BigMoneyJim
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I wasn't market timing. I was setting up a withdrawal strategy to begin in the next 4-16 months.
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I wasn't market timing. I was setting up a withdrawal strategy to begin in the next 4-16 months.
NW-Bound
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I have bought a 6-figure in the last week or two.
Perversely, the total stock portion dropped such that the stock AA stays the same. Oh well, I guess I can call it "rebalancing".
Shiller has been telling us for years that the P/E is high. But we laugh him off.
As we all know, historical means exist in order that they may be reverted to. Why they compute to those particular values and no others is not to be known nor examined too closely, lest madness result.
I'm with you. I'm definitely NOT buying. It's weird...for most of the past 10 years people hated this bull market. It was labeled, "The most hated bull market in history" and all the news was about how it was climbing a wall of worry. Now it seems people are taking it as a given that the market will keep climbing despite the fact that many credible market watchers (including Vanguard) are pegging nominal returns to be a measly ~4%/year for the next decade including dividends. Bear markets happen when most people fall asleep at the wheel after a nice, long, hypnotizing bull market. Anyway, only time will tell, but I'm definitely not in the "buy the dip" crowd. Also, a little known tidbit: In the majority of bear markets, the price drops below the high from the previous bull market. The high on the Dow was around 14,000 in the previous bull. It would truly not shock me if NW-bound's WAG of 13,800 comes true.
Just for kicks: I prognosticate that sometime between 5 - 10 years from now, the Dow will touch 25,000 again, either hitting it from above or below. (in other words, in 5-10 years, I'm guessing the market will not have moved at all.) Time will tell! Good luck to all who disagree with me. But I'm currently at the lowest equity allocation in the past 10 years. (I was at max equity around the bottom in 2009, when most people would give you dirty looks if you talked about stocks.) I'm more of a "buy when there's blood in the streets" kind of guy.
Oz investor
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that philosophy has worked for me so far as well
( i don't buy every thing that is dumped , but i have found it a good place to START looking for a bargain and the research a bit deeper )
NW-Bound
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I was facetious and making fun of people who said there was no cause to be alarmed or that the market would continue on its upward path. I do not wish for the Dow to get down to 13,800. And I actually have bought in this dip (post #102), with the intention of selling for a quick profit when the market rebounds. Long-term forum readers know that I call myself a market timer.
But in the long term, I do think P/E reversion as Shiller and even Bogle keep warning us about is a real hazard. It's just that nobody knows how this will play out. Bogle suggests that the P/E reversion would take place in a gradual manner, such that 2% will be deducted from the return over the course of more than 10 years. Nobody wants to see it taken out all at once, although crazy things have happened in the past with the stock market, on the way up as well as down.
PS. At this point, my stock AA is a bit more than 70%, more than my target. Been trying to reduce it, but the market has not rallied enough to satisfy my greed, hence I have not sold. Will I be sorry for holding on to this stock? Time will tell.
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Oh, I see. Personally I don't see your original post as that far-fetched. The thinking is this....if most people come around to the conclusion that long term future returns are likely to be low, then there's a sensible argument to be made for switching to fixed income. That leads to selling. I don't really believe in a "flat market." During the famed 1969-1982 period that was "flat" (I may not have gotten the years exactly right) there were some huge dips.
Again, I wish the best to all those who disagree with me. But I'll buy the dip when it's 30%+ off the peak, and people are freaking out. The mood feels way too calm for me to a buyer at these levels.
Oz investor
Full time employment: Posting here.
i don't hate the current bull market , i dislike the fact that it is rising for all the wrong reasons .
share-buybacks , low interest rates , the willingness to go further into debt for acquisitions and the share-holders willingness to get over-excited on forecast P/Es ( often inflated by debt-funded buy-backs )
a happy conservatively valued market is where i would like to be invested , but the current market is the game in progress ( and i need to generate future income , no just live from the cash stuffed under the mattress and pension )
share-buybacks , low interest rates , the willingness to go further into debt for acquisitions and the share-holders willingness to get over-excited on forecast P/Es ( often inflated by debt-funded buy-backs )
a happy conservatively valued market is where i would like to be invested , but the current market is the game in progress ( and i need to generate future income , no just live from the cash stuffed under the mattress and pension )
Fedup
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What do you mean by hate? For making money. Put them in CDs then.
Time will tell. I definitely have fixed income opportunities that pay way better than CDs, but I do have a lot of dry powder waiting for what I consider a significant buying opportunity. I may be waiting a while, but I don't get the least bit excited about a 5% drop. (If I was, I would have been buying a few months ago when prices were exactly the same as they are now.) But again, time will tell.
NW-Bound
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In an ideal world where stocks just rised steadily by 6%/year, it would be a lot simpler (and boring). So, I just have to live with the crazy market as it is. And to act on my feeling that the market is overvalued and cannot rise up forever, I sell out-of-the-money covered calls on my shares. I get a few more percents for the return that way.
And that's how I find it difficult to reduce my stock holdings because I need to hold the shares to write options on, else it would be naked calls which is very dangerous.
When some calls got assigned recently, if I just sat on cash I would do better, instead of switching to writing cash-covered puts. I have about $50K of puts getting expired next Friday, and that will boost my stock AA higher. Darn! Can't get away from owning so much stock.
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Oz investor
Full time employment: Posting here.
CDs are a joke in my country ( and don't keep pace with taxflation and indexation )
and there is now a growing debate on the 'government guarantee ' of cash deposits
( and i don't live in Greece , but i remember the lessons from that little crisis )
hopefully in your area , your CDs are actually fully guaranteed
and there is now a growing debate on the 'government guarantee ' of cash deposits
( and i don't live in Greece , but i remember the lessons from that little crisis )
hopefully in your area , your CDs are actually fully guaranteed
Oz investor
Full time employment: Posting here.
In an ideal world where stocks just rised steadily by 6%/year, it would be a lot simpler (and boring). So, I just have to live with the crazy market as it is. And to act on my feeling that the market is overvalued and cannot rise up forever, I sold out-of-the-money covered calls on my shares. I get a few more percents for the return that way.
And that's how I find it difficult to reduce my stock holdings, because I need to hold the shares to write options on, else it would be naked calls which is very dangerous.
When some calls got assigned recently, if I just sat on cash I would do better, instead of switching to writing cash-covered puts. I have about $50K of puts getting expired next Friday, and that will boost my stock AA higher. Darn! Can't get away from owning so much stock.
i can live without the share price rises ( of my stocks ) as long as the returns ( valued at my buying price ) persist
i have resisted trading options or taking out margin loans
i needed my retirement fund in good shape within 10 years and realized i didn't have time to upgrade my skills in every area ( so focused on some areas and avoided others )
i have factored in a 10% company failure rate ( of the companies i hold ) and mergers/demergers and acquisitions have added plenty of unexpected outcomes ( some times good some times bad )
i try to reduce my investment cash exposure to each ( held ) company where possible ideally selling 40% of the holding to recover 100% of the cash invested + costs
not as impossible as it sounds but you do have to stay alert ( and think carefully , sometimes leaving the cash invested longer is the better option )
i look for 6% dividend return ( on my buying price ) when buying shares
using both historic data and forecasts as a guide ( bearing in mind some boards can't even forecast what they will buy for lunch , today )
the easy part now , is i have shorter time frames to plan investments for
reassessment 1. in March 2020 ( originally January 2020 )
reassessment 2. in March 2022
reassessment 3. in November 2026
( allowing for unexpected changes in between )
at least i don't have to foresee 40 years ahead ( before and during retirement ) the last 8 years have been eventful enough , thanks
All of this discussion on what the Dow will do next, reminds me of a video clip that I saw recently on Youtube where British comedian, John Cleese, discusses the work of Philip Tetlock at the University of Pennsylvania, who research the accuracy of predictions by so called pundits.
The section of the clip that discusses this starts at 4:19 and says that pundits are no better at predicting the future than the average reader of the New York Times, since nobody really knows what will happen. I always take anyone's predictions with a grain of salt ...LOL
The section of the clip that discusses this starts at 4:19 and says that pundits are no better at predicting the future than the average reader of the New York Times, since nobody really knows what will happen. I always take anyone's predictions with a grain of salt ...LOL
NW-Bound
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I watched the above video. The fellow who studied the accuracy of predictions made by 284 pundits is Philip Tetlock. You can read about him here: https://en.wikipedia.org/wiki/Philip_E._Tetlock.
Exact forecasting is hopeless. But one should be able to foresee a trend. For example, in the housing bubble and the resulting financial crisis that hit the US in 2006-2009, few were able to foresee how terrible it played out around the world. But most had a feeling that it was not going to end well. People mostly thought bad things would happen to the other people, and not to themselves.
I think taking a more conservative stance is always justified in the face of the unknown.
Exact forecasting is hopeless. But one should be able to foresee a trend. For example, in the housing bubble and the resulting financial crisis that hit the US in 2006-2009, few were able to foresee how terrible it played out around the world. But most had a feeling that it was not going to end well. People mostly thought bad things would happen to the other people, and not to themselves.
I think taking a more conservative stance is always justified in the face of the unknown.
Fedup
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The Economist has predicted the housing bubble back in 2002, a little bit early. In 2004, I googled housing bubble and there was tons of stuff on the net already. The market did slow down a bit in 2005, but took off again after that until it collapsed in 2008. But in my city, actual real estate price of good properties only dropped 20% in 2010.
I was a housing analyst(side job) for 8 years by looking at realtors.com every day. So I know when it dropped and not.
I was a housing analyst(side job) for 8 years by looking at realtors.com every day. So I know when it dropped and not.
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NW-Bound
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It's kind of like this. You cannot predict exactly the weather 2 months from now. But meteorologists can look at the weather radar, the wind pattern, the temperature, and say that the chance for a tornado is high. Now, if you want them to predict precisely which subdivision or town a tornado will wipe out, you are asking for too much and will always be disappointed.
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Your point seems to be that getting the timing and severity right is impossible and you’re correct. But if you agree with most forecasters that based on current high valuations the expected overall market return for the next decade will be very low, then at least by my calculation, it makes sense to wait for a severe dip in prices before buying rather than jumping on these 5% mini dips.
copyright1997reloaded
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Ding ding ding, we have a winner here.
It is easy to predict that a market will eventually crash or have a significant downturn. Why? Because that is the way market work! I have said it before on this site and will say it again:
ALL BULL MARKETS END BADLY.
ALL BULL MARKETS END BADLY.
ALL BULL MARKETS END BADLY.
So the question isn't if THIS bull market ends badly [ it will
], the question becomes WHEN and AT WHAT LEVEL and HOW MUCH DOWN from that level. In late January/early February, when the market tumbled, I predicted that we had not seen the highs for the year. It took a while, but we got back to new highs (considerably before the year had ended). Did it not look in the midst of the January/February downturn that we were at the end, and were there not people here making the same arguments as we've had in the last few days about it being over?
Look, I don't know whether we've seen the highs of this bull or not...but I don't think we have based on the fact that economic fundamentals continue to improve and the fact that the yield curve hasn't inverted. Having said that, I have plenty of dry powder in case I am wrong. Staying long.
NW-Bound
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It may take a while before the big dip comes. In the mean time, can I make money off the minidips? Or even during calm periods, can I make a couple of percents with writing covered calls?
One can have the same prognosis, yet takes a different course of actions.
Fedup
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I had a sense it was high, that’s why I went googling for it. But the exact timing was difficult. Even when it actually occurred, the worst did happen, it was only down 20%.
Same as the stock market, everybody has a sense it’s highly value, but it’s hard to time anything. And even if one is right, maybe just 20% off the peak. Is it worth waiting?
With that said, I do proceed with caution as I’ve been for the last 10 years.
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Fedup
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The market is pure psychology or the understanding of it. It tends to overshoot and undershoot.
Yes you can make short term money off the dips, but that’s a lot easier IMO when you’re at the beginning of a bull market as opposed to deep into it. I don’t know if we are in 1998 vs 1999 or 2006, 2007 or 20008. But I do know that in all those cases, a clearly better long term buying opportunity made itself clear within a couple years. Now that you can actually get some yield on savings, I’d rather park money and wait for a signal which is much more clear to me before heavy buying.
ERD50
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But it's also possible for stock prices to stagnate for years, while earnings grow, bringing the PE back to more historic levels.Ding ding ding, we have a winner here.
It is easy to predict that a market will eventually crash or have a significant downturn. Why? Because that is the way market work! I have said it before on this site and will say it again:
ALL BULL MARKETS END BADLY.
ALL BULL MARKETS END BADLY.
ALL BULL MARKETS END BADLY.
So the question isn't if THIS bull market ends badly [ it will
...
If that happens, there won't be any raging buy signal, and any purchased protective puts will expire worthless.
-ERD50
njhowie
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1. But are the economic fundamentals anything more than just a bunch of smoke and mirrors at this point?
The last leg of this overinflated bubble was a result of corporate tax cuts, which were completely unnecessary when record profits were already being posted. It was a gift, and is providing current year growth. Without it, we likely would be seeing flat earnings, or minimal growth. What it means for 2019 is that we likely will not see growth in corporate profits - it was a one-time boost and now that it's built in, we're not going to see the thrust it's given to earnings growth in 2018. Further, stock market gains and a peak in the housing market has made a good swath of the population "feel" extremely wealthy.
It's fairly easy to see that the housing market has peaked for this cycle. Go outside and look around your neighborhood - you'll see an abundance of houses on the market just within a mile radius. Lots of folks are wanting to sell - they see it's at a peak, interest rates are rising, and supply is now eclipsing demand. In NYC, folks are all racing to the exits - https://www.businessinsider.com/nyc...seen-since-financial-crisis-streeteasy-2018-9
As for the stock market, maybe we've seen the peak of this bull cycle, maybe not. However, the wild volatility we are seeing is reminiscent of what takes place near the end. Regardless, there are a number of things taking place in this market which says it's a time for extreme caution, protecting gains, and not becoming complacent. Retirees who are sitting with their 60/40 portfolios (or even higher equity allocations) might want to take a step back and consider just how much risk they are taking. Should interest rates continue higher and the stock market head lower, both the equity and fixed income portions of the portfolio are going to decline in value.
2. While yield curve inversion has preceded the past several recessions, it is not required that inversion happen for us to have a recession. Recessions ultimately come about because of consumer and investor perception - no different than economic expansions. It boils down to optimism and pessimism.
We know that the Fed is extremely likely to continue raising interest rates over the next 12 months. As rates are continuing to push higher, this will gradually siphon money out of equities and in to fixed income. The higher interest rates go, the heavier it is going to weigh on equities.
On the economic front, as interest rates continue rising, it is going to slow economic activity. Housing and auto payments will cost more to those who finance (which is most purchasers). It will cost more for businesses to finance operations, leading to higher prices for the consumer. Additionally, with new tariffs, producers and manufactures are going to be passing the bulk on to consumers, further raising prices. With higher prices, consumers will cut back on their purchasing. Bottom line, inflation is going to continue rising. Though the Fed likes to say that we have about 2% inflation and they don't see it out of control, it actually is well above 2% for most households. The big ticket items households purchase weigh more heavily but are not included in government inflation calculations. Just wait until 2019 open enrollment for healthcare insurance next month and there's another 20% to 30% increase for most folks. College tuition for the kids - we all know those are out of control, rising about 5% a year at most schools. The list goes on.
