Overconfidence In Market?

[Andre1969]

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.

My understanding is that the Dow Jones hit a new record sometime in 1929. And, it didn't break that record again until sometime in 1954. That's the only metric they're going for a "market recovery". But, it glosses over the fact that it's still possible to make money, even before the Dow Jones breaks a new record.


For instance, in my own case, my portfolio started losing money at some point in 2000. I think it was late 2000, though. In 2001 I actually hit a new peak, around Memorial Day, but then it started to drop again. I was already negative for the year when the 9/11 tragedy struck, although oddly, by the end of the the year, I was still above, say, 9/10 levels. It was still a down year overall, though. Same for 2002. But then 2003 was a turnaround, and 2004/5/6/7 it kept going up. I'd say I was "fully recovered" (that is, made back my losses from returns, not simply adding more money to make the overall balance higher), sometime in 2004, early 2005 at the latest.


I hit a new peak in October 2007. Bottomed out in November 2008. By November 2009, I was at a new peak, although not "fully recovered", as additional investing helped push that total up. But, by early 2010 I'd say I was fully recovered, in the sense of gaining back my losses, as well.


But, it wasn't until around March or April of 2013 when the SP500 got back to its October 2007 peak, around the 1560 range. going back to the previous recession, it looks like the SP500 peaked around 1500 in July of 2000. It didn't get back to that level until roughly May of 2007.

 

[copyright1997reloaded]

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..)

It is ironic that your "safe" stocks might be anything but. Full disclosure: I own T directly and BP/XOM via XLE. Let's just discuss your very first example: AT&T. While T looks inexpensive on a PE ratio, it's revenues are under pressure on a number of fronts. The landline business is dead, wireless now has low growth and is under pricing pressure due to competition. The Direct TV sat business is going down the drain. They have close to $200B in debt that they have to service on an operating income of about $33B, so that is 6X. They have a negative book of about $16/share due to assets they've had to write down/depreciate.

I'm not saying that AT&T is going out of business, nor am I saying it is a bad investment. What I am saying is that just because something pays a good dividend doesn't mean it doesn't have LARGE risk. The fact at T's yield is 6.45% TELLS YOU that there is risk here.

 

[Dash man]

I think analyzing one index (the Dow) from one point in 1929 to another point in 1954 is misleading. That would only be valid if you never invested any more funds and took out all dividends. Many people here take advantage of market lows by investing more money and reinvesting dividends. Some do it by adding new money and others by rebalancing. During the 2000-2001 and 2008 markets I increased my equity investments to take advantage of the fire sale. You also need to use larger indexes to measure the true temperature of the market.

 

[sengsational]

I think analyzing one index (the Dow) from one point in 1929 to another point in 1954 is misleading. That would only be valid if you never invested any more funds and took out all dividends. Many people here take advantage of market lows by investing more money and reinvesting dividends. Some do it by adding new money and others by rebalancing. During the 2000-2001 and 2008 markets I increased my equity investments to take advantage of the fire sale. You also need to use larger indexes to measure the true temperature of the market.

Exactly my point. Here's an image that indicates 7.5 years is more appropriate for worst expectations.

 

[street]

I think analyzing one index (the Dow) from one point in 1929 to another point in 1954 is misleading. That would only be valid if you never invested any more funds and took out all dividends. Many people here take advantage of market lows by investing more money and reinvesting dividends. Some do it by adding new money and others by rebalancing. During the 2000-2001 and 2008 markets I increased my equity investments to take advantage of the fire sale. You also need to use larger indexes to measure the true temperature of the market.

I totally agree with your thinking. Need to compare apple to apple.

sengsational >> Thanks for the facts, excellent illustration chart.

 

[Earl E Retyre]

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.

I try and take what I believe to be a conservative point of view and assume that at any time my equity investments could take a 50% hit and not recover for 25 years. I doubt that this will happen, but obviously it could. If it only takes 10 years to recover then I am happy. But if it takes 25 years, I would be OK with that too. I would therefore say I am not overconfident.

 

[OldShooter]

@jimbob, something to remember is this: If the guy writing those predictions actually knew anything useful he would have used it to make himself rich and to buy himself a nice private island. He would not be out hustling for clicks and peddling an investment advice letter.



That is not to say that his guess this time might be right but with all the hustlers out there, someone will always have guessed right. All the guesses are just that. Guesses.

 

[DFDubb]

You've all been successfully trolled. Just joined the forum, first post is a link to a dumb article on a nonsense subject, and JimBob is nowhere to be found. I'm guessing JimBob is Lance Roberts, aka the author of the linked article.

Nicely done sir.

 

[Dtail]

@jimbob, something to remember is this: If the guy writing those predictions actually knew anything useful he would have used it to make himself rich and to buy himself a nice private island. He would not be out hustling for clicks and peddling an investment advice letter.



That is not to say that his guess this time might be right but with all the hustlers out there, someone will always have guessed right. All the guesses are just that. Guesses.

Big +1.

 

[Big_Hitter]

You've all been successfully trolled. Just joined the forum, first post is a link to a dumb article on a nonsense subject, and JimBob is nowhere to be found. I'm guessing JimBob is Lance Roberts, aka the author of the linked article.

Nicely done sir.

What the.......

 

[24601NoMore]

You've all been successfully trolled. Just joined the forum, first post is a link to a dumb article on a nonsense subject, and JimBob is nowhere to be found. I'm guessing JimBob is Lance Roberts, aka the author of the linked article.

Nicely done sir.

I share OP's overall concern and observations that there may, indeed, be some / a lot of over-confidence in stocks. Not unexpected after a long bull market and rapidly rising portfolio values.

Not sure why anyone would think this was a "dumb article on a nonsense subject" (or trolling) when discussing what actual recovery times from peak would be. That's risk we all need to be aware of, and in general it appears the expectations are that we can recover from a nasty bear in 2-3 years. As the chart in the article linked by OP shows, that's not the case..seeing, in reality, that it can be multiple DECADES (not "2-3 years") to get back to "even" is a very pertinent point and one that it does not appear is often realized..

SOME with high equity positions can wait 20+ years to get back to "even". As a recent ER'er, I'm not one of those people. Heck, for all I know, we may not even HAVE 20 years left. And that's a key point in the article for those who have taken the time to read it..TIME is a very real factor when you are in retirement. (Imagine how you'd really feel if your portfolio value is underwater from peak for 20+ years..I for one would feel absolutely awful and miserable - and would want to swear off stocks forever as soon as I got back to "even"..I suspect that would not be an uncommon reaction..)

For those in their 20s, 30s or even 40s - high equities are probably fine. But for many of us in our 50s and later..YMMV, but high equities IMHO could be playing with fire, and I do agree with both the article and OP's initial observation..

PS & ETA: I thought it was a very good and insightful article. Does a nice job of clearly conveying the real risk of equities and is also a good counter-balance to the "stocks have returned, on average, 8-10% (or whatever it is) annually since 1920" that we constantly hear. Not saying it's not a sales pitch by the author (say, for annuities), but whatever the reason he wrote it - it has some very compelling data and points and is well worth the read, IMHO.

 

[target2019]

You've all been successfully trolled. Just joined the forum, first post is a link to a dumb article on a nonsense subject, and JimBob is nowhere to be found. I'm guessing JimBob is Lance Roberts, aka the author of the linked article.

Nicely done sir.

It happens. The length of the post threw me off. JimBob seemed like such a whimsical name, that he had to be legit.

 

[target2019]

It is ironic that your "safe" stocks might be anything but. Full disclosure: I own T directly and BP/XOM via XLE. Let's just discuss your very first example: AT&T. While T looks inexpensive on a PE ratio, it's revenues are under pressure on a number of fronts. The landline business is dead, wireless now has low growth and is under pricing pressure due to competition. The Direct TV sat business is going down the drain. They have close to $200B in debt that they have to service on an operating income of about $33B, so that is 6X. They have a negative book of about $16/share due to assets they've had to write down/depreciate.

I'm not saying that AT&T is going out of business, nor am I saying it is a bad investment. What I am saying is that just because something pays a good dividend doesn't mean it doesn't have LARGE risk. The fact at T's yield is 6.45% TELLS YOU that there is risk here.

I noticed that he is 10% invested in stock market. He may have meant to say that his dividend payers are safer.

We inherited VZ, T, and CMCSA. For various reasons I consider them safer than, say, FTR, OMI and GE. Telcomm are slow growers too, and have headwinds, so they do have challenges, as you say, but that is true of all companies. Every investment has risk, as I know too well.

 

[jollystomper]

I read the article the OP posted. I also read the article that it linked to about investing for retirement conservatively (https://realinvestmentadvice.com/the-fatal-flaws-in-your-financial-plan/). Perhaps I get a different view of what they are saying that waht others see.

I believe they are emphasizing "do not let anticipations of market growth get in the way of the basics of saving more and spending less for retirement". In other words, if you are depending solely on stock market growth to build your retirement savings, you may be in trouble.

I can see this point. For us saving was more of a factor than market growth. Being able to save at a high rate meant that, during bear markets (I have been investing since 1984 so have seen a lot), not only did we not need to touch our investments, but we were still able to save and put some of those savings into the market.

I also see their point in "planning for the worst". I would not feel comfortable having 100% of our financial assets in the market, even with a pretty good pension. I have 40-45% because it is a level I am comfortable with that a bear market would not impact our retirement life. In addition, a large cash amount that does not force us to sell equities during down times. We will not make market returns, but we do not need to at this point.

To me, they are more concerned with those who think putting money in the market is like putting it in a bank account where one does to add to it, or rebalance, it just grows steadily. I really do not believe they are trying to scare folks off of the market, or forecast "gloom and doom", but are trying to strike a balance and remind folks of potential long term risks *and* potential ways to mitigate that risk.

 

[Hamlet]

It is ironic that your "safe" stocks might be anything but. Full disclosure: I own T directly and BP/XOM via XLE. Let's just discuss your very first example: AT&T. While T looks inexpensive on a PE ratio, it's revenues are under pressure on a number of fronts. The landline business is dead, wireless now has low growth and is under pricing pressure due to competition. The Direct TV sat business is going down the drain. They have close to $200B in debt that they have to service on an operating income of about $33B, so that is 6X. They have a negative book of about $16/share due to assets they've had to write down/depreciate.

I'm not saying that AT&T is going out of business, nor am I saying it is a bad investment. What I am saying is that just because something pays a good dividend doesn't mean it doesn't have LARGE risk. The fact at T's yield is 6.45% TELLS YOU that there is risk here.

Yeah, people think of AT&T as a “safe” stock, but there is huge risk inherent in their business. Fundamentally, they borrow huge money to build a network and earn that money back over time. The risk in that is if there is a technology jump that quickly makes their network obsolete and they are unable to service the debt they took to build that network. The chance of this is probably impossible to estimate with any accuracy, IMO.

 

[jjflyman]

It is ironic that your "safe" stocks might be anything but. Full disclosure: I own T directly and BP/XOM via XLE. Let's just discuss your very first example: AT&T. While T looks inexpensive on a PE ratio, it's revenues are under pressure on a number of fronts. The landline business is dead, wireless now has low growth and is under pricing pressure due to competition. The Direct TV sat business is going down the drain. They have close to $200B in debt that they have to service on an operating income of about $33B, so that is 6X. They have a negative book of about $16/share due to assets they've had to write down/depreciate.

I'm not saying that AT&T is going out of business, nor am I saying it is a bad investment. What I am saying is that just because something pays a good dividend doesn't mean it doesn't have LARGE risk. The fact at T's yield is 6.45% TELLS YOU that there is risk here.

I Totally agree. I never said in my post anything about those stocks being "SAFE" there is no "safe" stock, I said they paid a good dividend so I will take some risk. I was in several mutual fund and ETF's the past few years, and a majority of the growth from those funds were from FAANG stocks, and I think those stocks became over valued, so I got out before the "crash" from 2 years ago. Had I stayed in those funds, I would just now be back to about even.
I still do like AT&T long term, but I only have about 200 shares.

 

[DFDubb]

Not sure why anyone would think this was a "dumb article on a nonsense subject" (or trolling) when discussing what actual recovery times from peak would be.

It's trolling because the OP didn't post this up in good faith to have a discussion. He simply joined here to post a link to his article for the clicks and will never be back to see what anyone had to say about it.

 

[dtbach]

It's trolling because the OP didn't post this up in good faith to have a discussion. He simply joined here to post a link to his article for the clicks and will never be back to see what anyone had to say about it.

And he got a longer discussion (3 pages worth) than most folks do. Actually was a pretty good discussion I thought.

 

[COcheesehead]

I don't know if I would term it overconfidence, but I have seen folks on here and elsewhere say rebounds from bear markets only take a year or three, when in reality there are many 5 year and even some 10 year periods with negative equity returns.

 

[jjflyman]

It's trolling because the OP didn't post this up in good faith to have a discussion. He simply joined here to post a link to his article for the clicks and will never be back to see what anyone had to say about it.

Darn, I got duped. I didn't even think of that

 

[pb4uski]

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.

FWIW, the Portfolio Visualizer analysis of VFINX inflation adjusted with dividends, seems to confirm that left-most green line of a recovery period of 14 years on an inflation-adjusted basis with dividends reinvested.

 

[pb4uski]

And he got a longer discussion (3 pages worth) than most folks do. Actually was a pretty good discussion I thought.

Yes, the topic is a vailid one for members to deliberate irrespective of whether the OP is a troll or not. My gueis that the OPs peddling annuities.

 

[JimBob]

Appreciate The Comments--And No I'm Not Lance Roberts

Appreciate all the comments. And no, I'm not Lance Roberts Just a normal joe. I wasn't trying to troll folks. Nor was I trying to criticize. We all have to make our own investment decisions. I claim no extraordinary wisdom. I was just making an observation.

I have no affiliation with Lance Roberts, I just saw the article and it clicked with my impressions and I thought would be a good topic of conversation for the forum.

I retired several years ago in my early 50s. I'm by no means rich, but we have enough. I will probably soon be going back to work, but out of a desire to remain productive, not out of a need for income. Retirement is great, but it can get boring. And why do wives who when you are working complain your never home, suddenly decide after retirement you are home way too much.

I'm in the camp that once the game has been played, stop playing. I do own some stocks, mostly dividend producers, in a Roth IRA, but overall its a small percentage of my portfolio.
I'm mostly invested in bonds.

I could be earning more, enjoying the return the market has produced, but again, if being conservative gives me sufficient income, why take the risk?

My purpose with the thread was merely to get folks opinions on if the forum is too optimistic about the market, and if we have been conditioned by this latest bull.

If, as I believe, we are in for very dark times ahead, when the Central Banks are unable to continue to levitate the economy and the markets, a lot of folks over invested will be severely hurt very late in life.

There is a lot of great thinkers in the forum, so I was just seeking to learn from others. Thanks again for your comments and for the great insights on the forum.

 

[DFDubb]

He's back! Well color me corrected!

If, as I believe, we are in for very dark times ahead, when the Central Banks are unable to continue to levitate the economy and the markets, a lot of folks over invested will be severely hurt very late in life.

Care to explain this further? What are the dark times ahead that you envision? What is the catalyst? Obviously another recession will be around at some point, but the crowd here probably has a very good handle on AA, personal risk tolerance, etc...

I'm like 95% equities, but I'm also only 40 and about 10 years away from pulling the plug. If the markets tank, that's good for me as I'll keep buying.

 

[marko]

Did anyone fact check the market taking 25 years to recover from 1929? .

Factual or not, (I would like to know, though) I think the demographic profile of investors from 1929 to 1954 is entirely different than it is now. Back then there weren't 401ks, MFs, instant information and so on. A lot more average people participating in the market now than then. It changes how the market behaves to a certain extent and there are better safeguards in place.

Having said that, I would suggest the OP print a chart of the Dow for any 25 year period, paste it on a wall and step back 15 feet. Despite the ups and downs, there is a clear upward trend that's been going on for over a century.

Personally, my faith in the market was solidified in early '09 when "the end of the world as we know it" Great Recession slowly moved into the rear view mirror.