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Old 01-07-2021, 03:57 PM   #21
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The content of this thread appears to be refuting its title.
Different demographic. Us RE folks are a little odd when it comes to finances.
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Old 01-07-2021, 04:01 PM   #22
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The past is often referenced as evidence that markets will bounce back. Personally, I don't think the relevant sample size is significant enough to draw conclusions with a high degree of confidence and often think of Japan's last 35 years as something we could easily experience. When one revisits the past of bubble like valuations that exist today, they have all ended terribly. When that will happen is anyone's guess as is if a rebound will occur during most of our lifetimes. At this stage of life, return of capital is so much more important than return on capital. Bernstein winning the game resonates with me.
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Old 01-07-2021, 04:06 PM   #23
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I'm thinking now the market pricing is unrelated to reality.
Sure seems that way, for quite some time.
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Old 01-07-2021, 04:10 PM   #24
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The past is often referenced as evidence that markets will bounce back. Personally, I don't think the relevant sample size is significant enough to draw conclusions with a high degree of confidence and often think of Japan's last 35 years as something we could easily experience. When one revisits the past of bubble like valuations that exist today, they have all ended terribly. When that will happen is anyone's guess as is if a rebound will occur during most of our lifetimes. At this stage of life, return of capital is so much more important than return on capital. Bernstein winning the game resonates with me.
I don't disagree with the Japan thought, but what is your evidence of a "bubble"?

I also agree with your statement regarding return of capital. In fact regularly I seriously consider reducing my allocation to equity sharply. But not because I think we are in a bubble.
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Old 01-07-2021, 04:34 PM   #25
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I don't disagree with the Japan thought, but what is your evidence of a "bubble"?

I also agree with your statement regarding return of capital. In fact regularly I seriously consider reducing my allocation to equity sharply. But not because I think we are in a bubble.
It does intrigue me that the success rate goes up in firecalc the more conservative I get. 20/80 is 100% while 60/40 is 99%. But I can't resist getting some return for my heirs. I could go to a liability matching portfolio, but that seems overkill to me. I need $1.1M in today's dollars to fund all of my budget minus travel/blow that dough. I will have $800k in bonds when I retire (actually it's all in a stable value fund in my 401k yielding 2.1%). I figure that's close enough to safe with some upside for the kids.
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Old 01-07-2021, 04:38 PM   #26
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I don't disagree with the Japan thought, but what is your evidence of a "bubble"?

I also agree with your statement regarding return of capital. In fact regularly I seriously consider reducing my allocation to equity sharply. But not because I think we are in a bubble.
I don't know of any valuation metric that says we are not in a bubble or at the very least extremely expensive. No one can time anything so I just periodically rebalance my conservative portfolio knowing I can adapt to a worse case scenario and live a good life.
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Old 01-07-2021, 04:41 PM   #27
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I don't know of any valuation metric that says we are not in a bubble or at the very least extremely expensive. No one can time anything so I just periodically rebalance my conservative portfolio knowing I can adapt to a worse case scenario and live a good life.
We are getting pretty heady, aren't we?
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Old 01-07-2021, 05:09 PM   #28
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It does intrigue me that the success rate goes up in firecalc the more conservative I get. 20/80 is 100% while 60/40 is 99%. But I can't resist getting some return for my heirs. I could go to a liability matching portfolio, but that seems overkill to me. I need $1.1M in today's dollars to fund all of my budget minus travel/blow that dough. I will have $800k in bonds when I retire (actually it's all in a stable value fund in my 401k yielding 2.1%). I figure that's close enough to safe with some upside for the kids.
Why is that??
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Old 01-07-2021, 06:31 PM   #29
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Why is that??
I believe it is because historically, equities have outperformed bonds in the US. So while an 80/20 portfolio might have more volatility over the long run, it should outperform a 60/40, based on historical data. SORR is the major concern. Along with how long we can kick the national debt and deficit down the road.
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Old 01-07-2021, 06:41 PM   #30
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I sense a general bullishness as well. I thought we were overdue for a major correction when the pandemic hit. It's possible the pandemic has thrown the cycle out of whack and the post-pandemic rebound might keep the party rolling. Who knows? We're in a unique situation.

I do worry more about inflation, because I think the Fed is playing with fire and should have taken a more measured approach.

I used to be 60/40, but I've been 50/50 for a while. That's had an interesting effect psychologically. It makes me much less likely to try any moves.
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Old 01-07-2021, 07:20 PM   #31
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I am expecting rising-yield deflation over the next 2 or 3 years!
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Old 01-07-2021, 07:35 PM   #32
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Give it time. I think you will be proven right after the propping up has run its course.
The propping up could last a year, or two.

S&P 500 earning are still way below a year ago. Global economies are still way down. It will take a while to recover, but markets have already anticipated it and then some.
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Old 01-07-2021, 07:52 PM   #33
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Stocks are priced by people who count their chicken before the eggs hatch.
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Old 01-07-2021, 07:57 PM   #34
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Stocks are priced by people who count their chicken before the eggs hatch.
Certainly during the upswing!
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Old 01-07-2021, 08:02 PM   #35
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Certainly during the upswing!

More than that. They expect twins and triplets out of them eggs.
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Old 01-07-2021, 08:20 PM   #36
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I don't know of any valuation metric that says we are not in a bubble or at the very least extremely expensive. No one can time anything so I just periodically rebalance my conservative portfolio knowing I can adapt to a worse case scenario and live a good life.
Here's one. The zero interest rate environment has made earnings yield the only game in town. Earnings yield versus the ten-year treasury yield says the only place to put money is stocks. Especially considering inflation and ignoring non-productive commodity speculation.

https://www.yardeni.com/pub/valuationfed.pdf

I'm not arguing that the Fed Model is correct, but it is at least as believable as CAPE. Regarding CAPE, why do earnings 8, 9, 10 years ago have anything to do with expected returns today? They don't, but current interest rates do. But if there is a risk premium, equities will still beat the alternatives.

Oh, and people have been saying interest rates have to go up for a decade...

FWIW I'm staying conservative. IMO, the Fed Model is about relative returns and locking in negative real yield (bonds) is a non-starter, so bailing on equities is a non-starter for me.
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Old 01-07-2021, 09:18 PM   #37
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We are getting pretty heady, aren't we?
@corn18

What is your take on the interest rate trend, compared with the p/e chart that you posted?

Interest rates 20 years ago were about 400% higher than they are today. What effect does that have on asset prices?

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Old 01-07-2021, 09:18 PM   #38
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I don't know of any valuation metric that says we are not in a bubble or at the very least extremely expensive. No one can time anything so I just periodically rebalance my conservative portfolio knowing I can adapt to a worse case scenario and live a good life.
Ok. I think from your response you simply view stocks as "expensive". It's a very different statement than saying we are in a bubble..

In a bubble stocks have lost their connection to any rational basis for their valuation. One could argue rather effectively I think that Tesla is at such a valuation, but we are not at that point on equities generally.

But I do not think you mean bubble in that way. If you did you would probably be selling all of your stocks, not simply rebalancing.
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Old 01-07-2021, 09:25 PM   #39
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USGrant I think has it largely correct. You cannot make sense of stock values while ignoring interest rates. They are the most critical single metric driving equity valuations and they are at historic lows.
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Old 01-07-2021, 09:30 PM   #40
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I believe it is because historically, equities have outperformed bonds in the US. So while an 80/20 portfolio might have more volatility over the long run, it should outperform a 60/40, based on historical data. SORR is the major concern. Along with how long we can kick the national debt and deficit down the road.
Thanks for explaining that for me.
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