Overconfidence In Market?

[JimBob]

Been reading the forum for some time, but first post. Excellent forum. I've been struck since I started reading the forum at how many here seem to have exorbitant faith in the market, and allocate accordingly. I wonder if a lot of this is not the conditioning of a 10 year bull market, and if this faith is not misplaced. Would the conversation be different if it was 1954 and the market had still, after 25 years, not recovered its 1929 high?

We are all conditioned by our experiences. My father grew up during the depression, was a WWII vet, and was very conservative with money. Even in old age one of his favorite desserts was left over rice with milk and sugar, because he had grown to love it as a boy when it was the only sweets the family could afford.

I understand the FIRE calculator and that over the last 100 years the market has gone up exponentially. But most of us don't start investing the day we are born, or live 100 years. When we think about retirement we think about 60 year timeframes generally (30 or so working and accumulating, and 30 retired). As the below article shows, in history there have been many periods where the market has been flat for a decade or more

https://realinvestmentadvice.com/strike-three-the-next-bear-market-ends-the-game/

After the longest bull market in history, historical gains, and a world economy and market almost completely dependent on Central Bank largesse, I'm wondering if there is not too much optimism on the forum?

 

[HI Bill]

If you follow a traditional AA, and have diversified domestic and international stocks and bonds, and some real estate, you are as safe as you can be, most likely. Everything has risk. There are three major 'risks' that I see listed below, and we can only partly prepare for the third, IMHO. I would anticipate that one or more may come about within the next 100 years:

1) WW III (world-wide war, and/or nuclear war)
2) Catastrauphic natural event (massive plague, massive tsunami, direct asteroid hit, supervolcano eruption that causes rapid, drastic cooling, etc.)
3) Failure of US and/or other country's financial systems after we go too far into debt and the service on the debt becomes unmanageable.

The central banks have regulated the financial systems in a way that have arguably have lessened the liklihood of major recessions/depressions, at the potential cost of allowing economies to be overheated, and debt levels to be too high (see #3)

So, besides being diversified, what else can you do? While I certainly don't expect the past decade's returns to continue forever, even Vanguard has recently upped their annual returns forecast.

If it was 1954, and the market had not recovered since 1929, America must have given up all hope and all effort to recover. That's not who this country is.

 

[Cut-Throat]

After the longest bull market in history, historical gains, and a world economy and market almost completely dependent on Central Bank largesse, I'm wondering if there is not too much optimism on the forum?

I see this also.... But, I still believe in the 'Fundamentals' of Age in Bonds, Index Funds, KYFHOYI (Keep Your Fricken Hands Off Your Investments)Etc. Etc. With that said I practice this and invest in VTINX.

 

[Dtail]

Sounds like the advisor wants to give ahem advice for $, so your returns could be even less.

 

[Big_Hitter]

@Howie - 80/20 IS risky, but it could be optimally risky

 

[Hamlet]

Been reading the forum for some time, but first post. Excellent forum. I've been struck since I started reading the forum at how many here seem to have exorbitant faith in the market, and allocate accordingly. I wonder if a lot of this is not the conditioning of a 10 year bull market, and if this faith is not misplaced. Would the conversation be different if it was 1954 and the market had still, after 25 years, not recovered its 1929 high?

We are all conditioned by our experiences. My father grew up during the depression, was a WWII vet, and was very conservative with money. Even in old age one of his favorite desserts was left over rice with milk and sugar, because he had grown to love it as a boy when it was the only sweets the family could afford.

I understand the FIRE calculator and that over the last 100 years the market has gone up exponentially. But most of us don't start investing the day we are born, or live 100 years. When we think about retirement we think about 60 year timeframes generally (30 or so working and accumulating, and 30 retired). As the below article shows, in history there have been many periods where the market has been flat for a decade or more

https://realinvestmentadvice.com/strike-three-the-next-bear-market-ends-the-game/

After the longest bull market in history, historical gains, and a world economy and market almost completely dependent on Central Bank largesse, I'm wondering if there is not too much optimism on the forum?

To be fair, a lot of the posters here have gone through a lot more than just the last 10 year bull run. I started investing in 1997 or so. I’ve been thru the dotcom boom and meltdown and the housing boom and the Great Recession that followed. I’ve see my portfolio decline by 40% or so in a pretty short period when that decline amounted to several times my annual income.

A lot of other posters have 20+ more years in the market than me. So many of us have been thru bear markets. One of those 10 year flat periods was 2000 to 2010 or so.

There are plenty of people that express bearish sentiment on the boards. I suspect we are going to see a 30% decline at some point from these levels. Do I dare go 100% to cash on my suspicions? Nope. I trim my stock allocation to a number that allows me to accept the risk that stocks could get cut in half very quickly.

Note that I have been bearish for a number of years while the market has continued higher. I’d have a lot less money if I had gone to cash on that sentiment, rather than keep to an asset allocation that makes sense for me.

 

[Totoro]

I've been struck since I started reading the forum at how many here seem to have exorbitant faith in the market, and allocate accordingly.

Welcome! Feel free to formally introduce yourself in the "Hi .." section.

On your post: This bit sounds like a strawman to me .. did you keep count or have a list? Or might one be projecting?

 

[NW-Bound]

If one had exorbitant faith in the market, he would go more than 100% stock.

How to do more than 100% stock? By mortgaging his hard assets and leveraging into the market.

Nobody here does that, or rather none of the frequent posters.

 

[copyright1997reloaded]

Been reading the forum for some time, but first post. Excellent forum. I've been struck since I started reading the forum at how many here seem to have exorbitant faith in the market, and allocate accordingly. I wonder if a lot of this is not the conditioning of a 10 year bull market, and if this faith is not misplaced. Would the conversation be different if it was 1954 and the market had still, after 25 years, not recovered its 1929 high?

We are all conditioned by our experiences. My father grew up during the depression, was a WWII vet, and was very conservative with money. Even in old age one of his favorite desserts was left over rice with milk and sugar, because he had grown to love it as a boy when it was the only sweets the family could afford.

I understand the FIRE calculator and that over the last 100 years the market has gone up exponentially. But most of us don't start investing the day we are born, or live 100 years. When we think about retirement we think about 60 year timeframes generally (30 or so working and accumulating, and 30 retired). As the below article shows, in history there have been many periods where the market has been flat for a decade or more

https://realinvestmentadvice.com/strike-three-the-next-bear-market-ends-the-game/

After the longest bull market in history, historical gains, and a world economy and market almost completely dependent on Central Bank largesse, I'm wondering if there is not too much optimism on the forum?

Then don't invest. I'm curious, in what manner are you going to store your accumulated wealth?

p.s. I've been investing since 1978. That is 41 years. Looking at your chart, the longest period to get to even was 29 years. So if one is young (e.g. 20) even the worse case scenario would still suggest investing as a way of storing retained wealth.

 

[timemoveson]

Been reading the forum for some time, but first post. Excellent forum. I've been struck since I started reading the forum at how many here seem to have exorbitant faith in the market, and allocate accordingly. I wonder if a lot of this is not the conditioning of a 10 year bull market, and if this faith is not misplaced. Would the conversation be different if it was 1954 and the market had still, after 25 years, not recovered its 1929 high?

We are all conditioned by our experiences. My father grew up during the depression, was a WWII vet, and was very conservative with money. Even in old age one of his favorite desserts was left over rice with milk and sugar, because he had grown to love it as a boy when it was the only sweets the family could afford.

I understand the FIRE calculator and that over the last 100 years the market has gone up exponentially. But most of us don't start investing the day we are born, or live 100 years. When we think about retirement we think about 60 year timeframes generally (30 or so working and accumulating, and 30 retired). As the below article shows, in history there have been many periods where the market has been flat for a decade or more

https://realinvestmentadvice.com/strike-three-the-next-bear-market-ends-the-game/

After the longest bull market in history, historical gains, and a world economy and market almost completely dependent on Central Bank largesse, I'm wondering if there is not too much optimism on the forum?

OP, I've been investing since 1985 and survived many ups and downs. There are also many of us who are not Americans and don't live in the US and must consider the entire world and our own home bias. By this time in our lives (e.g., 50's and beyond), many of us are multi-millionaires and intend to live indefinitely on our assets and pass them to the next generation (or some other legacy plan, or spend it down). I'll speak for myself and simply say I do not share your concerns on a day to day basis. I dealt with it through a focused earn/save/invest plan, real risk management, and a very long view. Luck also helps. I'm counting on some to counter the bad times which came and will come again.

 

[RobbieB]

I'm heavy 75% into equities but not as heavy as Pops who was 80% when he died at 92. I tend to follow Pops lead, hasn't failed me yet.

Bonds are just flat out boring. I like the excitement of big swings!

 

[WestUniversity]

Been reading the forum for some time, but first post. Excellent forum. I've been struck since I started reading the forum at how many here seem to have exorbitant faith in the market, and allocate accordingly. I wonder if a lot of this is not the conditioning of a 10 year bull market, and if this faith is not misplaced. Would the conversation be different if it was 1954 and the market had still, after 25 years, not recovered its 1929 high?

If you look at the long term performance of the S&P 500 since 1871 the return has been a CAGR of something like 10.5%.

Yes the market has had a good run of late but confidence in the market as a whole is hardly an example of recency bias IMHO...

 

[yakers]

Well, if you want to cover some major declines you could go to the Permanent Portfolio 25% equities, 25% long term treasuries, 25% gold, 25% cash. Not the best possible return but covers some types of decline (not WWIII/asteroid) better than common AAs. And real estate is a possible additional category to consider. Downside, if you have to flee, hard to take it with you.

 

[dtbach]

Over confidence in this market? Hardly, as this one has been the classic "climb a wall of worry". Nothing like the heady excitement in 1999-2000. But it will break in time. The problem is, nobody rings a bell to let you know. It could keep climbing that wall for years. You want to miss more gains?
I have done quite a bit of trimming the last year and will continue to trim gains, but get out of the market totally? NO WAY.

 

[Sunset]

Nope.
Have ZERO debt.
Have about 5 years worth in cash, but since dividends will mostly continue, that will stretch out a few more years.

I do think, people today, who barely squeak over the line of "having enough" should be concerned, or work OMY.

 

[pb4uski]

Been reading the forum for some time, but first post. Excellent forum. I've been struck since I started reading the forum at how many here seem to have exorbitant faith in the market, and allocate accordingly. I wonder if a lot of this is not the conditioning of a 10 year bull market, and if this faith is not misplaced. Would the conversation be different if it was 1954 and the market had still, after 25 years, not recovered its 1929 high?

We are all conditioned by our experiences. My father grew up during the depression, was a WWII vet, and was very conservative with money. Even in old age one of his favorite desserts was left over rice with milk and sugar, because he had grown to love it as a boy when it was the only sweets the family could afford.

I understand the FIRE calculator and that over the last 100 years the market has gone up exponentially. But most of us don't start investing the day we are born, or live 100 years. When we think about retirement we think about 60 year timeframes generally (30 or so working and accumulating, and 30 retired). As the below article shows, in history there have been many periods where the market has been flat for a decade or more

https://realinvestmentadvice.com/strike-three-the-next-bear-market-ends-the-game/

After the longest bull market in history, historical gains, and a world economy and market almost completely dependent on Central Bank largesse, I'm wondering if there is not too much optimism on the forum?

I guess that I would characterize it as confidence in stocks.... in 30 or so years we'll know whether it is overconfidence or not. In the long run in order to have growth you need solid, profitable businesses irrespective of any central bank moves. (Though I will admit that the valuations of businesses like Amazon and Uber et al cause me to shake my head).

I've been investing since 1977. I've seen a lot of ups and downs and sideways. It is what it is. I think I am a fairly disciplined investor. I was a fan of index funds before they were hip.

Besides, what is the alternative? I'm guessing that the author of the article is pitching annuities, but he doesn't say what the alternative other than "call me".

The first article shows a graph that if you held the S&P index in 2000 that it would have taken 14 years to recover. That is true. It is the lost decade (nominally) and even longer on an inflation adjusted basis.

But what would have happened if you played it safe.

The first graph below shows the inflation adjusted balances of a portfolio starting with $10k and $10k annual contributions from Jan 2000 to Apr 2019. Blue line is S&P 500 Index Fund, Yellow is a 60/40 portfolio and Red Line is cash/CDs. From 2000 to 2010 was pretty much similiar for all with a little more voaltility for equities, and Cash has languished since then... but if you played it safe at the end of Apr 2019 you have less than the $190k that you have invested because CD returns have failed to keep pace with inflation.

The second graph is the same, but from Jan 1987 to Dec 1999. Interestingly, this graph is similar to the period from 2010 onwards. For this time period Cash/CDs still didn't keep pace with inflation, albeit by a minor amount... only slightly less than the $130k invested.

Together, these graphs cover much of my adult life.... I'm willing to accept some periods of sideways in exchange for the prospect of periods of good returns.... besides, what's the alternative?

 

[skipro33]

I think FIREcalc has covered every scenario since the inception of the stock market for any time frame that has ever occurred and projects out any and all future possible scenarios as far as reasonably possible. If that doesn't instill confidence investing in the market, then nothing else is going to.

 

[OldShooter]

Well overconfidence can only be assessed in the rear view mirror. IMO what most of us have is a level of confidence that the statistics of the future will approximate the statistics of the past. IOW inductive reasoning. We live our lives by inductive reasoning, flawed though it may be. We have no other way to plan for the future.


FWIW I started investing in 1972 and this approach has worked so far.

 

[racy]

Something that reassures me about the future is the number of patents issued. Last year 338,072 U.S. patents were issued. Ten years ago it was 182,556.
https://www.statista.com/statistics/256571/number-of-patent-grants-in-the-us/

 

[Maenad]

I would also caution people about listening to bears that talk about the longest bull market in history. The S&P dropped 20% in Q4 2018, which is officially a bear market, and breaks the streak. Yet, for so many it doesn't seem to "count". Ask yourself why? Is it because it recovered in 4 months? Is it because there was no recession to go with it? Any "yeah but..." is moving the goalposts, so the next question is "what is this person trying to sell me? Why are the so invested in scaring me?" or "Why am I trying to scare myself?"

 

[jjflyman]

Been reading the forum for some time, but first post. Excellent forum. I've been struck since I started reading the forum at how many here seem to have exorbitant faith in the market, and allocate accordingly. I wonder if a lot of this is not the conditioning of a 10 year bull market, and if this faith is not misplaced. Would the conversation be different if it was 1954 and the market had still, after 25 years, not recovered its 1929 high?

We are all conditioned by our experiences. My father grew up during the depression, was a WWII vet, and was very conservative with money. Even in old age one of his favorite desserts was left over rice with milk and sugar, because he had grown to love it as a boy when it was the only sweets the family could afford.

I understand the FIRE calculator and that over the last 100 years the market has gone up exponentially. But most of us don't start investing the day we are born, or live 100 years. When we think about retirement we think about 60 year timeframes generally (30 or so working and accumulating, and 30 retired). As the below article shows, in history there have been many periods where the market has been flat for a decade or more

https://realinvestmentadvice.com/strike-three-the-next-bear-market-ends-the-game/

After the longest bull market in history, historical gains, and a world economy and market almost completely dependent on Central Bank largesse, I'm wondering if there is not too much optimism on the forum?

I agree with your post, although I suspect many here won't.
I'm only 10% in the market, and thats mostly good dividend payers (T, BP, XOM, BMY ect..)
I see the markets at near record high, and I see more downside than upside right now. My window of time to be in the market is closing, so I don't want to go through a 30% and lose a decade in the market.
We are very conservative with our money, mostly in CD's and treasuries, but that will throw off plenty of interest to pay most of our living expenses , and when I start with SS at 62 (another subject the forum has many opinions) that, a small pension and DW SS, we will have more fixed income than we can spend. No reason for me to be heavy in the market anymore.

 

[street]

Not overconfidence for me in the markets but what I am overconfidence in is time that I have in the markets crash. For me I'm setup to most likely will never having to cash in my investments so my confidence is in my recovery time. I have not much confidence in the markets staying on this path but confidence is the long haul and weathering any storm.

 

[foxfirev5]

I agree with your post, although I suspect many here won't.
I'm only 10% in the market, and thats mostly good dividend payers (T, BP, XOM, BMY ect..)
I see the markets at near record high, and I see more downside than upside right now. My window of time to be in the market is closing, so I don't want to go through a 30% and lose a decade in the market.
We are very conservative with our money, mostly in CD's and treasuries, but that will throw off plenty of interest to pay most of our living expenses , and when I start with SS at 62 (another subject the forum has many opinions) that, a small pension and DW SS, we will have more fixed income than we can spend. No reason for me to be heavy in the market anymore.

While not as light in equities I too agree with the post. I see no need to go over my current allocation of 40% equities. Actually I measure it as a fixed number of shares. The percentage means little to me. If it grows, fine. If it doesn't I still have enough. My first equity investments were in 1973 and over time I've endured some rather long dry spells. Meanwhile I find my current cash flow of interest/dividends, ss and small pension about as stress free as I can get.

 

[Cut-Throat]

I think the majority of posts on this thread proves the OP's point.

 

[sengsational]

I think the majority of posts on this thread proves the OP's point.

Did anyone fact check the market taking 25 years to recover from 1929? Posts like this sometimes use "facts" from clickbait articles that turn out to be less than complete. The "correct" measure would be reinvested dividends and inflation adjusted.



If by overconfident one means I don't think the next downturn will span 25 years, then I am overconfident. I wouldn't be surprised if it took 10 years, though.