Why I believe we are about to embark on a historic bull market run

[Running_Man]

I have come to believe that the stock market is set to soar to unbelievable heights over the coming 2-5 years, ending with the S&P 500 somewhere around the 12,000 range. This has come to me after ruminating and watching multiple times a Mike Green one hour video which paradoxically was titled "The trouble with Passive Investing". After contemplating what he was stating was happening in the market and confirming the trends he spoke of are true I have the following conclusions:

1) Since 2002, passive investing has been outpacing active investing in terms of total market share of the stock market universe. This means on balance active investors have been selling to passive investors and active investors have been leaving the market.

2) Passive investors, for a large majority, means there is no analysis done on individual companies to determine the value needed, a formula is adopted by passive funds - do I have cash I buy stocks or do I need cash I sell stocks. Active funds held cash reserves to be utilized when prices reached what was felt by the investor to be a good price to purchase stocks. A very large indicator of how this is occurring is in the European government debt with negative interest rates. The largest holders are United States passive index funds, who are forced to buy more of the bonds as the government purchases the bonds to drive down their interest rate and increase the price and as the market capitalization of the negative debt is increasing at the fastest rate, this leads to a greater weighting in the global bond indexes leading to a feedback loop. The negative rates of course do lead to some selling as the bonds don't yield enough and drive more funds into passive stock investments.

3) Active investors leave the market as when they feel values are too high they hold more cash and then under perform passive investing by ever great amounts, exacerbated by the ZIRP conditions leading to zero returns on their cash while passive indexes soar. Since 2011 this is leading to a hockey stick curve in the percentage of the market that passive investing controls. Presently about 90 percent of all transactions and 38 percent of the holders of equity capitalization. There has been an explosive increase in passive holdings over the past 8 years

4) This means as passive funds continue to receive funds they must buy the index whatever the level of the index, and the reduced pool of active investors is lessening the pool from which to buy the stock. This effect is clear to see on the S&P 500 which has now had 4 days in the last 2 years where every stock in the S&P 500 traded in the same direction something that has never happened.

5) Older investors are far more likely to hold active funds and investors younger than 30 hold nearly 90 percent of their equity in passive funds. So the trend of passive investing is only going to increase, leading to wider price gains in order to break investors hold of their stocks. SO over the next 2 years passive will surpass the holdings of funds in the market to over 50%, further reducing the supply from active investors. And the passive indexes will most likely be performing far better than active managers and confirm in investors minds the need for passive investing.

6) Equity holdings as a percentage of a portfolio is also growing leading to more money being invested in the market and as passive investing will be driving up the indexes price moves will become more and more rapid.

7) Once the passive market achieves more than 50% of the market, the lack of active managers is going to increasingly reduce the liquidity to the market and move will become explosive, by the end 10-20 percent increase in a month will be seen. I expect something along the lines of a 30-35 percent gain followed by a 35-40 percent gain followed by a 90-100 percent gain will occur in stocks.

IF this occurs the truly difficult thing to do is to sell before the end of the bull market, because once the selling begins there is no value hunters to absorb the supply but that is a discussion for the future. The alternative view that the passive investing tipping point causes an immediate decline seems incredibly unlikely as the Federal Reserve seems clearly interested in maintaining stock market increases in fixing the problem with pension funding and hoping to proved some inflation to offset other debt problems.

If this occurs the best investment should be the S&P 500 as index funds invest more in the largest capital items and S&P 500 companies make up a larger market cap of most indexes. But all the indexes should see large positive moves.

[mn54]

so, based on this belief, are you going to change your AA? will you be 100% equities? what has been your belief up to now?

[timo2]

Quote:

Originally Posted by Running_Man I have come to believe that the stock market is set to soar to unbelievable heights over the coming 2-5 years, ending with the S&P 500 somewhere around the 12,000 range.

All the fixed indexed annuity salesman will love your post!

[Running_Man]

Quote:

Originally Posted by mn54 so, based on this belief, are you going to change your AA? will you be 100% equities? what has been your belief up to now?

When investing I think investors and certainly I am wary of the probability of being wrong and what that would mean to me if i am wrong, kind of a personal stress test prior to the incorporation of any changes to a portfolio before one were to do it. I think a balanced portfolio has very positive advantages and would never be 100% equities. However investing a little over 1% of my portfolio in a certain one year S&P500 call, if my prediction of a historic market does occur will expand to over 2 times the value of my entire portfolio, while limiting my loss to a little over 1% of the total value of my portfolio.

[UnrealizedPotential]

The financial markets are generally unpredictable. George Soros

[kimcdougc]

I want to keep an eye on this thread to see where your prediction goes.

[Running_Man]

Quote:

Originally Posted by UnrealizedPotential The financial markets are generally unpredictable. George Soros

If that was true no one would invest in markets, as a matter of fact most individuals that invest in passive markets believe that markets are entirely predictable and expect prices to go ever higher, any low will be soon reversed and a new high achieved, it is only a matter of time and has been proven on every decline over the history of the stock market (at least in the US).

And you honestly are quoting a man who once made 1 billion dollars in a single day and is the author of the financial theory of reflexivity which he used to amass his fortune?

[marko]

Quote:

Originally Posted by kimcdougc I want to keep an eye on this thread to see where your prediction goes.

But on Feb 22, 2018 Running Man posted:
"As of today I am back to 0% stocks. The action of the market and the confidence of the average participant leads me to fear there is shortly to be a move of epic proportions and speed to the downside. "
Thread here: http://www.early-retirement.org/foru...cks-90933.html

So, what has changed? We all know what happened to the 'epic' movement to the downside over the past 22 months.

[UnrealizedPotential]

Quote:

Originally Posted by Running_Man If that was true no one would invest in markets, as a matter of fact most individuals that invest in passive markets believe that markets are entirely predictable and expect prices to go ever higher, any low will be soon reversed and a new high achieved, it is only a matter of time and has been proven on every decline over the history of the stock market (at least in the US). And you honestly are quoting a man who once made 1 billion dollars in a single day and is the author of the financial theory of reflexivity which he used to amass his fortune?

Most individuals do not have Soros net worth, so I really don't care what they predict. But if you are looking for a back and forth war of words you will have to look elsewhere.

[corn18]

Quote:

Originally Posted by marko But on Feb 22, 2018 Running Man posted: "As of today I am back to 0% stocks. The action of the market and the confidence of the average participant leads me to fear there is shortly to be a move of epic proportions and speed to the downside. " Thread here: http://www.early-retirement.org/foru...cks-90933.html So, what has changed? We all know what happened to the 'epic' movement to the downside over the past 22 months.

Based on this, we should all do the opposite of what RM predicts.

[Tiger8693]

Quote:

Originally Posted by marko But on Feb 22, 2018 Running Man posted: "As of today I am back to 0% stocks. The action of the market and the confidence of the average participant leads me to fear there is shortly to be a move of epic proportions and speed to the downside. " Thread here: http://www.early-retirement.org/foru...cks-90933.html So, what has changed? We all know what happened to the 'epic' movement to the downside over the past 22 months.

It's fairly obvious from the previous posts, and from the "tone"of this post, that the OP is assuming that the herd is stupid, will invest no matter what, and will drive the market. If that is NOT the fact, then he is schizophrenic.

[audreyh1]

OMG I can’t believe you posted this!

Sorry, I’m just used to your dire warnings.

Oh wait, this is a dire warning!

[RobbieB]

I like stocks, always have. What else is there bonds? CD's?

AA - 80-18-2

[Running_Man]

Quote:

Originally Posted by marko But on Feb 22, 2018 Running Man posted: "As of today I am back to 0% stocks. The action of the market and the confidence of the average participant leads me to fear there is shortly to be a move of epic proportions and speed to the downside. " Thread here: http://www.early-retirement.org/foru...cks-90933.html So, what has changed? We all know what happened to the 'epic' movement to the downside over the past 22 months.

I bought back in on April 4th as I reported in that same thread:
http://www.early-retirement.org/foru...ml#post2034060
I then in October of 2019 bought 1% of my portfolio in S&P500 puts as detailed here:
http://www.early-retirement.org/foru...uts-94093.html

Which I sold on December 24,26 and 30th
http://www.early-retirement.org/foru...ml#post2162942

[NW-Bound]

Many weird things have happened in history. I would not rule anything out. How probable is this described scenario? Beats me!

The OP was talking about buying a bit of call options, and not going on margin to load up on stocks. If it does not work out, he won't be broke. I guess that's OK.

[Running_Man]

Quote:

Originally Posted by corn18 Based on this, we should all do the opposite of what RM predicts.

This is the reason I feel the markets will move one way, noone will even do the cursory investigation to see what the facts of what was actually done posit a logical response based on incorrect facts or headlines.

When I hold a strong view, I post it here, by the time I post here I have thought about the idea for quite a while and have in my mind an opinion of where and how the market should move and invest that way, if the market does not move in the way I expect I correct my action and end the investment to re-assess.

I do not hold that the market will move up exponentially haphazardly, the entire move in negative bonds in the summer was crazy, the move in the Nasdaq in 2000 was crazy and they had a lot in common with the move in US markets to passive investing, the reduced the amount of stock available to purchase which is outstanding causing a shortage which leads to higher prices. This to me is as logical an outcome as must occur. But this is what I think can and will occur and I look for the best investments to take advantage of this theory while risking as little of my capital as possible.

[Montecfo]

Net funds flowing into passive vehicles have no doubt supported the prices of stocks in the respective index. When this begins to slow, then I think you will see active management begin to perform better relative to indices.

But as far are your primary premise, I think it is false that fund flows into indices will drive those indices into the stratosphere. You have too much hedge fund money and high frequency trading to allow that the happen.

Your premise seems to suggest that once someone invests in an index, they will not sell the index and invest elsewhere, or look for better values in individual stocks, real estate, commodities, etc. And vice versa.

[jollystomper]

Goodness, if this happens, I will have huge RMDs to deal with. Oh the horror...

[REWahoo]

Quote:

Originally Posted by Running_Man ...noone will even do the cursory investigation...

I don't think so. Noone hasn't posted here for years.

[Montecfo]

Quote:

Originally Posted by REWahoo I don't think so. Noone hasn't posted here for years.

especially since he got a good look at Mrs. Brown's daughter...