As for the 43% market decline in recessions, that is not my research. I was quoting from John Mauldin:
"My studies show that the stock market drops an average of 43% before and during a recession. I think the next big leg down in the stock market will be precipated by a recession. Could we see the market drop another 40%? The short answer is yes." The rest of his piece is here:
http://www.2000wave.com/article.asp?id=mwo022803
I haven't checked it. Would be interested to know the result if someone does check it.
>>Everyone's a trading genius.
Once again, market timing does not necessarily mean trading although we have all been conditioned to believe that. I am using market timing to mean staying out of the equity market while the P/E of the S&P remains above historical norms. I believe that it will regress to a point below historical norms in the next few years. Then it will be ok to buy and hold again.
>>Just look at all the active fund managers that have beaten their benchmarks for 10 years or more.
This is a befuddled comment. Active fund managers mostly means equity managers. They are not trying to time the market, but are trying to outperform by security selection. They can't try to time the equity market as a whole because they can't go out of equities or they will have no product to sell.
>>If all bear markets were like your "current long term bear market", I want lots more of them. I don't know if you have looked lately, but in the last 3 years, the S&P500 is up more than 60%, the EAFE index up 113%, and the Russell 2000 index up 109%
I don't know if you have looked lately, but in the last 6 years the S&P500 is down 13%. You would have made (a lot) more money in T-bills.
One of the basic assumptions of asset allocation is that market are usually mean-reverting. That's the basis for buying and holding: it will come back. So, if markets are mean-reverting why wouldn't it be possible to identify historically overvalued markets and get out of them and let someone else ride them down to the mean, or below?
And if the equity market is indeed overvalued we would expect some of the best investors to be sitting on the sidelines in cash waiting for a better opportunity. Like Buffet who is sitting on about $42 billion in cash, if I remember correctly, saying there is nothing to buy now.
In my opinion, the following markets are bubbles inflated by the liquidity and credit bubble that has been going on since 1996 and, more dramatically since 2001. I expect them to revert to historical valuation levels, possibly at the same, painful time:
1. US equities
2. US housing
3. gold
4. oil
5. bonds
6. USD
In this I agree with the OP whose reservation about investing now is that everything seems expensive. Well, it is.
"My studies show that the stock market drops an average of 43% before and during a recession. I think the next big leg down in the stock market will be precipated by a recession. Could we see the market drop another 40%? The short answer is yes." The rest of his piece is here:
http://www.2000wave.com/article.asp?id=mwo022803
I haven't checked it. Would be interested to know the result if someone does check it.
>>Everyone's a trading genius.
Once again, market timing does not necessarily mean trading although we have all been conditioned to believe that. I am using market timing to mean staying out of the equity market while the P/E of the S&P remains above historical norms. I believe that it will regress to a point below historical norms in the next few years. Then it will be ok to buy and hold again.
>>Just look at all the active fund managers that have beaten their benchmarks for 10 years or more.
This is a befuddled comment. Active fund managers mostly means equity managers. They are not trying to time the market, but are trying to outperform by security selection. They can't try to time the equity market as a whole because they can't go out of equities or they will have no product to sell.
>>If all bear markets were like your "current long term bear market", I want lots more of them. I don't know if you have looked lately, but in the last 3 years, the S&P500 is up more than 60%, the EAFE index up 113%, and the Russell 2000 index up 109%
I don't know if you have looked lately, but in the last 6 years the S&P500 is down 13%. You would have made (a lot) more money in T-bills.
One of the basic assumptions of asset allocation is that market are usually mean-reverting. That's the basis for buying and holding: it will come back. So, if markets are mean-reverting why wouldn't it be possible to identify historically overvalued markets and get out of them and let someone else ride them down to the mean, or below?
And if the equity market is indeed overvalued we would expect some of the best investors to be sitting on the sidelines in cash waiting for a better opportunity. Like Buffet who is sitting on about $42 billion in cash, if I remember correctly, saying there is nothing to buy now.
In my opinion, the following markets are bubbles inflated by the liquidity and credit bubble that has been going on since 1996 and, more dramatically since 2001. I expect them to revert to historical valuation levels, possibly at the same, painful time:
1. US equities
2. US housing
3. gold
4. oil
5. bonds
6. USD
In this I agree with the OP whose reservation about investing now is that everything seems expensive. Well, it is.