Anyone else hoping for a market plunge?

[Helen]

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Originally Posted by gcgang I'm not sure I understand. I, too, have large unrealized gains in individual stocks. But if I wanted to switch to indexes I wouldn't be hoping the gains evaporate. Better taking gains and paying tax than waiting for value to decline. I don't need the risk I'm taking to achieve my goals. I'm just having a hard time modifying my behavior from letting winners run and deferring tax (avoiding tax for heirs), to adopting a more conservative AA. Writing calls and letting a few shares get called away isn't putting a dent in my equity allocation. Please convince me to reduce risk by significant selling and "paying 'the man' his money" in capital gains tax, if you think I should. I probably should reduce like the OP, but from 65% down to maybe 35%, and it would probably allow me to smile through a big decline.

Our situations are different. I want to sell individual stocks and move the money to stock index funds - stock to stock. Therefore, I would like the market to drop then let the index funds ride until they get passed to my heirs.

It sounds like you want to sell some stocks and move the proceeds to a more conservative investment like perhaps bonds. In that case, I would want to sell when stocks are high and reinvest.

[gooddog]

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Originally Posted by RunningBum No, I stay fully investing according to my AA, so "buying opportunities" would be wasted on me. It doesn't help to jump in on a 15% drop if I've missed out on a 25% run up.

Agree 100%, market timers lose out. That said, keep a few 100k set aside and if the market takes a dump - invest in leveraged broad market indexes and ride it up.

[NW-Bound]

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Originally Posted by Gumby You don't need an actual market plunge to work off any present excess valuation. A prolonged sideways market coupled with a continuation of positive earnings will make multiples drop back to a more historically normal range. For someone already fully invested, that would certainly be the preferred outcome.

Yes. I prefer that the market turns out this way, because my out-of-the-money option strategy will continue to work well.

In case the market crashes, well, I am not fully invested and can participate in buying on dips if it is called for.

[RunningBum]

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Originally Posted by gooddog Agree 100%, market timers lose out. That said, keep a few 100k set aside and if the market takes a dump - invest in leveraged broad market indexes and ride it up.

Rather than set a few 100K aside, I've kept it fully invested and have been riding this bull market up for a few years. I doubt any drop will be as severe as the gains I've had during this time. It seems to me you are saying "market timers lose out, but time the market a bit anyway". Be my guest, but that's not what I'm going to do.

[teejayevans]

Once I get to 59.5, I might increase IRA withdrawals while market is down, reinvesting it in taxable accounts. I have to run the numbers, assuming a 2 year rebound, a 20% drop and the reduced taxes vs increased taxes from being in higher tax bracket.

[EvrClrx311]

I'm 36, and in the maximum saving stage (ration of [compounding years ahead] + [rate of money going into savings] is at a peak), so there is evidence that a correction right now (within the next 5 years) would be ideal for me - and I see it coming. If/when it does I'll just continue putting aside as much as I can through it. I'm currently putting away about 10% of my net worth every year (that's dropping 1-2% a year because the market and my saving is outpacing the growth in salary and what I set aside). The longer the market stays up... the more I'm missing on the opportunity to capitalize on the longer term compounding, to a degree. Because of what goes up...

That all said, the biggest thing I'm hoping for, is that my retirement starts on the early stages of a bull market - so I'd love for a bull run to occur sometime in the early 30's. That would benefit me much more So however the market moves between now and then I hope it's looked at as in a lackluster (depressed) state about 15 years from now. That would be ideal for me to go into retirement confident that the wave of prosperity is coming. Also if I'm able to save enough to retire in my 50's on the tail end of a bear market and I'll be golden for the decades to come.

I suppose that is backwards thinking. But we are all a little backwards here

[RunningBum]

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Originally Posted by teejayevans Once I get to 59.5, I might increase IRA withdrawals while market is down, reinvesting it in taxable accounts. I have to run the numbers, assuming a 2 year rebound, a 20% drop and the reduced taxes vs increased taxes from being in higher tax bracket.

If it's extra money that you're going to invest, why not convert it to a Roth, where it will grow tax free?

[teejayevans]

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Originally Posted by RunningBum If it's extra money that you're going to invest, why not convert it to a Roth, where it will grow tax free?

With some (bonds) I probably would, but I’d still have to pay taxes, and my normal tax bracket I pay 0% on LTCG and dividends anyway.

[FREE866]

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Originally Posted by RenoJay Ok, this will be sacrilege to some, but I find myself daydreaming about a stock market plunge. The reason is that it's inevitable that it will occur at some point, there are a lot of indicators saying it should be relatively soon, and the sooner we get there, the sooner there will be buying opportunities and also the sooner we can start recovering from it and moving toward higher highs. As they say, "The waiting is the hardest part." Anyone else share my daydream?

What are the "lot of indicators that it should be soon"?

[GravitySucks]

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Originally Posted by FREE866 What are the "lot of indicators that it should be soon"?

Same indicators that said 2013 was to be the end of the bull ...
Nobody knows Nuthin

[RenoJay]

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Originally Posted by FREE866 What are the "lot of indicators that it should be soon"?

I never responded to this, because it was clear that most people did/do not want to hear it. But now, six weeks later (and at the end of a brutal October in the market) the indicators are that on any normalized basis the U.S. stock market is very richly valued, even after the recent plunge. From MarketCap/GDP, or MarketCap/Disposable Income to CAPE to virtually any metric, the market is high. The only metric I've found where the market looks "reasonable" is forward PE. But that makes a huge assumption that earnings (the "E") are sustainable. I don't believe for a second that they are. Corporate profits are at all time highs, and inverse to the percentage of corporate money that goes to wages. Will that last forever or will people demand higher paychecks? Corporations are more leveraged than they've ever been. That's well and good when interest rates remain at the lowest levels ever, but becomes a huge burden as rates rise. Long story short...there's a ton of debt in the economy, and I maintain my belief (and strong sideline cash position) that reversion to the mean will lop a massive amount off the 10 year bull market. I'm also of the belief it'll take something like 2-3 years of slow, painful drops to get to the bottom, since so many people believe this bull market is forever sustainable and keep buying the dips. Time will tell. But I'm comfortable having removed most of my equity exposure around the time of my original post in last September.

[TwoByFour]

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Originally Posted by RenoJay I never responded to this, because it was clear that most people did/do not want to hear it. But now, six weeks later (and at the end of a brutal October in the market) the indicators are that on any normalized basis the U.S. stock market is very richly valued, even after the recent plunge. From MarketCap/GDP, or MarketCap/Disposable Income to CAPE to virtually any metric, the market is high. The only metric I've found where the market looks "reasonable" is forward PE. But that makes a huge assumption that earnings (the "E") are sustainable. I don't believe for a second that they are. Corporate profits are at all time highs, and inverse to the percentage of corporate money that goes to wages. Will that last forever or will people demand higher paychecks? Corporations are more leveraged than they've ever been. That's well and good when interest rates remain at the lowest levels ever, but becomes a huge burden as rates rise. Long story short...there's a ton of debt in the economy, and I maintain my belief (and strong sideline cash position) that reversion to the mean will lop a massive amount off the 10 year bull market.

Reversion to the mean? The historical "mean", by which I believe you mean annualized return, is 9.8% (over the last 90 years). The annualized return for the market from 1960 up to October 1, 2018 is 10.1%, which is pretty darn close. You have to remember that the 2000 crash took until 2013 just to recover in real dollars (i.e., inflation adjusted), so that was 13 years of below-the-mean. This decade has been one of correcting the previous decade's horrible performance, so I don't really see that "reversion to the mean" is in play here.

But that being said, I have no idea where the market is going. In any event, I am staying the course.

[RenoJay]

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Originally Posted by TwoByFour Reversion to the mean? The historical "mean", by which I believe you mean annualized return, is 9.8% (over the last 90 years). The annualized return for the market from 1960 up to October 1, 2018 is 10.1%, which is pretty darn close. You have to remember that the 2000 crash took until 2013 just to recover in real dollars (i.e., inflation adjusted), so that was 13 years of below-the-mean. This decade has been one of correcting the previous decade's horrible performance, so I don't really see that "reversion to the mean" is in play here. But that being said, I have no idea where the market is going. In any event, I am staying the course.

I'm actually referring to reversion to the mean in regards to the metrics I mentioned like total stock market value vs. other measurable metrics such as GDP, disposable income, etc. I used to have a similar thought that "stocks are supposed to return 10% per year." Then I read the constitution and realized there was no such promise.