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Old 08-07-2019, 11:00 PM   #21
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Looking at the S&P 500 (admittedly not the entire market), the worst 20 year period returned 6.4% per year on average. The best 20 year period returned 18% on average. Given a long time frame, the market does well.

https://www.thebalance.com/rolling-i...d-2009-4061795...
From the above Web page:
The S&P 500 Index, shown in bright red, delivered its worst twenty-year return of 6.4% a year over the twenty years ending in May 1979.
I looked up the cumulative inflation of the above 20-year period. It averaged 4.62%/year. This means the real return of the stock market averaged less than 1.8%/year in the above period.
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Old 08-08-2019, 07:42 AM   #22
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Originally Posted by NW-Bound View Post
From the above Web page:
The S&P 500 Index, shown in bright red, delivered its worst twenty-year return of 6.4% a year over the twenty years ending in May 1979.
I looked up the cumulative inflation of the above 20-year period. It averaged 4.62%/year. This means the real return of the stock market averaged less than 1.8%/year in the above period.
Indeed, that's a very important point. When I plugged the numbers for March 59 to March 79 in here, the result was 1.730% for annualized real returns including dividend reinvestment.


https://dqydj.com/sp-500-return-calculator/
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Old 08-08-2019, 07:50 AM   #23
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I don't know your definition of "naysayers", but the late Bogle warned us for years to temper our expectation of returns of both stocks and bonds. Is he a naysayer?

Bogle never once told us to go buy "alternative" investments like gold or bitcoins. He was just warning us to not expect the high return of stocks and bonds to last forever. Shiller also told young people to prepare to save more to make up for the lower return.
I wouldn't call either of them naysayers. And maybe my remarks are more of a hope that we do continue to see historic returns than any hard evidence.
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Old 08-08-2019, 07:58 AM   #24
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Indeed, that's a very important point. When I plugged the numbers for March 59 to March 79 in here, the result was 1.730% for annualized real returns including dividend reinvestment.

https://dqydj.com/sp-500-return-calculator/
Ah, it does give one a warm fuzzy feeling when different Web sites give the same answer.


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I wouldn't call either of them naysayers. And maybe my remarks are more of a hope that we do continue to see historic returns than any hard evidence.
Bogle also warned us that 1980-2000 was a special period with very specific circumstances to give the high return we had then. The circumstances now are the opposite of those, so the expected return cannot be the same. We may see the low range of historical returns, which we just talked about.
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Old 08-08-2019, 11:01 AM   #25
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.... I want to compare my current returns that are coming from income real estate (7 rental SFRs in Raleigh/Apex, NC) to the returns I could potentially get by taking our investments in cash and RE equity ($2.7M) and converting it into a different vehicle, such as dividend producing stocks, annuities, private equity, etc. ....
My concern here would be concentration risk... both geographic and property type. If some calamity happened to the Raleigh/Apex, NC area (think a Flint, MI type event) then a good portion of your wealth could be wiped out because you are not geographically diversified.

Similar risk with single-family homes. I have a concern about this in Florida where we winter.... lots of building in part driven by demographics IMO.. what happens in 20 or 30 years when that demographic bubble has passed? Will supply far exceed demand and values crater?
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Is theEverything Bubble Ripe Yet?
Old 08-08-2019, 12:01 PM   #26
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Is theEverything Bubble Ripe Yet?

For those interested, here's a good article that puts the current market situation in perspective:

https://wolfstreet.com/2019/08/08/is...bble-ripe-yet/

Quote:
Back in 1999, the exuberance was largely limited to stocks, and focused in particular on what was called tech stocks, which was anything with a “.com” near its name, given that this was the first big bubble of the internet. Hence the word, Dotcom Bubble.

Now the exuberance is everywhere: In the stock market nearly across the board, in the housing market, in the huge credit market that includes bonds of all kinds and leveraged loans and Collateralized Loan Obligations and Mortgage Backed Securities and subprime auto-loan-backed securities, and rent-backed securities, and old bicycle-backed securities, and other credit instruments. And, of course, in the derivatives market. Everyone is chasing yield. Risks don’t exist.

We call it the Everything Bubble for good reasons.
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Old 08-08-2019, 12:06 PM   #27
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My concern here would be concentration risk... both geographic and property type. If some calamity happened to the Raleigh/Apex, NC area (think a Flint, MI type event) then a good portion of your wealth could be wiped out because you are not geographically diversified.

Similar risk with single-family homes. I have a concern about this in Florida where we winter.... lots of building in part driven by demographics IMO.. what happens in 20 or 30 years when that demographic bubble has passed? Will supply far exceed demand and values crater?
Interesting point, and it's exactly why we chose the Raleigh area. They have the research triangle and a number of large universities in the area that have provided lots of stability over the long-run, including in home prices. It doesn't have the property appreciation of coastal areas, but it does have a very steady record of employment and a very high quality of life. (It seems that HH incomes and expenses are more in line out there than on the West Coast.)

One frustrating part of rental property ownership is that you want your properties to appreciate in value; but as they do, it lowers your overall ROI on rents. Over the years it starts to really add up. I love seeing my properties get more valuable, but it doesn't mean much in retirement if I can't access it. Hence my modeling. I wish I could 1031 everything into a new, higher earning real-estate portfolio; but it's all about prices vs. rents, and now is not the best time from an investment perspective.
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Old 08-08-2019, 04:35 PM   #28
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Originally Posted by aja8888 View Post
For those interested, here's a good article that puts the current market situation in perspective:

https://wolfstreet.com/2019/08/08/is...bble-ripe-yet/
In 1998 the SP500 was up 29%. In 1999 it was up "only" 21%. The last 12 months it is up about 5%. Not similar at all.
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Old 08-08-2019, 07:36 PM   #29
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MegaCorp bank... derivatives and swaps are getting harder to find...chasing could be a term I would use...or so it sounds.

As I understand it this chasing behavior either got us in trouble in the past or maybe was a result of some other mistakes that built up...debatable.

Take a looksie...This is one of my all time favorite financial frontline episodes...
this 4 hour PBS special... https://www.pbs.org/wgbh/frontline/f...r-wall-street/

It's hard to pinpoint the origins of America's financial crisis, but one weekend at this resort in Boca Raton, Florida, is a good place to start. Assembled here in June 1994 were a group of young bankers from JP Morgan. At the time, it all seemed innocent enough.

https://www.pbs.org/wgbh/frontline/film/meltdown/

FRONTLINE investigates the causes of the worst economic crisis in 70 years and how the government responded. The film chronicles the inside stories of the Bear Stearns deal, Lehman Brothers’ collapse, the propping up of insurance giant AIG, and the $700 billion bailout. Inside the Meltdown examines what Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke didn’t see, couldn’t stop and haven’t been able to fix. [Explore more stories on the original website for Inside the Meltdown.]


aaand the best for last...

The infamous gathering at that Washington steak house. FF to the 40min mark and lemme know!

https://www.pbs.org/wgbh/frontline/f...es-of-america/

I post as a history lesson. https://www.pbs.org/wgbh/pages/front...default-swaps/
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Old 08-08-2019, 07:46 PM   #30
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I just recently watched "Too Big to Fail", the HBO 2011 movie on the subprime fiasco.

Perhaps the above documentaries will show things from a different angle.
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Old 08-08-2019, 07:48 PM   #31
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In 1998 the SP500 was up 29%. In 1999 it was up "only" 21%. The last 12 months it is up about 5%. Not similar at all.
But the 'last 12 months' include the third quarter of '18 debacle. S&P is looking at a 30%+ run rate for 2019 right now.

We won't know what 2019 will deliver until the last day but with 5.5 months to go it looks like it could fall in line with 1998 and 1999.
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Old 08-08-2019, 08:11 PM   #32
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Just a comment: If the goal is to come up with a planning number, iMO one doesn't want that number to be a good quality estimate of future growth.

Ignoring that obvious fact that no one knows the future, the problem is that the consequences of a "miss" are not symmetric. For an underestimate of future growth, there really is only happiness. But an overestimate of growth could involve considerable pain when expected returns do not materialize.

I think most of us deal with this by deliberately keeping our planning numbers a little low, but the asymmetry is still worth keeping in mind.
Completely agree w/ this and it is a useful process for producing robust results.
One would hope that others, including airplane designers, use it too.
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Old 08-08-2019, 08:19 PM   #33
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In 1999, the P/E of the S&P was more than 30. It's about 22 now, a bit better.
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Old 08-08-2019, 08:20 PM   #34
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But the 'last 12 months' include the third quarter of '18 debacle. S&P is looking at a 30%+ run rate for 2019 right now.

We won't know what 2019 will deliver until the last day but with 5.5 months to go it looks like it could fall in line with 1998 and 1999.
Well, the S&P500 TTM P/E was about 33 on Jan 1, 1999 and is about 22 now (high-ish, but hardly a bubble). Especially considering that back then interest rates were over double the current rates.
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Old 08-08-2019, 08:25 PM   #35
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We cross-posted.

With the P/E now lower than it was in 1999-2000, we may be assured that when the market crashes, it will not crash as hard.
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Old 08-08-2019, 08:42 PM   #36
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I just recently watched "Too Big to Fail", the HBO 2011 movie on the subprime fiasco.

Perhaps the above documentaries will show things from a different angle.

The Big Short (2015) did an excellent job of both storytelling and entertaining, IMO.
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Old 08-08-2019, 09:00 PM   #37
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But the 'last 12 months' include the third quarter of '18 debacle. S&P is looking at a 30%+ run rate for 2019 right now.

We won't know what 2019 will deliver until the last day but with 5.5 months to go it looks like it could fall in line with 1998 and 1999.
Right the YTD returns are about 18%. That is nice and the press has played that up which might give the impression that we were going to the moon.

But as you point out there was that Oct and Dec 2018 that were very poor. So on a rolling 12 month basis things are not nearly so moon-shot like. Which makes me feel better. Perhaps not so much irrational exuberance after all?
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Old 08-08-2019, 09:12 PM   #38
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We cross-posted.

With the P/E now lower than it was in 1999-2000, we may be assured that when the market crashes, it will not crash as hard.
That brings up something I've been calling "downside recency bias". From naysayers you will frequently hear:

"expect a 50% crash" - yes we had two recently, but there was only one between the Great Depression and 2000. 50% certainly could happen again, but many seem to think it is common and expect it any day now.

"average inflation is 4%" - only if you start in 1970 to overweight the Great Stagflation. Long-term U.S. inflation is closer to 2.25%.

"the market is at ALL TIME HIGHS!" - so what? It is usually near or at all time highs - through June it has hit 212 ALL TIME HIGHS since the Great Recession. Which one did you sell on? That is simply a reflection of long-term economic growth, whether from population, technology/innovation, or just increased standard of living.

"interest rates are at UNPRECEDENTED lows" - sort of, except that the 10-year was below 3% for over 20 years from 1935 to 1956. So while bank accounts/money markets were at all time lows, bonds were in a place similar to the 1930s, 40s, and 50s - not unprecedented.

and

"foreign stocks under-perform U.S. stocks" - true for the last decade or so, false for the prior decade, and irrelevant for future decades.

Honestly, I think downside recency bias is worse than upside. It leads people away from diversification, the only free lunch in investing.

Regarding Bogle's prediction in the link was June 2015 - inflation adjusted total return for the S&P500 has been about 44% since then. So he really whiffed that one. Market timing is bad.

I believe valuations matter and expect lower returns in stocks (and guarantee lower returns in bonds) over the near term (i.e. 5 to 10 years). But one routine bear market will re-set all of that.

A tool like FIRECalc already includes a number of lost decades, bubbles, bears, recessions, major wars, interest rates, and inflation. The next 10 years will be different, but I see no reason to believe it will be worse than 1929 or 1966. So I have my AA and am sticking to it, ready to buy on the dip if I hit my rebalance bands.
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Old 08-08-2019, 09:24 PM   #39
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But as you point out there was that Oct and Dec 2018 that were very poor. So on a rolling 12 month basis things are not nearly so moon-shot like.
Yeah, I've noticed a lot of people forgetting what happened during the end of last year. It was about a 20 percent drop, you'd think it would be somewhat memorable.
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Old 08-09-2019, 06:31 AM   #40
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Yeah, I've noticed a lot of people forgetting what happened during the end of last year. It was about a 20 percent drop, you'd think it would be somewhat memorable.
Agree.
All about the psychology of the markets.
If the drop had been considered to be a bear market drop and thus the end of the 10 year bull market, then there would probably be less negative articles now.
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