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Your opinion of asset prices ?
Old 12-11-2017, 01:15 PM   #1
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Your opinion of asset prices ?

Many of us are buy and hold investors. And, we stick to our AA over long periods of time. But, I still try and gauge the value of different assets. If I find something cheap one day I might be a buyer. What is your opinion of asset prices? Please add other assets as you deem appropriate. Hey, we can always use another bitcoin thread.

US stocks - overvalued (maybe 20%)I expect strong earnings to continue for a while

International stocks - fairly valued

US Bonds - overvalued maybe in a bubble

Bitcoin - A game changing technology currently in a classic bubble

Housing - My area, Atlanta, is a strong sellers market but probably fairly priced
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Old 12-11-2017, 02:03 PM   #2
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The ND national guard is ready to go. B52s have been burning a lot of fuel lately. Maybe it is just an exercise to use up their JP4 budget?
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Old 12-11-2017, 02:17 PM   #3
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I think my opinions are generally undervalued.
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Old 12-11-2017, 02:21 PM   #4
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Originally Posted by braumeister View Post
I think my opinions are generally undervalued.
Maybe undervalued but the price is right.
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Old 12-11-2017, 03:21 PM   #5
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Bitcoin reminds me of the Dutch tulip craze
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Old 12-11-2017, 04:30 PM   #6
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To say we are buy and hold investors is also to say, IMO, that we basically believe in the Efficient Market Hypothesis. So no large liquid market is ever significantly over- or under-valued.

Bitcoins have no intrinsic value. Their current behavior is a classic example of the Greater Fool Theory in action.

Local real estate markets may sometime be over- or under-valued because liquidity can be poor and transaction costs are high. Hence they are less susceptible to the arbitrage that helps make the EMH work.

Richard Thaler will argue that human psychology will from time to time distort markets and IMO that is true. But at the same time, he seems to say that the the EMH is the best assumption for investors to make.

There is quite a good video here: Are markets efficient? | Chicago Booth Review Right at the beginning, Fama and Thaler have this exchange:
Fama: [The EMH is] a model, so itís not completely true. No models are completely true. They are approximations to the world. The question is: ďFor what purposes are they good approximations?Ē As far as Iím concerned, theyíre good approximations for almost every purpose. I donít know any investors who shouldnít act as if markets are efficient. There are all kinds of tests, with respect to the response of prices to specific kinds of information, in which the hypothesis that prices adjust quickly to information looks very good. Itís a modelóitís not entirely always true, but itís a good working model for most practical uses.

Thaler: For the first partócan you beat the marketówe are in virtually complete agreement.
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Old 12-11-2017, 04:55 PM   #7
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Originally Posted by OldShooter View Post
To say we are buy and hold investors is also to say, IMO, that we basically believe in the Efficient Market Hypothesis. So no large liquid market is ever significantly over- or under-valued.

.....
Or... we are too afraid of being wrong so we are frozen in action, when/if it finally crashes, we will be too scared to sell at the low. So we stay fully invested except for what is needed to spend.

For about 3 years now, I have thought the market is too high... fortunately it went up while I was too slow to sell.
Even now, should I sell and miss out on the rising tide that is still coming in
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Old 12-11-2017, 04:59 PM   #8
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My opinion is worth exactly what my assets are weighted in the markets.

US stocks - I want them to go up so they are fairly valued
International stocks - I want them to go up so they are fairly valued
US bonds - I want them to go up so they are fairly valued
Bitcoin - this is just a weird one. Probably a speculative disaster in the making. Since I have nothing in this, I want it to blow up as it would be highly entertaining.
Housing - I am a home owner. You can guess my answer from the above.

In case you haven't guessed, I'm currently thinking like Rat in Pearls Before Swine.
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Old 12-11-2017, 05:29 PM   #9
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Quote:
Originally Posted by OldShooter View Post
To say we are buy and hold investors is also to say, IMO, that we basically believe in the Efficient Market Hypothesis. So no large liquid market is ever significantly over- or under-valued.

Bitcoins have no intrinsic value. Their current behavior is a classic example of the Greater Fool Theory in action.

Local real estate markets may sometime be over- or under-valued because liquidity can be poor and transaction costs are high. Hence they are less susceptible to the arbitrage that helps make the EMH work.

Richard Thaler will argue that human psychology will from time to time distort markets and IMO that is true. But at the same time, he seems to say that the the EMH is the best assumption for investors to make.

There is quite a good video here: Are markets efficient? | Chicago Booth Review Right at the beginning, Fama and Thaler have this exchange:
Fama: [The EMH is] a model, so it’s not completely true. No models are completely true. They are approximations to the world. The question is: “For what purposes are they good approximations?” As far as I’m concerned, they’re good approximations for almost every purpose. I don’t know any investors who shouldn’t act as if markets are efficient. There are all kinds of tests, with respect to the response of prices to specific kinds of information, in which the hypothesis that prices adjust quickly to information looks very good. It’s a model—it’s not entirely always true, but it’s a good working model for most practical uses.

Thaler: For the first part—can you beat the market—we are in virtually complete agreement.
I agree with you and Thaler. And at least one of you has a Noble prize! I guess I was getting at the short term variations described by behavioral finance. The OP is just a thought experiment. I agree that the EMH precludes investors from doing much with asset price assumptions. As we have seen in the past, individual assumptions about markets tend to be wrong.

I could be swayed on my other asset value assumptions (They were just WAGs). But, I am sticking by my prediction that Bitcoin will end badly.
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Old 12-11-2017, 05:39 PM   #10
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Originally Posted by Lsbcal View Post
My opinion is worth exactly what my assets are weighted in the markets.

US stocks - I want them to go up so they are fairly valued
International stocks - I want them to go up so they are fairly valued
US bonds - I want them to go up so they are fairly valued
Bitcoin - this is just a weird one. Probably a speculative disaster in the making. Since I have nothing in this, I want it to blow up as it would be highly entertaining.
Housing - I am a home owner. You can guess my answer from the above.

In case you haven't guessed, I'm currently thinking like Rat in Pearls Before Swine.
I like the way you think. We are both long the stock market and short bitcoin. But, I may consider a strategic investment in tulips.
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Old 12-11-2017, 05:55 PM   #11
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Or... we are too afraid of being wrong so we are frozen in action, when/if it finally crashes, we will be too scared to sell at the low. So we stay fully invested except for what is needed to spend. ...
Well, I prefer to think of it as wisdom rather than fear. This approach has served me well during all bumps in the road starting in 1987.

Re what is needed to spend, we have at least five years of spending in fixed income assets, so I can ride out anything that history has previously shown us without selling equities. I don't worry a bit about sequence of returns and I worry very little about AA.

Life is very good, actually. We have been phenomenally lucky.
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Old 12-11-2017, 06:00 PM   #12
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I agree with you and Thaler. And at least one of you has a Noble prize! I guess I was getting at the short term variations described by behavioral finance. ...
FWIW Thaler is a principal in a mutual fund company that, as far as I can tell, has been unable to turn behavioral finance theories into actual money. One problem may be that, like momentum, these things are so fleeting that it is impossible to trade significant money based on them. In that case, the little guy may actually have an advantage.

Quote:
Originally Posted by flintnational View Post
I could be swayed on my other asset value assumptions (They were just WAGs). But, I am sticking by my prediction that Bitcoin will end badly.
Bitcoin is a tulip bulb or an East Indian trading company. IOW, this time is not different.
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Old 12-11-2017, 06:07 PM   #13
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Stocks/international stocks/bonds.... it doesn't much matter to me whether they are over or undervalued to me... I'm not smart enough to know... but I am confident that if I consistently rebalance to my 42/18/35 target AA that I will do fine.

Bit coin... reminds me of dot.com... it was the "in" thing and then imploded.
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Old 12-11-2017, 06:14 PM   #14
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the important question is not whether assets are over or under valued. The important question to be answered is "when will the investing masses decide the market is over or under valued".
And the answer is "Who the F knows?" ergo: we remain invested, to whatever degree we can tolerate.
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Old 12-11-2017, 07:03 PM   #15
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I'm not selling stocks or real estate and I'm not buying bitcoin.
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Old 12-11-2017, 07:33 PM   #16
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If EMH applies to stocks and bonds, why does it not apply to bitcoins?

Why are we afraid to put some of our money into this "asset class"?

Are we not supposed to buy whatever the market says is "good", and not try to make judgement?
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Old 12-11-2017, 07:45 PM   #17
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Markets aren't efficient - not in the short term anyway. We see crazy highs and lows all the time with extremely sudden changes in direction. Momentum seems to play a huge role and then like monster wave prices can suddenly collapse.

Crude oil price history chart
Attached Images
File Type: png crude-oil-price-history-chart-2017-12-12-macrotrends.png (69.4 KB, 17 views)
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Old 12-11-2017, 08:29 PM   #18
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The ND national guard is ready to go. B52s have been burning a lot of fuel lately. Maybe it is just an exercise to use up their JP4 budget?
JP-4? If they have any left from last century, it's probably no good anymore. Nobody has used that stuff for a looong time.
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Old 12-12-2017, 02:36 AM   #19
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If EMH applies to stocks and bonds, why does it not apply to bitcoins?

Why are we afraid to put some of our money into this "asset class"?

Are we not supposed to buy whatever the market says is "good", and not try to make judgement?
For the same reason we don't buy Venezuelan Bolivar, you can't trust the stability of the system backing it. For the same reason I don't buy gold: companies produce something so in general you are paid to wait, cash and commodities cost money, so in general you are paying for waiting.

So no need to denounce the EMH for this one, although I am always up for a good bashing of any strong form of the EMH.
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Old 12-12-2017, 04:49 AM   #20
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IMO, there are two broad forces tugging at markets, EMH and behavioral finance. Human behavior accounts for the short term ups and downs. EMH accounts for the long term trends. To paraphrase Graham, "In the short term the market is a voting machine and in the long term the market is a weighing machine".

But, as an investor, history has shown it is hard to profit from this knowledge. So, most of us choose to stay the course and ignore the short term changes. The old saw applies, "The market can stay irrational longer than you can stay solvent".

If correct, this would imply that you can hold an opinion of the current price of assets, (are they being influenced by short term behavioral finance issues) just don't act upon your opinion. You might be wrong.
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