Reduced Stock holdings to 25% today from 50%

[Totoro]

Yes, those are valid criticism of him but I was not advocating for investing in his funds nor whether his advice over a long time is correct or not. That is irrelevant to me, the question I have is does his idea at present hold merit to me in view of everything else I am seeing. His article was not significantly different than Bogle's view that the market is fully valued. Yes the market can go up another 100% from here, but is the likelihood of gain greater than the risk of decline?

I like Hussmans analysis, and look at his writings every so often.

What he did worked well in the past (1998 - 2009), not so good afterwards. The issue he was hit with in my view was the classic "markets can stay irrational longer than you can stay solvent", together with the even more classic "past behavior is no garantuee for the future".

So he adjusted his approach and is now trying to gauge market sentiment. This to see whether he can detect the "trigger" point when an overvalued market starts to self-correct.

For him (financially) it won't matter much, the management fee in itself more than assured him a decent life.

 

[Dawg52]

Because while I believe there is a likelihood that there will be a large decline in stocks there can never be certainty in a forecast like that, it is also possible that a large inflation could take hold and stocks would protect value better in that circumstance. In 2007 I was a whole lot more convinced and was at zero through most of 2007 & 2008 but that was not something I plan on doing in the future. I continue to believe in what Benjamin Graham sad that in analyzing markets one should develop a comfort on what they believe value to be and usually be 50/50 and if feeling values are very good go to 75/25 and if very poor go to 25/75.

25 percent for me is as low as I will ever go from now on and here I am at that level.

Got ya. Although BG was very smart and successful, I can't buy into his AA style for my situation. I'm retired, single and have enough to get me to the house w/o taking on a lot of [-]risk[/-] volatility. I deleted risk as a lot of people will say you are taking on more risk over the long haul by not being more aggressive. But that's another debate. So for me, the ÀA percentages are much less in each level of value that you show.

 

[redduck]

... If we enter a recession soon - it will be a new and separate one.

OK, here's hoping for a shiny, brand-new and separate recession. How exciting! I never liked getting those hand-me-down recessions. Made me feel unimportant, insignificant and unloved. (duck, you might be taking this too personally).

 

[Fermion]

OK, here's hoping for a shiny, brand-new and separate recession. How exciting! I never liked getting those hand-me-down recessions. Made me feel unimportant, insignificant and unloved. (duck, you might be taking this too personally).

Sometimes you can patch old recessions and they are really as good as new. When I was a kid, all we had was patched recessions. Had to walk uphill in the market too.

 

[ESRwannabe]

This isn't good.

Canada officially enters recession

 

[aja8888]

This isn't good.

Canada officially enters recession

Especially for Canada's oil industry.

 

[nash031]

Because while I believe there is a likelihood that there will be a large decline in stocks there can never be certainty in a forecast like that, it is also possible that a large inflation could take hold and stocks would protect value better in that circumstance. In 2007 I was a whole lot more convinced and was at zero through most of 2007 & 2008 but that was not something I plan on doing in the future. I continue to believe in what Benjamin Graham sad that in analyzing markets one should develop a comfort on what they believe value to be and usually be 50/50 and if feeling values are very good go to 75/25 and if very poor go to 25/75.



25 percent for me is as low as I will ever go from now on and here I am at that level.

It's been a long time since I fully read TII, but I believe his asset allocation recommendations between 25/75 and 75/25 were based on risk/volatility tolerance, not projected market valuation. I specifically recall his list of attributes for someone being 100/0 and don't remember anything about market valuation. I could be wrong, but what you cite above doesn't jibe with the Graham I recall. I Definitely could be misremembering...

I believe Graham would discourage the average investor from attempting to project market valuations. Perhaps he had other advice for the more aspirational investors in his audience.

 

[Running_Man]

It's been a long time since I fully read TII, but I believe his asset allocation recommendations between 25/75 and 75/25 were based on risk/volatility tolerance, not projected market valuation. I specifically recall his list of attributes for someone being 100/0 and don't remember anything about market valuation. I could be wrong, but what you cite above doesn't jibe with the Graham I recall. I Definitely could be misremembering...

I believe Graham would discourage the average investor from attempting to project market valuations. Perhaps he had other advice for the more aspirational investors in his audience.

CHAPTER 4 OF THE INTELLIGENT INVESTOR BY BENJAMIN GRAHAM
4th revised edition
page 41

"We have suggested as a fundamental guiding rule that the investor should never have less than 25% or more than 75% of his funds in common stocks, with a consequent inverse range of 75% to 25% in bonds. There is an implication here that the standard division should be an equal one, or 50-50, between the two major investment mediums. According to tradition, the sound reason for increasing the percentage in common stocks would be the appearance of "bargain price" levels created in a protracted bear market.

....
page 43
The investor's choice between between 50% or lower figure in stocks may well rest with his own temperament and attitude. If he can act as a cold blooded higher of odds, he would be likely to favor the low 25% stock component at this time

(running_man comment: this was written in 1972 and published in early 1973 , before 1973-1974 devastation)

with the idea of waiting until the DJIA dividend yields 2/3 of the bond yield.

(Running_Man Comment: he then describes how this would mean selling with DJIA @900 and waiting for 660 on the DJIA to go back to 50% stocks, actual low in 1974 was 584)


....
A program of this kind is not especially complicated; the hard part is to adopt it and stick to it not to mention the possibility that it may turn out to have been much too conservative."

I think Graham described exactly what I have spent my investing career trying to do and how it is actually a very conservative investment style, not a risky investment style. He does in the book describe how it is probably best for most people to adopt a 50/50 position and just stick to that and rebalance around 45/55 levels.

 

[nash031]

Thanks for the quotes. Maybe I'm just blocking that part out, but I distinctly recall him talking about other options for selecting your range between 75 and 25 tied to investment horizon and such. Anyway, thanks again!

Edit: I should add, I read the original text with "updates" written in the 2000s. I might be fusing what Graham actually wrote and what the Graham disciple wrote as his addendum. I don't have my TII in my current locale, but when I'm home in the next couple of days (and if I remember!) I'll look.

 

[ejman]

<snip> I think Graham described exactly what I have spent my investing career trying to do and how it is actually a very conservative investment style, not a risky investment style. He does in the book describe how it is probably best for most people to adopt a 50/50 position and just stick to that and rebalance around 45/55 levels.

Since I ER'd back in 2002 I have kept to the 50/50 goal with a 45/55 re balancing band. I thought I had independently arrived at such an approach with the wide re balancing band but now that you mention it as a Graham tenet from long ago I realize that I must have read it somewhere and it stuck and made sense so I incorporated it into some kind of background guiding principle. It sure still makes sense to me.

 

[petershk]

The tricky part of any analysis is evaluating how much of it is selective filtering to enforce a pre-existing bias and how much of it is objective evaluation to arrive at a rational conclusion.

Humans tend to be really good at 1 while fooling themselves that they are doing 2. Worse... We don't really have good mechanisms for determining which one we'rd doing

Sent from my HTC One_M8 using Early Retirement Forum mobile app

 

[audreyh1]

Since I ER'd back in 2002 I have kept to the 50/50 goal with a 45/55 re balancing band. I thought I had independently arrived at such an approach with the wide re balancing band but now that you mention it as a Graham tenet from long ago I realize that I must have read it somewhere and it stuck and made sense so I incorporated it into some kind of background guiding principle. It sure still makes sense to me.

I ended up with the same rebalancing bands (slightly higher midpoint - 53% equities) through an empirical method - the 2008 crash had me rebalancing too often while the market was dropping. I decided less often was better.

I used to rebalance when my equity allocation was up or down 2.5%. Now it takes 5%.

 

[sengsational]

I ended up with the same rebalancing bands (slightly higher midpoint - 53% equities) through an empirical method - the 2008 crash had me rebalancing too often while the market was dropping. I decided less often was better.

I used to rebalance when my equity allocation was up or down 2.5%. Now it takes 5%.

So your equities would need to drift 9.4% off your target before rebalancing (.094 * .53 = .05). That works for asset classes with big (50%-ish) allocations, but since I've got it split into more asset classes, I've got mine set (kind of arbitrarily) at +/-10% of the target. So for an asset class with a target of 50%, it would be the same as what you have (spanning 10% of the total), but for an asset class with a target of 25%, it would be half of that (spanning 5% of the total).

 

[audreyh1]

So your equities would need to drift 9.4% off your target before rebalancing (.094 * .53 = .05). That works for asset classes with big (50%-ish) allocations, but since I've got it split into more asset classes, I've got mine set (kind of arbitrarily) at +/-10% of the target. So for an asset class with a target of 50%, it would be the same as what you have (spanning 10% of the total), but for an asset class with a target of 25%, it would be half of that (spanning 5% of the total).

I do have it set at +/-10% of target which works out to the above bands for the large equites/fixed income allocation.

 

[Animorph]

I'm using a +/-15% trigger. Doesn't always give me enough to do, so I might try 10% sometime.

 

[NW-Bound]

I'm using a +/-15% trigger. Doesn't always give me enough to do, so I might try 10% sometime.

As you are already 100% in stock, you must have meant rebalancing between sectors, or domestic/international. Right?

 

[Running_Man]

Being able to think on your own is a valuable skill. This clip explains perfectly why I like to watch CNBC, I was thinking about this as Larry Swedroe wrote in his blog today to avoid CNBC as there is nothing of value there since all that information is already known.

 

[Animorph]

As you are already 100% in stock, you must have meant rebalancing between sectors, or domestic/international. Right?

Yes, I slice and dice, each slice with a target percentage.

 

[Running_Man]

Temporarily at 23% stocks as today I sold WR Westar Energy in my aftertax account for 37.44. Will most likely be switching these funds in VVC in the coming weeks to get back to 25%

 

[hotwired]

What do you use for a stable value fund, if you don't mind me asking?

 

[dirt_dobber]

Being able to think on your own is a valuable skill. This clip explains perfectly why I like to watch CNBC, I was thinking about this as Larry Swedroe wrote in his blog today to avoid CNBC as there is nothing of value there since all that information is already known.

hilarious

 

[Running_Man]

What do you use for a stable value fund, if you don't mind me asking?

For my non long term bond portion I use a combination of a 5 year treasury ladder, but for the sales I did from 50% that money is sitting in the Vanguard ST treasury fund.

 

[Running_Man]

To recap and update: back in September 2014 I went from 50% in stocks to 25% in stocks, briefly for a period I went back to 50% stocks but sold again for a net loss on that excursion of about 1%. Today my stock allocation is 21% but this is more from selling individual stocks I thought were too highly valued and not being able to find an adequate replacement. While the stock market has managed over the past year and a half to stay in this tight range it continues to not act well in my opinion, and I am not seeing very good values. Utility stocks, one of the best performing sectors over that time in the S&P500 appear to be fully valued and the small stocks such as Russell 2000 have rolled over and dropped 13 percent since Sept 2014. Stocks are acting like they are ready to drop off the shelf they have been trading at for the past year and a half. The oil drop continues to indicate continued deflationary pressures and I expect the FED increase in rates will have difficulty in holding but I remain open to other evidence. Keeping my funds available for upcoming discounts as of now,

 

[dallas27]

To recap and update: back in September 2014 I went from 50% in stocks to 25% in stocks, briefly for a period I went back to 50% stocks but sold again for a net loss on that excursion of about 1%. Today my stock allocation is 21% but this is more from selling individual stocks I thought were too highly valued and not being able to find an adequate replacement. While the stock market has managed over the past year and a half to stay in this tight range it continues to not act well in my opinion, and I am not seeing very good values. Utility stocks, one of the best performing sectors over that time in the S&P500 appear to be fully valued and the small stocks such as Russell 2000 have rolled over and dropped 13 percent since Sept 2014. Stocks are acting like they are ready to drop off the shelf they have been trading at for the past year and a half. The oil drop continues to indicate continued deflationary pressures and I expect the FED increase in rates will have difficulty in holding but I remain open to other evidence. Keeping my funds available for upcoming discounts as of now,

My opinion, low oil, if it stabilizes, will have a longer term INFLATIONARY effect as people will spend less on it. Also, the fed should have zero trouble whatsoever keeping rates at .5% until they wish to change.


Sent from my iPhone using Early Retirement Forum

 

[NYEXPAT]

I increased stocks from 10% (since just before Christmas) to about 20% at the close on Wednesday.I am watching closely today (to go to 40%) as we should get a "trade able" rally here before we push lower.