just guaranteed you all a continued growth in the market. I just re-balanced back to 55/35/10. (5% change)
Basically took my 2017 gains, plus a little more, and put them in to fixed income.

 

[UnrealizedPotential]

While I realize that the market has to fall at least 20% to be considered a bear market, I know the SP 500 fell 19.9% in 2011 and may have fell 20% intraday trading. So while I celebrate the success of the stock market since the March 2009 lows ,I have to wonder: Did the current bull market start in 2009 or 2011?

 

[audreyh1]

I don't think the market fell 20% in 1990-1991 even though there was an 8 month recession. There was certainly not a 20% selloff in 1998. Yes, we had a good crash in 1987 that interrupted the great bull run.

 

[NW-Bound]

The Black Monday of 1987 holds the record of a largest single day drop. The Dow lost 22.61% in that single day. From the top of Aug 87 to the bottom of Dec 87, the S&P lost 27%.

It is true that the 1990 drop was less than 20%. The 18% drop of the S&P was triggered by the Iraqi invasion of Kuwait, causing oil price to surge.

In 1998, the S&P dropped 18% between July and September. The cause was the devaluation of the Russian ruble, and the default of Russian debts.

Source: Wikipedia & Morningstar

So, technically only the crash of 1987 counts as a bear market. The other two came close though, and were scary enough.

 

[UnrealizedPotential]

In 2011 the Sp500 entered bear territory briefly, the Nasdaq came close but didn't enter bear territory and the Dow fell 16% in 2011.

 

[Jackanory]

I just rebalanced by switching all my Wellington to Wellesley today -- got those jitters going! Also sold off all my remaining Fidelity managed equity funds; well, except for Magellan of course -- sentimental reasons! Thinking about BLV vs. BSV for tomorrow!

 

[COcheesehead]

While I realize that the market has to fall at least 20% to be considered a bear market, I know the SP 500 fell 19.9% in 2011 and may have fell 20% intraday trading. So while I celebrate the success of the stock market since the March 2009 lows ,I have to wonder: Did the current bull market start in 2009 or 2011?

You are a smart person. In Feb of 2016 2/3rd's of the stocks also fell 20% or more, so you could say this bull started then too.

 

[Lsbcal]

Some of these Wall Street terms are vague and probably unhelpful. Like bull market = -20% down. Who cares if we come out of it in a few months?

I think what one should be concerned about is a general recession. But since the market is a leading indicator that is a very tough call. The business council came out with the recession call in late 2008 and said it had started in December 2007. Just look at the Fed charts and you see gray areas starting then ... but who really knew for timing purposes?

 

[audreyh1]

Some of these Wall Street terms are vague and probably unhelpful. Like bull market = -20% down. Who cares if we come out of it in a few months?

I think what one should be concerned about is a general recession. But since the market is a leading indicator that is a very tough call. The business council came out with the recession call in late 2008 and said it had started in December 2007. Just look at the Fed charts and you see gray areas starting then ... but who really knew for timing purposes?

That recession happened so fast that not even ECRI predicted it. It was caused by the financial crisis that caused such a credit crunch that businesses couldn't get the funds to pay for their monthly payroll!!! I think that is about the time the Federal Reserve created the TAF - Dec 2007? But I'm thinking businesses suddenly had trouble getting short term loans around Sept 2008 at the time of the Lehman bankruptcy which resulted in a couple of money market funds breaking the buck. That's basically what turned it from a recession into the "great recession". Many perfectly healthy businesses hit a wall - couldn't get short-term funding, started laying people off like crazy. Downward spiral. Nowadays companies keep more of their own cash and no longer rely so much on public debt markets to fund their monthly operations. https://www.stlouisfed.org/financial-crisis/full-timeline

And as you note - it still took until a year for the National Bureau of Economic Research to call the recession that started one year ago.

The market isn't always a leading indicator (and sometimes it even predicts recessions that don't occur). I remember our net worth being higher in May of 2008 than it was in Dec 2007, 5 months after the recession started. The market was barely down from it's peak in Dec 2007 - nothing leading about that. The serious market selloff really started in the summer of 2008 and the first crash in October of 2008.

The ECRI did warn of the 2000 recession well in advance. It was crying loud about the big rise in interest rates and the increasing oil prices and warning that the US economy as very vulnerable.

FWIW - ECRI seeing best numbers since 2010 at the moment. So from their perspective economically things look very very strong. That doesn't mean the stock market will continue rising - those two things can operate independently for long periods of time. https://www.businesscycle.com/ecri-reports-indexes/all-indexes

 

[ls99]

Hmmm. Longest bull market.

 

[Lsbcal]

...
The market isn't always a leading indicator (and sometimes it even predicts recessions that don't occur). I remember our net worth being higher in May of 2008 than it was in Dec 2007, 5 months after the recession started. The market was barely down from it's peak in Dec 2007 - nothing leading about that. The serious market selloff really started in the summer of 2008 and the first crash in October of 2008.
...

I agree with most of what you said but had to check on the minor point about May 2008. I remember it as a dreary time in the markets. On a monthly basis, the market was down each month from Nov 2007 through March 2008 (5 down months for the SP500 with dividends). April and May of 2008 were up. But overall from Nov 1 2007 through May 2008 the SP500 was down -8.5%. And I'm pretty sure our portfolio was down too.

We were on a driving vacation to the midwest in July 2008. Went through Cody Wyoming. Asked about their business but nobody seemed to own up to poor sales. So much for my type of research.

Now I think that the inverted yield curve was the real signal along with a few other things. But the curve inverted in Jan 2006 so not a signal just by itself. There had to to equity weakness too and unemployment went up too.

 

[audreyh1]

I agree with most of what you said but had to check on the minor point about May 2008. I remember it as a dreary time in the markets. On a monthly basis, the market was down each month from Nov 2007 through March 2008 (5 down months for the SP500 with dividends). April and May of 2008 were up. But overall from Nov 1 2007 through May 2008 the SP500 was down -8.5%. And I'm pretty sure our portfolio was down too.

We were on a driving vacation to the midwest in July 2008. Went through Cody Wyoming. Asked about their business but nobody seemed to own up to poor sales. So much for my type of research.

Now I think that the inverted yield curve was the real signal along with a few other things. But the curve inverted in Jan 2006 so not a signal just by itself. There had to to equity weakness too and unemployment went up too.

I ran through the historical S&P closing prices, and things were going up and down like normal during much of that time - finally started rolling off. I'm sure our net worth peak wasn't right at the end of May but at some time during the month. Of course I'm talking total return here too with a mix of stocks and bonds - versus the index value. I think there was a bit of a last hurrah before things fell over a cliff. The point being that it's very difficult when you are in the middle of it to see a big sell off coming ahead, even if the financial news is ominous and the Fed is dropping interest rates like crazy.

 

[Lsbcal]

...
The point being that it's very difficult when you are in the middle of it to see a big sell off coming ahead, even if the financial news is ominous and the Fed is dropping interest rates like crazy.

It is probably impossible to tell when a panic selloff will get underway. I once saw a class experiment that mimicked a market collapse and the point was that at some point the price does break but it wasn't thought to be predictable. I do think it is possible to tell when the probabilities favor exiting or reducing stocks but not predicting that it will exactly happen and when. But this is a very unpopular view among the Boglehead set.

However, I've done a lot of work to try to manage such a method and I'm convinced that someday it will come into play. Just has not happened since 2008 and happens at irregular periods generally with 2 or more years separation.

And many declines (like in 2011) I wouldn't be able to avoid so will just hold through those. History provides some lessons but not enough to detect all danger zones.

 

[audreyh1]

I think in a way the Fed dropping interest rates probably kept the S&P 500 near record levels for a while "Yay the Fed is dropping rates!" Before folks got really scared "oh crap, the Fed is droping rates because things are seriously out of whack!". That was not your normal bear market though - that was a crash, when markets drop so fast your head spins. Right now folks are saying "yay, the Fed is raising rates because the economy is improving!" At some point they'll decide "oh crap, the Fed raising rates is putting a serious drag on the economy!"

All I know to do is rebalance after the fact.

But I'm considering using slightly lower equity allocation when CAPE10 is high >=25, and slightly higher when CAPE10 is <=18. Moving gradually between 50% and 60% equity allocation.

That only makes a small difference in loss/gain during major market moves. But if it helps me stay invested when I think things are way overvalued, it might be worth it.

 

[NW-Bound]

...But I'm considering using slightly lower equity allocation when CAPE10 is high >=25, and slightly higher when CAPE10 is <=18. Moving gradually between 50% and 60% equity allocation.

That only makes a small difference in loss/gain during major market moves. But if it helps me stay invested when I think things are way overvalued, it might be worth it.

Yes, the difference is very small. It's the psychology that counts.

I play that game on myself all the time. Makes me feel smart too.

 

[audreyh1]

Yes, the difference is very small. It's the psychology that counts.

I play that game on myself all the time. Makes me feel smart too.

Yeah, in my "long" investing career I've learned that psychology is everything!

 

[Lsbcal]

Well it does help to being doing something, even if it is only slicing off 1% of my equity allocation to rebalance.

 

[Totoro]

Yeah, in my "long" investing career I've learned that psychology is everything!

It's also what Graham advises in The Intelligent Investor!

Paraphrasing here, but basically he says: if you lack the emotional fortitude to do nothing, stay within between a band of say 30% and 50% equities, at infrequent fixed decision intervals (e.g. 6 months or yearly). Not because you'll have better performance, but because it gives you something to do that doesn't easily cause irreparable harm.

I have that policy running with DM (30% - 50%, currently at 30%).

 

[petershk]

The chart shows and article says that we're currently in the third longest bull and it's hard to take a great deal of consolation when the longest bull was immediately proceeding the Great Depression.

Of course, the 2002-2007 bull ended really badly without that record upside so... ya know... who knows