Big Question is "Yes or No"

[cute fuzzy bunny]

About 15 months ago I had an additional half mil to invest.

I considered investments overpriced and that time to be a bad one entry-wise.

After airing my plight here I was convinced to plow it on in with good asset allocation. That half mil is up $90k.

Right now I'm pretty happy with the decision to forego what I thought were high prices. Things havent looked so hot yesterday and today. A month from now I might be less happy with that decision.

I think there are maybe a couple of times in your investing life when you need to make macroscopic decisions based on whats going on in the market. Nasdaq 5000. 9/11. You get the idea.

Timing based on some market valuation model doesnt seem like a good idea. Buying investments that are below fair market value with a significantly obvious upside is a good idea. Good asset allocation and maintaining most of your money in it is a good idea.

Right now Morningstar has the overall stock market 9% overvalued. At the bottom of the trough in 2002 they had the overall market undervalued by 20%. (using 'morningstar fair value' @ http://www.morningstar.com/cover/pfvgraph.html ).

See, I had the market about fairly valued at the bottom of the 2002 trough and it seems terribly overvalued to me right now. Different strokes, different folks.

So while I think its expensive, and I'm torn over what to do with a lot of new cash, I'm not changing my allocations or taking any money out. Even though I am all but certain the last 2 days are the start of a couple of very, very bad months.

Why? Because I'm not sure, neither is anyone else, and we're not at one of those 'macroscopic' points where its obvious that something is very wrong or very right to change an investment strategy.

So in my opinion, *****'s market timing is all wet...proven wrong twice in the last 10 years. And because he's also a troll, he gets a double dip of pancakes and syrup...

When Munger says "good times and bad times", he's talkling about individual investments. Its a lot easier to determine fair market value for a company and a good entry point a la buffett than to detemine the same for the broad markets.

 

[hocus]

The Town Sheriff has spoken.

 

[cute fuzzy bunny]

So has the village idiot. What...are you mad because I actually clearly stated my position and used actual data sources and references? No "magic tool" required?

 

[hocus]

Please, sir. Requesting permission to speak, sir. May I speak, sir? Thank you, sir!

 

[cute fuzzy bunny]

Only if you have a pancake on your head.


And from my perspective, preferably if you have something to say thats actually accurate, valid and useful. And that we havent heard 10000 times before?

Or you can just keep trying to create dissension and make me feel bad with this "town sheriff" thing. Good luck with that.

 

[hocus]

Thank you for taking time from your busy day to respond to my request, sir. You are so wonderful to all of us, sir. I just wanted to thank you for the many fine contributions you have made in recent days, sir. You are too good to us, sir. All hail intercst! Thank you again, sir.

 

[cute fuzzy bunny]

You are most welcome.

 

[Cal]

So has the village idiot.  What...are you mad because I actually clearly stated my position and used actual data sources and references?  No "magic tool" required?

Not only that - you actually practice what you preach.

 

[Cal]

Thank you for taking time from your busy day to respond to my request, sir. You are so wonderful to all of us, sir. I just wanted to thank you for the many fine contributions you have made in recent days, sir. You are too good to us, sir. All hail intercst! Thank you again, sir.

While he is speaking with sarcasm, I speak with sincerity, I appreciate your contributions to the board. You have given a lot of good advice, have a great sense of humor and great taste in animals wearing food.

 

[cute fuzzy bunny]

Thank you Cal, I think a lot of us make very positive contributions to help make this community what it is. Its therefore a little disturbing when that community and those contributions are damaged by a troll.

I'm sure some people arent happy with the way I treat poor Rob, but I havent heard anything from anyone yet, either publicly or privately, real person or ***** pretending to be someone else.

 

[Cut-Throat]

I think with this thread we have now started the

"Great Pizza vs. Pancake on the Head Debate"

With this discussion, hopefully, we call learn from each other as we venture forth into this realm of knowledge.

 

[brewer12345]

TH, its not that I don't appreciate the recent dada-ist turn of discourse, but I feel compelled to point out that you have been feeding the troll a bit too much lately. What ever happened to letting it die a hungry death?

 

[cute fuzzy bunny]

I think with this thread we have now started the

"Great Pizza vs. Pancake on the Head Debate"

With this discussion, hopefully, we call learn from each other as we venture forth into this realm of knowledge.

I've had recent death threats from the "pizza" camp, but you know that bunny is a liar and wont admit that it made a mistake. Our special Safe Pizza/Pancake Handling Tool has been specially designed to properly remove the pizza and replace it with the pancake on the head. Current Pizza valuations are simply outrageous and there is no safety in pizza. Due to the death threats, I have changed my name to "TH now with pizza on my head" to help keep my family safe.

Brewer - starving this troll doesnt work. Its been well proven.

 

[unclemick]

TH
You need to reread your Ben Graham. It's obvious from your pictures that the cheese needs to be more diversified across the surface of your pizzas - increasing the fling yield when launched from the proper tool - Thus increasing your margin of safety.

Watch out for pizza cutters - slice and dice might lead to busted pizzas - rendering them no longer useful to support good head placement.

 

[cute fuzzy bunny]

LOL...thanks Mick...thats sure to keep all of us on the right track to a safe retirement

Whew...glad things died down a little...I was almost forced to set it up such that everyone who opened a Hoco-mania thread would get to listen to one of william shatners songs in the background while viewing photos of animals with food on its head.

 

[kayelem]

Call me an old traditionalist but frankly the rabbit with the pancake on its head is the best way to go.  I think the pizza is a little too risky. With pizza the rabbit may be tired and not hop around too much, but on the other hand he may have a lot of energy and what a mess that would be.

Definitly the pancake, but don't complicate adding syrup etc.

 

[Stephen_C]

In regards the "Big Question". I think is very ok to hold cash....although that is not a risk free activity (inactivity?), 'cause the market moves on regardless. Call it an opportunity cost. But if the alternative is to invest in uncertain conditions its money well not spent.

Another question, perhaps is what motivates us to put our money at risk beyond the level justified by the return we need. I believe for myself that I try and "overachieve". That is, I set an annual goal of return, and am delighted when I overachieve. But, that essentially means that I am taking more risk that necessary, if my original investment goal was properly grounded in need, and risk vs reward. After reaching that goal (hopefully), I should really then reduce my risk profile significantly.

But in reality I don't....it's just human nature....and why casinos always end up winning in the end. But if you only need 3%, and can get that with "risk free" investments, why the need to reach for higher returns and run the higher risks?

Steve

 

[cute fuzzy bunny]

Oh heck yeah, the actual thread topic.

I'm about to go to 25% in cash instruments. And stay there a while. I dont feel very comfortable being at that level and may 'fritter' every now and then into something that I decide doesnt scare the pants off of me. I sure would like a nice firm correction right now though. I'd be a buyin'...

 

[hocus]

Our special Safe Pizza/Pancake Handling Tool has been specially designed to properly remove the pizza and replace it with the pancake on the head.

The Dr. Seuss thread at the Motley Fool board provides background on the development of this nefarious tool. Here's a brief excerpt from the Seuss book at issue here ("The Sneetches and Other Stories"):

"Just pay me your money and hop right aboard!
So they clambered inside. Then the big machine roared.
And it klonked. And it bonked. And it jerked. And it berked.
And it bopped them about. But the thing really worked!
When the Plain-Belly Sneetches popped out, they had stars!
They actually did. They had stars upon thars!"

Those with a serious desire to see this board community realize its potential in days to come need to engage in an in-depth examination of this work, and of other Dr. Seuss studies detailing the origins of many of the other tools now being put to use advancing the cause of the seemingly "cute" and "innocent" bunnies.

 

[hocus]

After reaching that goal (hopefully), I should really then reduce my risk profile significantly.

I very much agree, Stephen C. I believe that you are making an important point here.

There are many who have a negative reaction to the Data-Based SWR Tool because they find the numbers generated by looking at the historcal data in an analytically valid way to be "depressing." I view this as an entirely wrongheaded reaction. It is true that some should be cutting back their stock allocations. But it is NOT true that all need to. What you should do with the information generated by the tool depends largely on your risk profile, as you suggest in your comments here.

Someone who is desperate to retire quickly might want to invest entirely in stocks even at times of extremely high valuation. Are they taking a big chance by doing so? Of course. Is it possible that taking a big chance will pay off, that they will obtain a 30 percent spike in their portfolio in one year's time despite entering the investment at a time of great overvaluation? Again, the answer is "Of course!"

This is what happened to those who invested heavily in stocks in early 1997. Valualtions were already high and the SWR for the S&P index was already low. Still, we saw a fantastic run-up in prices in 1997, 1998, and 1999. Those who claim that the SWR Tool requires people to get out of stocks at tims of low SWRs for stocks simply do not understand the purpose of the tool.

The tool does not require particular investing choices. It tells you what the historical data says re the level of risk you are taking on. That's ALL it does. How to react in response to that information is a choice left to the investor making use of the tool. The Data-Based SWR Tool is a descriptive tool, not a prescriptive tool.

 

[Beachbumz]

Interesting post. But there seem to be some confusions. The topic here is titled "The Big Question Is Yes or No?" Charlie Munger and Seth Klarman, who have standing I would think, are suggesting that there are good and not so good times for making an investment. So that pretty well implies that there is an important choice of whether to make an investment at whatever price happens to be available, or to try to wait for better opportunities.

All ***** did was say the exact same thing. Are you arguing with *****, because he is *****, or do you reject the whole thesis, even when presented by Munger, Klarman, Buffet et al?

Mikey, I'm not arguing with ***** or anyone else. If you had quoted my whole post, you would see that this is an opinion based on MY personal experience:

Beachbumz wrote:
"Reminds me of years ago, when I just knew the market was too high (the DOW had just pasted 3000), so I put my IRA money in a money market account. I finally put it in the market at DOW 5000."

I just believe a lot of these guys are smarter (more knowledgeable) than me when it comes to this. Of course I'm always looking for opportunities and try to avoid really stupid investments like buying yahoo at $500 a share. I prefer to invest in Berskshire Hathaway and let Buffet figure it out.

Beachbumz

 

[hocus]

I'm not arguing with ***** or anyone else. If you had quoted my whole post, you would see that this is an opinion based on MY personal experience

You made a comment in your earlier post re "market timing," BeachBumz. Intercst supporters have put forward deception posts re market timing on hundreds of earlier occasions. It may be that you are not aware of this history. But I can hardly blame Mikey for reacting when he sees a claim that has been used for purposes of deception many times in the past surfacing once again.

William Bernstein explores the market timing question in great depth in Chapter Two of his book "The Four Pillars of Investing." He explains that the historical data provides great cause to be doubtful of short-term timing schemes. He also points out that that doesn't matter to the buy-and-hold investor. The buy-and-hold investor is concerned only about the long term, and the same historical data that casts great doubt on the workability of short-term timing shemes also shows that long-term timing has always worked in the past. Bernstein says that changes in valuation will continue to affect long-term returns as a matter of "mathematical certainty."

The suggestion that you put forward, that my views on the use of cash as a strategic asset are somehow the result of some sort of thought that short-term timing may be an effective approach to investing, is a false one that has caused us great trouble in the past, BeachBumz. It is my sense that you simply were not aware of the history of these discussions as I do not recall you participating much in the past.

The fact that someone like you would end up making the mistake you made reveals to all community members why we need to rein in intercst-type posting practices when we see them appear on our boards. Had responsible community members asked intercst to knock off the funny business the first time he posted deceptively on the market timing question, we would not have someone like you now unwittingly putting foward the timing argument as a point against the validity of my views, BeachBumz.

We are 34 months into this. It is time for responsible community members to begin putting their influence to bear against the continued deceptions of intercst and his supporters. The result of our long-running tolerance for nonsese is that fine posters like BeachBumz are not able to make sense of the discussions. I have never said a word in favor of short-term timing, and no one in our community should ever have been led to believe that I had. Intercst-type posting practices do great harm to us all.

 

[unclemick]

I tend to view the yes or no as primarily an alpha male(although women can get brainwashed) horminal urge thing - probably incurable.

Warren Buffett's famous quote about a teenager in a cathouse during the 73-74 downturn comes to mind.

In my mutli - asset days(before slice and dice was coined), I was always rebalancing into the cheaper asset class(? more bang for the buck?). The idea was to capture the long term expected growth of that class. Some were depressingly long cycles - I gave up on gold after twenty years - right before it turned up.

Balanced index - does something similar rebalancing to hold a preset ratio.

Managed funds ala Wellington(1929), Dodge and Cox Balanced(1931) et al - add the value twist attempting capture the value premium.

An individual holding cash and searching/waiting for value to appear is doing the same thing with the skill set he brings to the party.

Ala POGO - I will let the computers do my market timing for me in balanced index.

The others: Ben Graham, The Norwegian widow, De Gaul, and pssst Wellesley are for another post.

 

[brewer12345]

In regards the "Big Question". I think is very ok to hold cash....although that is not a risk free activity (inactivity?), 'cause the market moves on regardless. Call it an opportunity cost. But if the alternative is to invest in uncertain conditions its money well not spent.

Another question, perhaps is what motivates us to put our money at risk beyond the level justified by the return we need. I believe for myself that I try and "overachieve".  That is, I set an annual goal of return, and am delighted when I overachieve. But, that essentially means that I am taking more risk that necessary, if my original investment goal was properly grounded in need, and risk vs reward. After reaching that goal (hopefully), I should really then reduce my risk profile significantly.

But in reality I don't....it's just human nature....and why casinos always end up winning in the end.  But if you only need 3%, and can get that with "risk free" investments, why the need to reach for higher returns and run the higher risks?

Steve

Practically speaking, you would have to be VERY wealthy in order to make do with 3% returns, far above that of most aspiring or current FIREees. So unless you are worth several million, it really doesn't apply to any of us.

On a more general note, I struggle with the same issues. My base plan is to retire in my mid-40s. If I manage to sock away more dough than expected or have above historical returns, then I could check out earler, but otherwise I seem to be on track for my planning horizon. In fact, when I did some sensitivity analysis, I realized that I probably only need to get 4 points over inflation between now and my expected check-out date. As a result, I don't need to reach for the stars in my portfolio. If I do reach, the potential upside would be a modest shortening of time til FIRE, while the potential downside is several more years of work.

As a result, I have been re-working my portfolio for the past 6 or 8 months. I was almost 100% in small caps (my specialty). I have moved into about 20% foreign equity, added ~8 or 9% commodity futures, and am now adding some domestic fixed income (target is roughly 10%). If GIM gets cheap enough, I will also be adding at least 5% foreign bonds. I find this hard to do, since it means sometimes selling out of small cap positions that have been very good to me, but I know it is the right thing to do. My risk is falling (very clear, based on daily volatility in my net worth) and I am not sacrificing much return.

 

[Hyperborea]

On a more general note, I struggle with the same issues.  My base plan is to retire in my mid-40s.  If I manage to sock away more dough than expected or have above historical returns, then I could check out earler, but otherwise I seem to be on track for my planning horizon.  In fact, when I did some sensitivity analysis, I realized that I probably only need to get 4 points over inflation between now and my expected check-out date.

Exactly my realization too. If you're trying to really retire early (early 50's and younger) then it really does become a savings exercise rather than an investment exercise. Sure a home run smash in the investment side of things would help but do you want to take the risk involved to get it?

It may be better for a FIREee wannabe to work the income and expenses side of things to improve the savings rate. Or at least work them enough without destroying your enjoyment of the years leading to financial independence.