Fear and Greed !

[Backpacker]

I've been in the market for 30+ years, I'm 54. My only fear is that DW and I are both looking to RE in next year or 2, and I fear the drop coming immediately after we punch out... sequence of return risk. I'm sure a correction is coming and am fine with it, just worry about it coming at RE. We'd be fine just have to suck it up and live frugally for the first few years if timing bites us in the butt. Few years ago we switched to 70/30, was at 80/20. Planning on staying at 70% equities indefinitely. We plan to mitigate some of the risk by gradual exit from working. I switched to PT, DW retiring next June, draw pension and hopefully get hired back as contract employee. If she does I will be done, if she doesn't go back she is done and I will continue PT for a while. That's my story and I'm sticking with it,,, or not[emoji4]

 

[Hamlet]

And then there's Warren Buffett who's taken a different course, that being buy long and stay the course. I think he's done pretty good as well.

It’s not like Buffett has never sold “too soon” either though. He sold most of his stocks in the late 60s and looked like a genius five years later.

He doesn’t sell based on trying to guess what the market will do, but he’ll sell when the market has overvalued something and he has better options. He doesn’t exclusively buy and hold.

 

[Closet_Gamer]

I won't try to call I top....I would have wrongly called it several thousand dow points ago...but I suspect the herd could spook easily.

Particularly if something bad happens to one or more of the FAANG stocks. They've powered a lot of the upside. If they turn hard, the QQQ turns with them which could cause a big panic.

But we could see 30k on the Dow just as easily. Particularly if the big dividend payers use tax gains to bump divvies.

Party on Wayne.

Party on Garth.

 

[bobandsherry]

It’s not like Buffett has never sold “too soon” either though. He sold most of his stocks in the late 60s and looked like a genius five years later.

He doesn’t sell based on trying to guess what the market will do, but he’ll sell when the market has overvalued something and he has better options. He doesn’t exclusively buy and hold.

Indeed, but Buffett doesn't make decisions based on market, he makes decisions based on the soundness of the business including financial and management quality. Got to say Buffett does invest long, just look at how long he's held and further invested in KO (last I knew it was over $16B) and he looks to hold this indefinitely.

 

[MuirWannabe]

All my stocks are in my taxable brokerage account. I have a hard time wanting to pull even a partial sell trigger given the tax consequences on my gains. That fact keeps me pretty locked into a buy and hold strategy it seems.

 

[unclemick]

I am consumed by greed and fear both. Hoping the Saints make it to the Superbowl!

Meanwhile back at the ranch Vanguard computers re - balance my Target Retirement portfolio without even checking my emotional state - OR even asking my permission.

Heh heh heh - And And the asset balance changes as time ticks on. Of course being male - I have a few good stocks cause football season doesn't last all year.

 

[Spanky]

Hoping the Saints make it to the Superbowl!

Has to get by the Vikings first.

 

[Spanky]

All my stocks are in my taxable brokerage account. I have a hard time wanting to pull even a partial sell trigger given the tax consequences on my gains. That fact keeps me pretty locked into a buy and hold strategy it seems.

You could sell those that have been held more than a year. The LT capital gain is still at 15%, right?

 

[Danmar]

I think it's (hilarious? crazy? inexplicable?) that people can be so grim and expect doom at any minute, no matter what the market conditions. Up market? The crash is imminent. Down market? This time it's different, it will never recover.

And yet, people cannot ever be happy and optimistic about the market? Pffft.

Allowing yourself to be happy when good fortune comes your way, is part of being a human being and living a fulfilling life. Well, IMO anyway. Just something to consider. Sound investment decisions are not based on emotion anyway, so feeling happy does no harm to anyone.

Agree. Well said. I don’t know why people just dont enjoy the ride. In the overall scheme of things it will all work out. Maybe sell a bit, spend a bit more now.. Probably won’t last forever but neither do we.

 

[DrRoy]

I have seen lots of serious downturns and I'm enthusiastic about the market today.

I am hopeful, but realistic. Over the last 5-6 years I have brought my AA down from the 80's to 60%. If the bull continues I will notch it a little more. As a contrarian, I prefer lots of fear.

 

[tdv2]

fear and greed are the two emotions that make the majority of individual investors perform wealth killing mistakes. Personally I have been at this game for a long time and unfortunately heard too many stories about people making predictions about where the market is headed like "the bull market has another year or two run" statements like this are absolute bunk. The tragedy is when folks make investment decisions based on this kind of thought process. A few quotes that are appropriate "nobody knows nothin'" Bogle. "Ignore that last ten years and focus on the long term" Bernstein. One more that I really like is "100% of what you hear on TV and 99% of what you read about the market is worse than worthless" another Bernstein.

---Understand portfolio theory
---Study market history
---Don't let emotions factor into you investment decisions.
---Eliminate as many fees as possible---buy index funds for the bulk of your holdings.

Nothing new here. All I have is my experience and its worked for me for a very long time now. Before that I thought I was smarter than the market.

 

[audreyh1]

I look at it just like flipping a coin. The chances of the market tanking in 2018 is the same as it was 9 years ago. I see no evidence that any given year is related to the previous one. I set my course and I stay the course. I'm 65 and 75% equities. Would brag about last years returns? Sure. Would I bitch if we had a major correction? Absolutely. I'm human. Would I change my plan because I was afraid of losing some money? Not a chance!

If I listened to some of the pundits, I would have been out of the market 2 years ago. Where would that have put me?

Now, adjusting AA for age is a different story. Even though I am 65, I still are planning for >30 years out. Not ready to change AA just yet. But someday.....

Market probabilities are definitely not the same as flipping a coin.

 

[audreyh1]

I'm fearful of others' greed.

Yep!

 

[dixonge]

One theory says that with the tax-cuts most companies get an immediate bump in earnings that will drive the P/E ratio into more normal territory, thus giving room for more price gains.

Maybe. Maybe not.

More than just a theory, really...

"Analysts and executives expect corporate earnings to be boosted by an average of about 10 per cent, with some companies set to see significantly higher benefits of up to 30 per cent,..."

"US companies set to be big winners from Trump’s tax reform"

That'll adjust your P/E ratio right quick!

(also, Shiller is a permabear)

 

[bobandsherry]

Just curious, is there any information that shows that a lower equity/higher bond (say 50/50) allocation does better in an environment with increasing interest rates (which is what is expected in the next year) and higher inflation than a higher equity/lower bond allocation (say 80/20)? And does that comparison show the difference in value and return over a 1, 3 and 5 year period? I just look back and 2006-2008 and what bonds did, many dropped in value much more than many stocks and even the S&P500.

With view that Fed will be imposing further rate increases this year bonds too, unless they are adjustable, will lose value. Toss in inflation and that's a double whammy for bonds.

 

[USGrant1962]

One theory says that with the tax-cuts most companies get an immediate bump in earnings that will drive the P/E ratio into more normal territory, thus giving room for more price gains.

Maybe. Maybe not.

The counterargument is that the tax cuts are already priced in (+20% in 2017) - so the P/E will come down to more normal levels as earnings roll out, but won't move prices very much.

Anyway, I'm just following my AA.

 

[Islandtraveler]

As the market rises, it is prudent to raise a bit more cash to buffer the inevitable downturns. This does not mean change AA or attempt to time the market.

 

[VanWinkle]

I wish I had the "Kahunas" to be 80 or 90% equities. It would have served me well for the last 8 or 9 years. I reduced from 65/35 before retirement to 50/50 now. I likely would have made enough over the last 8-9 years that I could afford to lose 40-45% in a downturn. Of course chances are good that we would have spent more of that windfall and been in the same position when the downturn comes. For that reason, I will stick with my boring old 50/50 allocation. Half the time I worry that I have too much in stocks, and half the time I worry I have too little in stocks. Most the time, I just keep plugging along and making money the boring way.

 

[CRLLS]

Market probabilities are definitely not the same as flipping a coin.

I know there are underlying reasons for a market to go up or down. That is not what I was referring to. Maybe I stated it poorly.

My reference to flipping a coin is, if you flip a coin you have 2 possible results, either heads or tails. If you flip a coin and get 3 heads in a row, what will the outcome be in the next flip? There is a 50% probability of it ending up being heads. This is different from if you asked "What is the probability of being able to flip a coin and get 4 heads in a row?" 6.25%

The same goes for market performance. If you have 3, or in this case 9 years of Bull market, the odds of the next year being a Bear market has nothing to do with the performance of the 9 years before. So those that simply say "The end is near" based solely on the long Bull market are just guessing what the next year will perform based on gut feel, just like predicting the next coin toss. They instead are looking at the odds of the market having a bull run for 10 years. Which is incorrect methodology.

It does, as you suggest, have a lot to do with financial health of the market. With that we agree.

 

[Toocold]

I'm keeping my AA the same, while continuing to diversify away from megacorp stock and into real estate. This should technically reduce my overall AA away from equities.

In terms of is P/E too high? We'll see once it gets reset reflecting the new tax rates.

The other x factor is what management decisions will be made due to the corporate tax reductions. I was in a meeting and our president voiced that all new real estate and hiring decisions (on vs off-shore) should now reflect the new tax rates. These tax cuts are reverberating and the long term effect will be more jobs in the us. This could add to domestic money velocity.

 

[MichaelB]

The value of the stock market a year from now is not a probability based event, so there are no “odds”. It will be the outcome of the intersection of actual financial performance, expected financial performance, and human behavior.

 

[Gumby]

I have been in the market for 37 years now. I've suffered through Black Monday in 1987, the Dotcom crash in 2000 and the Great Recession of 2007-09. In every case, I kept what I thought was a reasonable asset allocation, held tight and continued to buy periodically via my 401k. To date, that has proved a successful strategy, so I'll do the same when the next downturn occurs. Although, I will likely be retired, so the continued buying won't be part of it.

 

[Car-Guy]

I don't think the bull is out of steam or even slowing down, so far. But he will at some point. I don't know (nor does anyone else, except for maybe this one guy (or gal) who has been around forever) when the slow down or drop is coming, but it is coming. What's going to trigger it is also unknown but how bad it might be is the scary part to me. As I said before, the bigger they are, the harder they fall.

For me, I've reduced my equity investments and I'm now just playing the swings for the most part. I may miss some more big run ups, but I'm more than happy with what I have.

 

[Badger]

For the youngsters who have plenty of time to ride out a drop some of the conventional wisdom may be fine. For those of us who have maybe 15 years to enjoy our investments and have more than enough to last until then and beyond regardless of any inflation with plenty left over to give to those that survive us then why not cash in? We already won so why continue to play the game and take the risk?

Cheers!

 

[DEC-1982]

With any luck, CAPE10 will go all the way to 44 (2000 CAPE high) before we get the next big crash. I should get another AA adjustment next January before then.