The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: Cougar on February 06, 2016, 06:55:31 AM
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This post will cover three things, the financial markets, the world markets and economy over the rest of this year. As you should know, the financial markets has started off the year terribly and that’s going to continue. Now, the initial downturn was because of the Chinese markets that no one could have forseen but the damage has been done and without serious intervention by the FED; the markets are going to continue to decline, the average bear market decline is 28%, so we would have another 15% minimum to go.
So, I will lay out some facts:
1. 85% of all stocks follow the market, meaning if we are in bear market; you will probably not avoid it.
2. Sales by hedge funds were the largest last week in two years.
3. The baltic dry index, used to measure movement of shipping, is at a record low.
4. Texas general business activity, the state that created 40% of all jobs since 2009; is at a 6 year low.
5. There have been 8 month over month declines in industrial production in the past 12 months, this has never happened before without a recession.
6. 42 north american oil companies filed for bankruptcy.
I could go on and on with this list that it’s a bad time to be investing in the market. Now, I am not trying to scare anyone here that the wheels are about to fall off; but there is no denial the global economy is slowing and much more likely to be in a recession within the next two years than continue to grow.
I am sharing this information with the MMM crowd to help you preserve capital as I would think would be an MMM priority
The reason I am suggesting this is not the time to be buying the dip, the bull rally from 2009 has finally failed and it’s likely to be headed lower and at an increasing rate.
The reason I believe this is because even though November thru April are typically the strongest months of the market, every target for the market to rally to this year has failed to hit(meaning the market is weaker).
Cast me aside here if you wish, but my goal of this post is to help the mmm’ers preserve capital. If you lost money in 2008, you also lost the time you had to spend gaining back that lost money. The market lost nearly 50%, so you had to gain 100% just to get back to even and that took 6 years and that was on the back of QE which by all accounts grew the market faster than normal.
I would suggest reading: realinvestmentadvice.com, his daily blog post "Technically Speaking: February Stats & Taking Action" and current weekly report "Whew! BOJ Saved The Rally…For Now 01-30-16". I also suggest following his portfolio recommendations in his newsletter if you do not have an idea of how to allocate yours in an economic decline(I currently have less market exposure than he is recommending).
If you wish to go off on me and tell the board how wrong I am and me trying to time the market here is a fool’s errand, go ahead. Everyone is entitled to their opinion and I’m not a professional money manager. I have given the board my opinion on what would be best for them this year and a solid free reference to follow; best of luck to you all.
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The flip side is that if the facts are as obvious as you say, then stock prices should loosely reflect their value correctly.
Threads like this have popped up at the beginning of the last 3 years here. It's fun to go back through time and look at that, when compared to the SP500 overall performance in their "doom and gloom" years.
That being said, I would not mind a 15% further drop given that we're starting our journey so hopefully you are right ;)
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Presumably all this obvious information which is freely available to all the world's investors has been priced in?
A more worrying time to invest is when the general public and market commentators are bullish, everybody is rejoicing in their gains, and more and more people are joining in.
If you are feeling very worried about putting money into the market, because there is so much bad news out there it is sure to go down, that is a usually a good time to invest.
If you are feeling positive about the market and think it is going to go up, probably not a good time.
My thoughts are that I don't really care and we'll see how things are in 15 years, when the roads are full of self driving cars etc. etc.
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I'm not trying to say "you're wrong" about the possibility (or likelihood) that the market will take a tumble in the future. It could happen. If I were to sit here and tell you that it's going to go up, then how is my argument any different than yours? I think you've provided some really good insight into the current market conditions. In fact, you've somewhat convinced me that the market will probably continue to dip in the near future.
However, I think that this sort of strategy does not fit in with the MMM community. In general, people here use a dollar-cost-averaging strategy. This strategy has proved to be effective over the long-term time and time again. It is also a relatively stress-free strategy. It doesn't force us to keep tabs on the market. We simply plug away with our $50/$100/$500/$5,000 deposit at a regularly scheduled interval. Will this strategy guarantee the absolute best returns ever? No. But it does generate the best returns for the "normal guy" investor who doesn't have the time or energy to analyze the market and make big money decisions based off of his/her analysis. A DCA strategy also prevents the investor from pulling out of the market when they are convinced it will tank, only to miss out on unpredictable positive returns.
All we have here is a difference in investing strategy. Either way, it will be interesting to see how everything plays out through 2016.
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If you wish to go off on me and tell the board how wrong I am and me trying to time the market here is a fool’s errand, go ahead.
Sure. I'm looking forward to your response to my earlier reply to a similar post of yours:
What's the best sign that some people are selling? Market price. Simply looking at a graph shows us that people are getting out. But what else does it show us?
(https://i.sli.mg/xAofCo.png)
Remember, for every dollar that's selling, there's a corresponding dollar that's buying. So for every "smart guy/gal or big boy/girl" who is getting out, another one is getting in at that exact point! Who are you to know that one half is smarter than the other half? What information do you think you have, that they don't?
Have you ever read Nassim Taleb's "The Black Swan". It's a fascinating book. In one chapter he discusses a strange phenomena, where people in the financial world are consistently wrong with their predictions, yet nobody seems to care. Someone could be wrong 95% of the time, and still be considered an expert. In any other discipline, when someone is consistently wrong, you'd stop listening to them. I wondered if that's the case here, so I decided to find the oldest information available on that site you recommended, and see how their predictions held up.
The oldest content on that page was a 2012 outlook video. I listed out his predictions, and compared them against what happened:
Prediction: 10-12% housing price decline
Result: Housing market up 8.1%
(https://i.sli.mg/ab6CNm.png)
Prediction: The demise of the Eurozone as a whole
Result: Nope. Eurozone is still here.
Prediction: Oil prices higher.
Result: Oil down 13%
(https://i.sli.mg/JkNLbT.png)
Prediction: I expect the dollar to do better this year, simply because of the Eurozone crisis
Result: USD fell 1.86% against the EUR in 2012
(https://i.sli.mg/0pFwgy.png)
Prediction: Gold went through the roof recently, it's got to consolidate, won't be a great performer this year
Result: Gold went up 11% a few times, and ended the year up 5%
(https://i.sli.mg/yJCuIo.png)
Prediction: "2012 is going to look a lot like 2011"
Result: Nope
(https://i.sli.mg/Xx4RrH.png)
Prediction: "Anything other than apocalypse is a win"
Result: US GDP rose to almost pre-crash levels, and the stock market rose 16%
(https://i.sli.mg/8Ayx0d.png)
(https://i.sli.mg/rfAsbg.png)
Looking through these predictions, and the other articles on that site, it seems like Eric's response (http://forum.mrmoneymustache.com/investor-alley/about-to-sell-everything-talk-me-off-the-ledge-(or-push-me-off)-please!/msg962029/#msg962029) in the other thread fits perfectly:
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The only problem with the graph is that it assumes that anyone following zerohedge realinvestmentadvice.com still had money in the market in 2016. Everyone at zerohedge realinvestmentadvice.com knew that the crash was right around the corner in 2012. And 2013. And 2014. And 2015.
If you followed zerohedge realinvestmentadvice.com for the right week, you'd know that you could've avoided all of the losses of the last month by simply avoiding the gains of the last few years.
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Cougar, I have a genuine question, and I urge you to answer honestly...Why do you still pay attention to these people?
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Is there a way to bookmark this post and revisit it in 1, 2, and 5 years? It'll be interesting to see whose predictions bear out.
I haven't the foggiest what will happen; I have realized that like the weather, the stock market is a chaotic system and therefore literally unpredictable, at least in the short term.
We just recently left our financial planner and moved all our money into Vanguard index funds. No dollar-cost averaging here, just one big plunge. And we're just going to let it ride. If it drops, it drops. It will eventually recover, and then, over time, increase. If our seasoned, experienced financial planner couldn't beat the market (and she couldn't, even over 10 years of trying), I surely can't either, and I won't try.
Good luck to all.
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I'm pretty much with Cougar on this one. However, I will agree that DCA over the long-term, like 30, 40, or 50 years, will provide a good return for the average investor. Do that if you can. You guys are right, it's probably the easiest and most stress free way to invest. DCA over a shorter, say 10 year, period may not prove to work so well because you might DCA into a 10 year period of over-valuation which will hurt your future returns. Aren't most people on this forum trying to retire in the next 10 years or so and live off their investments? That only gives a relatively short window for DCA.
I don't understand why people don't recognize an expensive market vs a cheap market. While predicting the future is impossible and a stupid endeavor, I find using history as a guide for making decisions in the present is useful. By historical measures, the US market is over-valued. Period. End of story. The math is in your face. Does anyone actually think the market is cheap? Even fairly valued?
Corporate profit margins - record high of 10% vs historical average of 6.5%
Buffett Indicator shows the market has only been more expensive 2 times in history (2000 and 2008)
Shiller PE is at almost 21 - historical average mean is 15.5
The above figures are the screaming indicators of the market being expensive. Only if you are DCAing over like 40 years can you ignore this. While you guys point out that people have been saying this year after year after year, the market has been expensive year after year after year. It looks like only 2 brief period over the past 20 years have been not expensive (2003 and 2009). The point I am trying to make is, markets can get expensive and stay expensive for very long periods of time. And then suddenly, they can get cheap and stay cheap for very long periods of time also. Imagine DCAing for 20 years into the market from 1995 to about now. Then the market returns to historical valuations or lower for the next 20 years, like 1973 to 1993 in the attached chart. Your returns will suck, maybe even be negative. Recent history, the past 20 years, has given everyone a lot of ammunition to say that things will always stay expensive, or at least revert to being expensive even if they crash. Looking at history, this is not the case though. Look at Japan. Their stock market peaked in 1990 and they haven't recovered since.
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Is there a way to bookmark this post and revisit it in 1, 2, and 5 years? It'll be interesting to see whose predictions bear out.
I haven't the foggiest what will happen; I have realized that like the weather, the stock market is a chaotic system and therefore literally unpredictable, at least in the short term.
We just recently left our financial planner and moved all our money into Vanguard index funds. No dollar-cost averaging here, just one big plunge. And we're just going to let it ride. If it drops, it drops. It will eventually recover, and then, over time, increase. If our seasoned, experienced financial planner couldn't beat the market (and she couldn't, even over 10 years of trying), I surely can't either, and I won't try.
Good luck to all.
I think you should reconsider. Please average in over the next 2 years minimum. Even the god of Vanguard, John Bogle, thinks the market is going to give poor returns for a while - http://www.marketwatch.com/story/john-bogle-says-you-wont-make-much-money-from-stocks-2015-11-05
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I'm comfortable letting doomsayers invest in whatever way they feel guided. Just understand that many of us have been in the market for a long time, have heard the same things you are saying for a long time, and have continued to watch our portfolios grow for a long time.
By all means, do the hokey-pokey with your investments if you wish. We wish you the best of luck.
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We just recently left our financial planner and moved all our money into Vanguard index funds. No dollar-cost averaging here, just one big plunge. And we're just going to let it ride.
This is actually the perfectly economically rational way to do it. Over time, the stock market goes up, and statistically, every day is more likely to be an up day than a down day. So the earlier you get in the market, the better. The reason dollar cost averaging is popular is because if the market does go down (i.e., the possibility become a reality), then people feel better that they didn't put all their money in that day.
Of course, dollar cost averaging is better than gut investing, because you put in at regular intervals unrelated to market moves.
It's nice to see someone make the economically rational decision.
This thread made me chuckle because it highlights a behavioral irrationality that popped up recently in another thread. Cougar made a number of good observations about why the market might go down, but the problem is that everyone else knows that as well. So the risks are priced into the market, and the market will move once the possibilities go to one or zero (i.e., happen or don't). The recent thread on this was someone loading up on Disney because Star Wars was coming out and it was going to be awesome. Again, that might be a reason for Disney to do great, but everyone else had also heard of the Star Wars movie, so no real information advantage there.
For anyone who wants to see this in action, look at gambling lines. The line gets set initially, but then moves based on how the bets come in. For a game like the Super Bowl, the book makers are almost always fine because the number of bets ensures that the price (i.e. the line) is an accurate reflection of everyone's best estimates of what's going to happen. It's also why not too many people get rich betting sports, because it is very hard to beat the collective "wisdom" consistently because an individual typically has no real information advantage.
For the record, putting money in the market when it's going down is hard. I have it set to transfer every available dollar after my paycheck to an index fund, and I still find myself checking the price that day to see if it went up or down, and feel happy or sad as a result. But then I realize I'm being an idiot and go about my day. Repeat enough times, and you get rich!
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I'm getting in the boat with Interest Compound and Geekenstein, if they'll have me. Woo-hoo! This is going to be fun.
Oh yeah, Cycling Stache just chimed in. Looks they're in the fun boat too.
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I'm pretty much with Cougar on this one. However, I will agree that DCA over the long-term, like 30, 40, or 50 years, will provide a good return for the average investor. Do that if you can. You guys are right, it's probably the easiest and most stress free way to invest. DCA over a shorter, say 10 year, period may not prove to work so well because you might DCA into a 10 year period of over-valuation which will hurt your future returns. Aren't most people on this forum trying to retire in the next 10 years or so and live off their investments? That only gives a relatively short window for DCA.
Most people retiring or aiming to FIRE in 10 years or less are likely contributing enough that gains aren't as necessary. The danger would be from sequence of returns risk post FIRE and your portfolio not keeping pace with withdrawals. This is where FU money comes into play and people can step back and work less or move toward other passive income streams, like rentals.
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I don't understand why people don't recognize an expensive market vs a cheap market.
I don't understand why people think they can beat the market, outsmarting people with nearly unlimited resources who do this for a living, by looking at a backwards-looking chart. Seriously. I'm going to be blunt about this Keith123, it shows a deep lack of understanding about how these numbers are put together. I know, because I've been there. I've seen charts like this, charts which make things look so obvious in hindsight, only to realize two things:
1. They are impossible to trade on.
2. You can't know where you are on that chart, without knowledge of the future.
To highlight the point, this is what your chart would've looked like from the perspective of the 1992 investor:
(https://i.sli.mg/N5ymKU.png)
You would've missed out on a great early retirement by staying out of the market because a line on a backwards-looking chart told you to.
(https://i.sli.mg/W65rhu.png)
"Investing is not nearly as difficult as it looks. Successful investing involves doing a few things right and avoiding serious mistakes." ~Bogle
This is serious mistake territory.
(http://im.ft-static.com/content/images/d6d02358-aadf-4d56-bc27-3e62e5f5691c.img)
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I'm comfortable letting doomsayers invest in whatever way they feel guided. Just understand that many of us have been in the market for a long time, have heard the same things you are saying for a long time, and have continued to watch our portfolios grow for a long time.
By all means, do the hokey-pokey with your investments if you wish. We wish you the best of luck.
I agree with this completely, including wishing you the best of luck, because you sure as hell are going to need it...
I hear it all the time, from my dad who went all in on silver as it went up, and then watched his life savings plummet. From coworkers who day trade in the break room wanting to make a fast buck. From the Wealth Management group who is constantly trying to convince me to join up, setting up nice booths at work events, talking about how much value they can add to my investments while getting worse returns than my funds and siphoning off a big chunk. From the neighbor kid who went to work for an investment firm and tried to sell me on the companies benefits (I did it to be nice, but almost cried because he knew so little and was selling such a crock of shit). Everyone is a genius because they found the one true way, well I hate to break it to you, but you sound like you are selling a religion, not a financial strategy. All those things you mention are factored into the market already, you can't look at the past to predict the future in the market, you have to somehow find a way of predicting the future in a way that isn't already factored into the price. When you do that let me know, until then... good luck...
One final note. You say "I am sharing this information with the MMM crowd to help you preserve capital as I would think would be an MMM priority", but "preserving capital" is certainly not our priority. Our priority is putting dollars to work as our slaves, not sitting on them while inflation eats away at their value.
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I don't understand why people don't recognize an expensive market vs a cheap market.
I don't understand why people think they can beat the market, outsmarting people with nearly unlimited resources who do this for a living, by looking at a backwards-looking chart. Seriously. I'm going to be blunt about this Keith123, it shows a deep lack of understanding about how these numbers are put together. I know, because I've been there. I've seen charts like this, charts which make things look so obvious in hindsight, only to realize two things:
1. They are impossible to trade on.
2. You can't know where you are on that chart, without knowledge of the future.
To highlight the point, this is what your chart would've looked like from the perspective of the 1992 investor:
(https://i.sli.mg/N5ymKU.png)
You would've missed out on a great early retirement by staying out of the market because a line on a backwards-looking chart told you to.
(https://i.sli.mg/W65rhu.png)
"Investing is not nearly as difficult as it looks. Successful investing involves doing a few things right and avoiding serious mistakes." ~Bogle
This is serious mistake territory.
(http://im.ft-static.com/content/images/d6d02358-aadf-4d56-bc27-3e62e5f5691c.img)
I see what you're saying and I'm really trying hard to be convinced. I mean, it would make my life so easy to just buy VTI with every spare dollar I have all the time. You would have no argument from me if we weren't at one of the record high points of valuation in the history of the market (I'm guessing you don't agree with this). Also, you are missing one major point of mine. I'm not advocating selling, ever. Whatever you have in the market should stay in the market because we obviously have no idea where it is going or for how long. What I am advocating for is waiting for the right time to buy with whatever cash you have accumulated. I don't think people should buy all the time. Buying at extremely high periods of valuation hurt returns over the long term. Maybe over a period of 50 or 60 years the difference becomes negligible, but over a 20 year period, it can hurt returns a lot.
I'll give you a personal example, not stock related. My family has been in real estate for almost 40 years. We have a small real estate brokerage. Around 2005 and 2006, my father, with 30 years of real estate experience, told me that housing was going to crash. He knew that prices were unsustainable and that mortgages were being given out like candy. I was 22 or 23 back then and wanted to buy a house badly. He told me over and over again to wait for the right time. This was painful for me as I watched housing prices keep rising for the next several years. Well, we obviously know what happened to the housing market. In 2009 I bought a 3-unit for myself (for 122k) and 4 other single family houses that I flipped and sold for good profits shortly after. That 3-unit is now worth 250k and I plan on holding it forever. I also bought 2 condos to rent out in the past year that I plan on holding forever because while the housing market isn't cheap, its fair in my opinion. I don't mind buying during fair or cheap periods. So yeah, if I would have bought it for 300k in 2008, its rough value around then, I wouldn't have lost much money by now and I could have collected rent the entire time. But, because I waited for the right buying period, my returns are much, much greater. I hope this provides some perspective.
My whole point is don't buy or sell when it is obvious that the market is expensive. Expensive markets can get even more expensive for very, very long periods of time so stay in with what you already have in the market. Just don't add until it's fairly priced again. And I'll say it once again, this current market is very, very obviously expensive. When even John Bogle thinks the market is going to give poor returns for the near future, it's hard to argue with. http://www.marketwatch.com/story/john-bogle-says-you-wont-make-much-money-from-stocks-2015-11-05
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DCA over a shorter, say 10 year, period may not prove to work so well because you might DCA into a 10 year period of over-valuation which will hurt your future returns. Aren't most people on this forum trying to retire in the next 10 years or so and live off their investments? That only gives a relatively short window for DCA.
But if markets are going to fall or stagnate isn't now a better time ? You'd be buying at lower rates and still getting dividends plus the risk is lower. I think if the market was consistently going up that would be more risky.
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Buying at extremely high periods of valuation hurt returns over the long term. Maybe over a period of 50 or 60 years the difference becomes negligible, but over a 20 year period, it can hurt returns a lot.
Do you have a backtest with clearly defined point of when not to buy?
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I love threads like this.
Doom! Fear! Sell sell sell! The Illuminati are coming to eat our babies!
Great, you do your thing. I have no responsibility to try to help you or anyone else avoid ruining themselves. It's tiring to repeatedly try to help people, and have them argue with you about it. Fine, don't take our advice. Go ahead and sit on cash for the next decade if that's what makes you happy.
Me, I'll continue to buy the index every week like I always have, and I'm confident that this plan will work out for me eventually.
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I see what you're saying and I'm really trying hard to be convinced. I mean, it would make my life so easy to just buy VTI with every spare dollar I have all the time. You would have no argument from me if we weren't at one of the record high points of valuation in the history of the market
Here's an exercise for you. Look at your chart:
(https://i.sli.mg/AJNWR7.gif)
and hide it party behind another window on your computer, so you can only see the graph up to 1985:
(https://i.sli.mg/5QujbH.png)
Now move the window slowly to the right, so you can see what this chart would look like in real-time, with 0 knowledge of what the future years hold.
Now mark down the points on the chart where you think the market was "obviously expensive":
(https://i.sli.mg/LXhMjj.png)
Then mark down the points on the chart where you would've started investing in the market again. Let me guess, you think you would've ended up putting all your money in the market at the bottom of the 2001 and 2008 crashes? Look at them from the perspective of someone who doesn't know the future, and tell me it doesn't look "obviously expensive",
(https://i.sli.mg/iJthsp.png)
(https://i.sli.mg/bd5HzS.png)
Finally, go to IndexView (http://thume.ca/indexView/#), and see if it would've made any difference in your returns. I think you'll be surprised. I just tried this exercise, and ended up losing money. If you're feeling particularly brave, upload your marked-up chart for us all to see. :)
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Believe it or not, a form of Keith123's strategy is covered in Ben Stein's book "Yes, You Can Time the Market!". I see that everyone on this forum has already gone to Amazon and written one star reviews for it :) :) :)
I don't have the book in front of me, but I think the authors backtested a strategy where you would compare the P/E of the index with its trailing 15 year average P/E once a year. If the current P/E was below the average, you bought the index. If the current P/E was above, you held onto that year's contribution and lump sum invested it with the current year's contribution on the year it crossed back below. The book discussed timing with other indicators like price, Tobin's Q, and dividend yield, and they all beat the market.
Like all investing, you educate yourself and take responsibility for your results. I thought for $4 it was worth the read.
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I love threads like this.
Doom! Fear! Sell sell sell! The Illuminati are coming to eat our babies!
Great, you do your thing. I have no responsibility to try to help you or anyone else avoid ruining themselves. It's tiring to repeatedly try to help people, and have them argue with you about it. Fine, don't take our advice. Go ahead and sit on cash for the next decade if that's what makes you happy.
Me, I'll continue to buy the index every week like I always have, and I'm confident that this plan will work out for me eventually.
You mean I shouldn't spend hours on my day off doing research and trying to convince people not to commit financial suicide after being repeatedly warned not to?
(http://i2.kym-cdn.com/photos/images/newsfeed/000/284/922/0e3.png)
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Keith, you're back for more? ;)
Have to agree with Sol and others. I think we've all seen this play out before. I'm sure there will be opportunities on the down and up side over the next whatever period of time you want to apply. If you're sure, fantastic! I've been through enough ups and downs to know for the most part it's better to just dca and go indexes, and concentrate on making money at work.
I'm in commission only sales, and I realized about 10 years ago the more I applied myself there the more my wealth would build. Discovering Vanguard sealed the deal. Conisidentally I was 32 at the time.
It sounds like you have experience in real estate. Maybe just concentrate on making money there? My advice would be to leverage where you have experience, and take the adventure out of the investing side.
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For a thought exercise, let's pretend your strategy is accurate and we can foresee the upcoming bear market.
1. What do I do with my money at the moment? If I take it out of the market, do I just let it sit for now? Invest in another area?
2. When, if ever, do I reinvest in the stock market?
I'm not planning on making any moves myself, but I am just curious to understand your thought process.
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Many years of investing have taught me, painfully at times, that one cannot consistently time the market. Some people will guess correctly in every cycle -- this is pure luck. No one writes about the vast majority of people who guess wrong, because we all like to hear stories about skill and talent, and this results in a form of collective confirmation bias.
Besides, if someone could time the market, why would they spend their time writing a newsletter to tell everyone their strategy instead of just cashing in?
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Here's an exercise for you. Look at your chart:
...
Interest Compound, I really like the way that you present your case in this and many other threads. It's rational, patient, and really approachable. Thanks for what you bring to these threads.
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So, I will lay out some facts:
1. 85% of all stocks follow the market, meaning if we are in bear market; you will probably not avoid it.
I'd like to see the source of this information, and maybe open up a separate topic. Sounds interesting, apart from the rest of the topic.
There's an assumption that if you know when to sell, it's problem solved. But when will you buy? For example, the "Double Momentum" book aims to skip recessions. But there it sells on the dip, and doesn't purchase again until stocks have returned to their former level. In other words, it avoids the dip and the gain - not much different than buy and hold. How will you know to time the purchase of stocks after this?
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There are some things you may consider if you believe a correction is coming. Least to most aggressive.
Go all cash and buy a big mattress
Shift from investing contributions to pay down mortgage
Shift contributions to a cash like instrument
Shift to a more conservative allocation
Buy/sell options
Shift to an allocation with gold
Short the market
Ignoring the options of do nothing or buy more.
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Meanwhile my ExxonMobil bi-weekly investing is up 5% in equity and yields 3.81% in a cratered market. You never know. Ford is still taking a beating even though they are vastly successful right now-- even in China, their numbers are up.
I sometimes wonder who is throwing money left to right with no reason involved at all. None.. zero
They will tell you we are all going to have solar cars when the average is a gas guzzling SUV 10 years old, or that cars are going to go away, or that Amazon is going to put supermarkets out of business with grocery delivering drones. There is a lot of stupid out there not looking at numbers at all. Granted I sidestep some numbers for oil because I know it has to be profitable and its not right now.
DCA turns volatility into profit providing its a zigzag and not strait down. I have bought Exxon at $85 I have got it at $72 and Im buying it at $80 and Im up. I don't understand it but it works. Not so well with Conoco but companies carry more risk than the market as a whole and the principal is the same.
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There is still plenty of value to be found in the market.
It's less obviously cheap than it was in 2009, but it's certainly there.
I'm sure the market is going to be lower than it is now at some point in the future. I'm not sure that I would be able to take advantage of it on a way that would beat simply holding and reinvesting dividends and distributions.
I'm fairly sure that I will slowly but surely get richer and richer.
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It's a multidecade bull market.
Any cheaper prices are just a chance to make better gains in the long term.
I am at complete peace with my investing strategy. I am an experienced physician and think it would be extremely arrogant of me to presume I can out perform the rest of the investing world, most of which has more knowledge and resources than I do. In the same way, I would not expect a goldman sachs banker to be able to perform a colonoscopy.
I buy only one fund, vanguard all world.
The world is an amazing place. Unless we blow it up or destroy it, I see no reason why it will not be more amazing in the future.
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I think you should reconsider. Please average in over the next 2 years minimum. Even the god of Vanguard, John Bogle, thinks the market is going to give poor returns for a while - http://www.marketwatch.com/story/john-bogle-says-you-wont-make-much-money-from-stocks-2015-11-05
I appreciate the thought; I know it's coming from a good place of wanting me to avoid what you see as imminent catastrophe. I really do get that. But that's not how I see what's happening in the market. And if I'm wrong, spouse & I will just work longer to make up the difference. We'll reach FI eventually regardless. We're clear about and comfortable with our decision, and we'll accept the consequences. I have no doubt we'll see both ups and downs as the years roll by.
The way I look at it is that either you a) stuff your money under your mattress and watch as it loses value over time, or b) take a risk so that it has at least a chance of increasing over time. The greater the risk, the greater the (potential, long-term) reward. But there will always be some risk in trying to make your money grow; that's just built into the system.
However -- since you do see things differently, Keith, it makes sense that you should adopt the strategy that your analysis dictates, and see how you do. I'm not trying to talk you into changing your mind. We all have different comfort levels with different kinds of risk; for example, I really want to pay off my house even though having lots of $$ in stagnant home equity is a poor return on money.
I hope we all end up with what we're looking for. It really would be interesting to check back at points over the next several years and see how our various strategies have worked.
It's a multidecade bull market.
Any cheaper prices are just a chance to make better gains in the long term.
I am at complete peace with my investing strategy.
This is pretty much how I see it too. And even if I'm wrong, I know we'll be okay.
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I'll give you a personal example, not stock related. My family has been in real estate for almost 40 years. We have a small real estate brokerage. Around 2005 and 2006, my father, with 30 years of real estate experience, told me that housing was going to crash. He knew that prices were unsustainable and that mortgages were being given out like candy. I was 22 or 23 back then and wanted to buy a house badly. He told me over and over again to wait for the right time. This was painful for me as I watched housing prices keep rising for the next several years. Well, we obviously know what happened to the housing market. In 2009 I bought a 3-unit for myself (for 122k) and 4 other single family houses that I flipped and sold for good profits shortly after. That 3-unit is now worth 250k and I plan on holding it forever. I also bought 2 condos to rent out in the past year that I plan on holding forever because while the housing market isn't cheap, its fair in my opinion. I don't mind buying during fair or cheap periods. So yeah, if I would have bought it for 300k in 2008, its rough value around then, I wouldn't have lost much money by now and I could have collected rent the entire time. But, because I waited for the right buying period, my returns are much, much greater. I hope this provides some perspective.
My whole point is don't buy or sell when it is obvious that the market is expensive. Expensive markets can get even more expensive for very, very long periods of time so stay in with what you already have in the market. Just don't add until it's fairly priced again. And I'll say it once again, this current market is very, very obviously expensive. When even John Bogle thinks the market is going to give poor returns for the near future, it's hard to argue with. http://www.marketwatch.com/story/john-bogle-says-you-wont-make-much-money-from-stocks-2015-11-05
This makes a lot of sense but I wonder if it's applicable to stock investing. Real estate investment is more similar to starting your own niche business because it's so dependent on geographic dependent trends. So someone with expertise in that geographic location can evaluate whether something is overvalued or undervalued. The stock market is different--it's far more difficult to tell if the market is overvalued or undervalued. You can convince yourself that it's expensive based on ratios or statements from authoritative sources, but I don't think it's that clear cut.
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You can convince yourself that it's expensive based on ratios or statements from authoritative sources, but I don't think it's that clear cut.
If it was that easy we'd all be special unicorns and it would be priced into the market.
As it stands only a few of us believe they have the recipe for the "secret sauce".
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Hmmm... I'm always a little uneasy jumping into these discussions, but I'll give it a shot.
Before you try to time the market using publicly available information, you should have a darn good answer to the following question:
"Why doesn't everyone get rich doing this?"
You say that it is obvious when valuations are high/low. If it were as obvious as you make it out to be, then it would be relatively easy to become extremely rich by buying when valuations are low and selling when valuations are high. With even a little bit of information about the future market trajectory, earning huge returns is easy. Millions of people have developed systems for "valuing" the market, but the world is not filled in retired market timers. Why do you think your intuition about the market is so much better than everyone else's?
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Bogle did sell stocks in 2000 when the valuations reached complete insanity. There is room for critical thinking and paying attention to fundamentals, no matter how deeply you believe in indexing.
Whether the market has reached a level that warrants drastic measures is left as an exercise to the reader.
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It strikes me that much of this conversation is built on a misunderstanding of what constitutes "the market". The stock market just one piece of the larger puzzle. There are many types of markets -- US stock markets, international stock markets, bond markets, commodities markets, real estate markets, cash markets, etc. By diversifying markets, I feel no need to babysit every individual one and stress about when to sell out and buy in to protect my money. I'm always 100% invested in "the market". I'm just not always 100% invested in stocks.
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Long time forum lurker who is finally motivated to post.
I have to say I love these threads. I treat them like an AA Meeting for timing the market.
Just when I'm starting to weaken I know that the MM forum will have a thread that will talk some sense.
I think the next step is a "You can't time the market!" tatoo.
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I'll give you a personal example, not stock related. My family has been in real estate for almost 40 years. We have a small real estate brokerage. Around 2005 and 2006, my father, with 30 years of real estate experience, told me that housing was going to crash. He knew that prices were unsustainable and that mortgages were being given out like candy. I was 22 or 23 back then and wanted to buy a house badly. He told me over and over again to wait for the right time. This was painful for me as I watched housing prices keep rising for the next several years. Well, we obviously know what happened to the housing market. In 2009 I bought a 3-unit for myself (for 122k) and 4 other single family houses that I flipped and sold for good profits shortly after. That 3-unit is now worth 250k and I plan on holding it forever. I also bought 2 condos to rent out in the past year that I plan on holding forever because while the housing market isn't cheap, its fair in my opinion. I don't mind buying during fair or cheap periods. So yeah, if I would have bought it for 300k in 2008, its rough value around then, I wouldn't have lost much money by now and I could have collected rent the entire time. But, because I waited for the right buying period, my returns are much, much greater. I hope this provides some perspective.
My whole point is don't buy or sell when it is obvious that the market is expensive. Expensive markets can get even more expensive for very, very long periods of time so stay in with what you already have in the market. Just don't add until it's fairly priced again. And I'll say it once again, this current market is very, very obviously expensive. When even John Bogle thinks the market is going to give poor returns for the near future, it's hard to argue with. http://www.marketwatch.com/story/john-bogle-says-you-wont-make-much-money-from-stocks-2015-11-05
This makes a lot of sense but I wonder if it's applicable to stock investing. Real estate investment is more similar to starting your own niche business because it's so dependent on geographic dependent trends. So someone with expertise in that geographic location can evaluate whether something is overvalued or undervalued. The stock market is different--it's far more difficult to tell if the market is overvalued or undervalued. You can convince yourself that it's expensive based on ratios or statements from authoritative sources, but I don't think it's that clear cut.
A house for rent is basically a business right? It sells rental space over time. It has on-going expenses. It is bought with intent to make a profit. Isn't trying to value the stock market just an exercise in a business valuation? For the real estate example, first figure out the return you'd like. Say 8% on invested cash minimum per year. Now, let's put together our assumptions and do our fundamental analysis. 20% down payment, rents of $2000 per month, vacancy of 20% per year, average yearly repairs of $6000, insurance, taxes, etc. You get the point. Please keep in mind that I'm pulling all these numbers completely out of thin air. Its the exercise that I'm trying to illustrate. So let's say after modelling all that, you think you can securely get $20k per year total rent and that you'll have total carrying costs (total expenses) of $15k per year. That leaves you with $5k profit. So...you shouldn't have more than $62.5k invested in this property in order to ensure that you have an 8% return. If $62.5k is the down payment (20%), then you shouldn't purchase the house for more than $312.5k or you will likely have a lower return than 8%. This is simple, clear cut, fundamental analysis. If there are no properties that you can buy that meet your criteria and desired return (an overvalued market), you don't buy them. What isn't clear about that? Real estate, stocks, bonds, etc. They all can be measured like this in one way, shape, or form. Maybe not perfectly, but well enough that one can make an educated guess of valuation.
It honestly seems like a lot of people on this forum think fundamental analysis and determining fair value is not possible or at least not worth the effort. By doing that, you are putting your faith in some belief that no matter what price you pay for an asset, it will eventually work out to a good return just because. This is nonsense. It is faith. Faith does not belong in investing.
Why not combine a few of the lessons from the greatest investors into one awesome strategy? Bogle taught indexing, Buffett taught buy and hold value investing, Benjamin Graham taught margin of safety (25%). Why can't these co-exist? Why can't you buy and hold (Buffett) an indexed market fund, or sector ETF (Bogle) when there is a margin of safety from it's fair value (Benjamin Graham). When you can't do that with the overall market, sit on the bench or look for the same opportunities in individual sector ETF's of the market. If you still can't find anything, wait it out. There will be a "fat pitch" eventually.
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Why not combine a few of the lessons from the greatest investors into one awesome strategy? Bogle taught indexing, Buffett taught buy and hold value investing, Benjamin Graham taught margin of safety (25%). Why can't these co-exist? Why can't you buy and hold (Buffett) an indexed market fund, or sector ETF (Bogle) when there is a margin of safety from it's fair value (Benjamin Graham). When you can't do that with the overall market, sit on the bench or look for the same opportunities in individual sector ETF's of the market. If you still can't find anything, wait it out. There will be a "fat pitch" eventually.
The reason you can't combine those strategies is that they are each designed to keep you buying, all the time, by helping you identify WHAT to buy at any given moment. None of them ever recommend "stop buying everything" which is what you're trying to do by combining them. You've ignored all of the good advice and just put together all of the "what not to buy" recommendations into one giant "buy nothing" recommendation and that strategy is a guaranteed loser.
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My family has been in real estate for almost 40 years. We have a small real estate brokerage.
It sounds to me like you can already retire, and no matter what you do with your money, you will always have more to fall back/retire on. For some of us on this forum, that is not the case. If I tried to make some bets and trades on the indexes and lost half of my money, that would be additional years of work, and I wouldn't have any other options. There is no-one I can call, nothing I can do, besides continuing on working and trying to grow my income.
Things feel different when you are in that position. I have to take on all the uncertainty in the world on my own. If I lose, I actually lose. Like, there are consequences. I think that DCA is simply the best strategy for my position. I am willing to make a bet on the market over the long term, but I'm not willing to make a bet on myself beating the market in the long term. If I had money to burn, then sure, maybe I would play around with it more. But I don't.
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Why not combine a few of the lessons from the greatest investors into one awesome strategy? Bogle taught indexing, Buffett taught buy and hold value investing, Benjamin Graham taught margin of safety (25%). Why can't these co-exist? Why can't you buy and hold (Buffett) an indexed market fund, or sector ETF (Bogle) when there is a margin of safety from it's fair value (Benjamin Graham). When you can't do that with the overall market, sit on the bench or look for the same opportunities in individual sector ETF's of the market. If you still can't find anything, wait it out. There will be a "fat pitch" eventually.
The reason you can't combine those strategies is that they are each designed to keep you buying, all the time, by helping you identify WHAT to buy at any given moment. None of them ever recommend "stop buying everything" which is what you're trying to do by combining them. You've ignored all of the good advice and just put together all of the "what not to buy" recommendations into one giant "buy nothing" recommendation and that strategy is a guaranteed loser.
Not true. I've been buying VDE, Vanguard's energy sector ETF. 7k last week. Like I said, when the total market is overvalued, you have to look for sectors within it that are undervalued and invest in them. Since around 2010/2011, I've mostly been investing in real estate and doing-hard money lending though. Never had one go bad. The reason I am even on this forum currently is because the time for hard-money lending is quickly coming to a close and I have a bunch of cash coming back to me and I'm looking for somewhere to put it. Housing prices have recovered to a level that it does not make it a sound investment anymore in my area either. This is why I have been looking at the stock market.
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My family has been in real estate for almost 40 years. We have a small real estate brokerage.
It sounds to me like you can already retire, and no matter what you do with your money, you will always have more to fall back/retire on. For some of us on this forum, that is not the case. If I tried to make some bets and trades on the indexes and lost half of my money, that would be additional years of work, and I wouldn't have any other options. There is no-one I can call, nothing I can do, besides continuing on working and trying to grow my income.
Things feel different when you are in that position. I have to take on all the uncertainty in the world on my own. If I lose, I actually lose. Like, there are consequences. I think that DCA is simply the best strategy for my position. I am willing to make a bet on the market over the long term, but I'm not willing to make a bet on myself beating the market in the long term. If I had money to burn, then sure, maybe I would play around with it more. But I don't.
You're interpreting way too much. When I say small brokerage, I mean small - 4 agents. I'm 32. I figure my net worth is slightly over 700k. I lived on 26k last year. But that's because I live in a 600sq ft apt in a 3-family house that I own. I drive a 1996 sedan with almost 200k miles. I'm quite frugal and live very small in order to build capital. I don't want to live like this forever though. My income is good, over 100k, but I really don't enjoy my job, at all. I hope to someday have a passive income of 60k to 70k yearly on super conservative investments. I think I can do that with around 1.5mil. So I'm gettin' there but I can't afford to have a huge loss either without setting myself back a few years.
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The S&P 500 is currently at 1880 right now. It may never drop below 1880 ever again or could drop to 1000 six months from now. No one knows what the market will do in the future except it will eventually goes up over the long haul. Always putting money in the market and never selling is going to give you far better returns on your money than trying to time the market. People that try to time the market end up losing the vast majority of the time and the few that managed to somewhat time the market were lucky.
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Hmmm... I'm always a little uneasy jumping into these discussions, but I'll give it a shot.
Before you try to time the market using publicly available information, you should have a darn good answer to the following question:
"Why doesn't everyone get rich doing this?"
You say that it is obvious when valuations are high/low. If it were as obvious as you make it out to be, then it would be relatively easy to become extremely rich by buying when valuations are low and selling when valuations are high. With even a little bit of information about the future market trajectory, earning huge returns is easy. Millions of people have developed systems for "valuing" the market, but the world is not filled in retired market timers. Why do you think your intuition about the market is so much better than everyone else's?
Because I am a genius and everyone else is dumb! Kidding, kidding.
On a serious note, I can't tell you which way the overall market will go in the short-term. No one can. You're absolutely right about that. What I can tell you is this. If you buy a business for $10 that earns $1 per year, you will have a 10% return. So...if I want to have a 10% return on my money, I can't pay more than $10 for $1 of earnings. Now, we have to agree on an assumption to move forward from here. That assumption is: The stock market value, over the long-term, will correlate to earnings performance. Basically, if the overall market grows earnings, the market price will go up. If the overall market earnings shrink, so will the market price. This movement establishes long-term trends, ratios, benchmarks, etc. If you don't believe that, there isn't any point in discussion. If you do agree with that, then you should believe that you can value a market and it's expected returns over the long-term if you analyze presently available data as well as historical trends. Not perfectly, but well enough.
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700k ... I hope to someday have a passive income of 60k to 70k yearly on super conservative investments. I think I can do that with around 1.5mil.
Sure, and I hope to be able to stop working before I get run over by a bus or my body falls apart. If I had 700k I'd quit tomorrow.
Even if you socked it all in the market, quit your job, and saw a 50% drop in the S&P immediately following, by my standards, you would still be safe and wealthy enough to stay in retirement forever.
My point is, making the choice between
- retiring, eating out all the time and going on vacation in europe VS. retiring, rarely eating out and going hiking nearby
feels different from
- living in a van and eating rice and beans VS. working 40 hours a week, sharing an apartment, and eating vegetables.
You have more choices.
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The S&P 500 is currently at 1880 right now. It may never drop below 1880 ever again or could drop to 1000 six months from now. No one knows what the market will do in the future except it will eventually goes up over the long haul. Always putting money in the market and never selling is going to give you far better returns on your money than trying to time the market. People that try to time the market end up losing the vast majority of the time and the few that managed to somewhat time the market were lucky.
If the S&P was 10,000 right now, would you put money in? You're telling me there is no price too high that would keep you out of the market? No one else sees the error in this line of thinking? You have to incorporate fundamental analysis and market valuation into this strategy.
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The S&P 500 is currently at 1880 right now. It may never drop below 1880 ever again or could drop to 1000 six months from now. No one knows what the market will do in the future except it will eventually goes up over the long haul. Always putting money in the market and never selling is going to give you far better returns on your money than trying to time the market. People that try to time the market end up losing the vast majority of the time and the few that managed to somewhat time the market were lucky.
If the S&P was 10,000 right now, would you put money in? You're telling me there is no price too high that would keep you out of the market? No one else sees the error in this line of thinking? You have to incorporate fundamental analysis and market valuation into this strategy.
If the market jumped up 550% over the weekend no I would not, but I don't think I have to worry about that. 50% of my pay every month goes into various accounts buying VTI or the equivalent and will I continue to do so.
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This is what the largest actively managed mutual fund has to say about it if anyone cares. Im sure what they are thinking and doing will effect your stock prices significantly.
https://www.americanfunds.com/individual/insights/investment-insights/china-volatility-not-2008.html
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Why is it that so many people assume the market can only go two directions, up or down? It can also go sideways, as it did last year. Sure the market is down 8% or so right now but we had a correction last year as well. Unless you have a crystal ball, we might very well be back to break even by the middle of the year. It's a lot of fear selling right now anyway. If oil prices start turning around and people get a feeling of relief you may see the media start latching on to positive economic data and the next thing you know everyone is buying. Who knows? The point is, taking your money in an out of the market at times like these almost inevitably means you catch some of the down side before getting out and miss some of the upside before getting back in, and those two combined are enough to kill a portfolio's return. At least Keith123 is letting his invested money ride where it is.
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By all means, do the hokey-pokey with your investments if you wish. We wish you the best of luck.
I hear it all the time, from my dad who went all in on silver as it went up, and then watched his life savings plummet. From coworkers who day trade in the break room wanting to make a fast buck. From the Wealth Management group who is constantly trying to convince me to join up, setting up nice booths at work events, talking about how much value they can add to my investments while getting worse returns than my funds and siphoning off a big chunk. From the neighbor kid who went to work for an investment firm and tried to sell me on the companies benefits (I did it to be nice, but almost cried because he knew so little and was selling such a crock of shit)....
Great list, James!! Forgot to mention all the people who decided in 2014 that Bitcoin was "the future" so bought in at $970 a pop to get on the action. There has to be a few threads right here on MMM a few years ago saying that was a great idea.
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What I am advocating for is waiting for the right time to buy with whatever cash you have accumulated.
I typically wait until the 3rd full moon of the 13 month that falls on the 1st Wednesday before Hanukah at precisely 11:38PM. Or whenever I have the money, which is usually easier.
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This is what the largest actively managed mutual fund has to say about it if anyone cares. Im sure what they are thinking and doing will effect your stock prices significantly.
https://www.americanfunds.com/individual/insights/investment-insights/china-volatility-not-2008.html
Our financial planner had us in American Funds for 10+ years, and over that span, on average, they underperformed the market by about 2% (a little better in bad years, a lot worse in good years), which is why a) we fired our financial planner, and b) we no longer own American Funds.
The bottom line is that you have to find the level of risk that you personally feel comfortable with. Someone who's gung-ho about lots of risk isn't going to convince someone more cautious to adopt their style, and vice versa.
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The bottom line is that you have to find the level of risk that you personally feel comfortable with. Someone who's gung-ho about lots of risk isn't going to convince someone more cautious to adopt their style, and vice versa.
Good point, a meta-comment on this thread. If you find you're spending a lot of time/effort attempting to time the market, especially to limit losses on the downside, then you may be more risk adverse than you think. Consider setting up your portfolio to be a bit more conservative.
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if I want to have a 10% return on my money, I can't pay more than $10 for $1 of earnings.
Ok so where do you put your money while you wait years/decades for PE ratios to get to your level of fair value?
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I'm pretty much with Cougar on this one. However, I will agree that DCA over the long-term, like 30, 40, or 50 years, will provide a good return for the average investor. Do that if you can. You guys are right, it's probably the easiest and most stress free way to invest. DCA over a shorter, say 10 year, period may not prove to work so well because you might DCA into a 10 year period of over-valuation which will hurt your future returns. Aren't most people on this forum trying to retire in the next 10 years or so and live off their investments? That only gives a relatively short window for DCA.
You mentioned this a few times, and I just wanted to address it.
Even if you're looking to retire in 10 years like a lot of us are, that doesn't mean you're not in the market still for the next 50+ years.
If I buy in an overpriced market (say I invested the last of my money in December at about 2000, and then I retired January 1st), I shouldn't really care what the market does unless it's going to drop to like 1000 (in which case I either go back to work or pare down my withdrawal significantly). In 30 years when the market is at 5000, it doesn't matter.
That's what the 4% rule is all about.
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if I want to have a 10% return on my money, I can't pay more than $10 for $1 of earnings.
Ok so where do you put your money while you wait years/decades for PE ratios to get to your level of fair value?
I've stated this before. I suggest looking for undervalued sector ETFs within an overvalued market. I bought 2k of VDE, Vanguard's energy sector ETF, this morning and 7k last week. It is undervalued in my opinion and will likely pay good returns over the long term if you buy at today's prices. If there are no undervalued sectors and the market is overvalued, I would simply wait and accumulate cash until an opportunity presents itself.
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What I am advocating for is waiting for the right time to buy with whatever cash you have accumulated.
I typically wait until the 3rd full moon of the 13 month that falls on the 1st Wednesday before Hanukah at precisely 11:38PM. Or whenever I have the money, which is usually easier.
Ok. I'm getting quite tired of trying to communicate this. Here goes another effort though. The S&P is just an aggregate of businesses. Agreed? Ok. Do you believe in the ability to evaluate and estimate a business' future return based on a purchase price, historical data, present information, etc.? If you say yes, then you should also believe that you can come up with an educated forecast for future returns for the S&P based on it's current price. If you say no, then we simply have a a difference of opinion that cannot be bridged. We fundamentally disagree on investing. It's seems that you believe that no one can value anything. For that reason, you will invest in everything, all the time - which is crazy in my opinion. Why not buy when from a fundamental perspective, you are positioned to have good returns? I really think the only difference between me and most everyone else on this forum comes down to this.
I assume, if you use this strategy, that most of the mustashians are investing on the assumption that the market does not, over the long term, correlate to earnings. I will admit that your strategy will win if the market goes high, and stays high forever.
Think about it. Right now, VTI is at a 17 TTM p/e I believe. That p/e indicates an expected return of 5.9% annually if earnings stay the same. Let's ignore growth, compounding, and other variables that will complicate this for now. If VTI had a p/e of 25 TTM, the implied return be 4%. I know this is simplistic but humor me. Isn't there a point where you wouldn't be buying based on the implied future returns?
I know these measures are going to get attacked again but what the hell. The Shiller p/e is 23 right now (implied return of 4.3%). Corporate profit margins, which appear to be very mean-reverting, are at record highs (10% vs historical average of 6.5%). This probably means that the S&P's earnings are inflated right now and will come down over time. You're investing into a current market that is seems likely to return very little to you over the long-term. You can lock in 1.9% in a 10yr treasury right now if you want 10 years of low returns safely. I'm looking for 7% or 8% returns over the long-term, at minimum. Obviously, I could be very wrong as to the direction the market goes from here. That isn't what I am concerned with and you shouldn't be either if you are a buy and hold investor. What you need to do is not pay too much for future earnings. If you believe that the market correlates to earnings over the long-term, you're returns suffer when you pay too much.
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So do you care about increased risk because you're concentrating in your low price sectors? That's not much better than stock picking.
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I'm pretty much with Cougar on this one. However, I will agree that DCA over the long-term, like 30, 40, or 50 years, will provide a good return for the average investor. Do that if you can. You guys are right, it's probably the easiest and most stress free way to invest. DCA over a shorter, say 10 year, period may not prove to work so well because you might DCA into a 10 year period of over-valuation which will hurt your future returns. Aren't most people on this forum trying to retire in the next 10 years or so and live off their investments? That only gives a relatively short window for DCA.
You mentioned this a few times, and I just wanted to address it.
Even if you're looking to retire in 10 years like a lot of us are, that doesn't mean you're not in the market still for the next 50+ years.
If I buy in an overpriced market (say I invested the last of my money in December at about 2000, and then I retired January 1st), I shouldn't really care what the market does unless it's going to drop to like 1000 (in which case I either go back to work or pare down my withdrawal significantly). In 30 years when the market is at 5000, it doesn't matter.
That's what the 4% rule is all about.
You're right, we shouldn't care what the market does. We should care how our earnings do relative to the price we paid for them, which I believe correlates to stock performance over long enough periods of time. This is why I don't want to pay too much for future earnings. Especially when I think even the current earnings are inflated and unsustainable due to much higher than average corporate profit margins.
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So do you care about increased risk because you're concentrating in your low price sectors? That's not much better than stock picking.
I do. A lot. But it's not nearly as bad as stock picking. VDE has 146 stocks in it with a 66% concentration among the top 10 holdings. The concentration bothers me. Stock picking to me is much riskier though. By buying a whole sector ETF like VDE, if a bunch of companies in the index go under, it'll hurt, but the loss will most likely be absorbed as a gain by another company in the index. If Chevron goes bankrupt, Exxon will benefit - that's the rough idea. Unless the sector never recovers. Then I lose. What's way riskier is trying to pick the winners in a beat up sector where bankruptcies are a real threat. A macro bet on a sector is much safer than individual stock picking.
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if I want to have a 10% return on my money, I can't pay more than $10 for $1 of earnings.
Ok so where do you put your money while you wait years/decades for PE ratios to get to your level of fair value?
I've stated this before. I suggest looking for undervalued sector ETFs within an overvalued market. I bought 2k of VDE, Vanguard's energy sector ETF, this morning and 7k last week. It is undervalued in my opinion and will likely pay good returns over the long term if you buy at today's prices. If there are no undervalued sectors and the market is overvalued, I would simply wait and accumulate cash until an opportunity presents itself.
Ok - then what is your edge to identify over/under-valued sectors versus all the other people out there? Are you smarter? Do you have better information? Do you have a better system? Something else? What is the secret sauce?
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This is what the largest actively managed mutual fund has to say about it if anyone cares. Im sure what they are thinking and doing will effect your stock prices significantly.
https://www.americanfunds.com/individual/insights/investment-insights/china-volatility-not-2008.html
Our financial planner had us in American Funds for 10+ years, and over that span, on average, they underperformed the market by about 2% (a little better in bad years, a lot worse in good years), which is why a) we fired our financial planner, and b) we no longer own American Funds.
The bottom line is that you have to find the level of risk that you personally feel comfortable with. Someone who's gung-ho about lots of risk isn't going to convince someone more cautious to adopt their style, and vice versa.
High fees and loads have nothing to do with the ability for picking stocks or their grip on the market. Doesn't it make sense then to listen to what the big money says? You never have to guess with Vanguard because they don't do anything at all. Most of the market doesn't do that. Take a look at some of the smallest holdings of Growth Fund of America. This is the kind of stuff they might sell or the amounts they might buy on a moments notice
(http://i820.photobucket.com/albums/zz124/azwolf25/Screen%20Shot%202016-02-08%20at%202.11.32%20PM.jpg) (http://s820.photobucket.com/user/azwolf25/media/Screen%20Shot%202016-02-08%20at%202.11.32%20PM.jpg.html)
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the markets are going to continue to decline,
Now you tell me. Why didn't you say something when the Dow was at 18,000?
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if I want to have a 10% return on my money, I can't pay more than $10 for $1 of earnings.
Ok so where do you put your money while you wait years/decades for PE ratios to get to your level of fair value?
I've stated this before. I suggest looking for undervalued sector ETFs within an overvalued market. I bought 2k of VDE, Vanguard's energy sector ETF, this morning and 7k last week. It is undervalued in my opinion and will likely pay good returns over the long term if you buy at today's prices. If there are no undervalued sectors and the market is overvalued, I would simply wait and accumulate cash until an opportunity presents itself.
Ok - then what is your edge to identify over/under-valued sectors versus all the other people out there? Are you smarter? Do you have better information? Do you have a better system? Something else? What is the secret sauce?
I'm not smarter. I don't have better information. If fundamentals imply a good enough return, buy. If they don't, you don't have to sell what you have, just don't add new money. Personally, I want a 7% return or greater for the long term because that is the average inflation-adjusted, dividends included annual return for the stock market over it's history. I don't think that is possible based on the fundamentals of the overall market right now. If you want a 3% or 4% return over the long-term, then buying the market right now seems ok. It depends on the return you want.
VDE has a 22 TTM PE right now in the middle of an energy crash. As is, this implies a return of 4.6%. However, I believe the last 12 months of earnings are not representative of what earnings will be in the future. They are obviously depressed. I expect them to be higher in the future which will push the pe back down into my comfortable range of 15 to 17 or lower which should safely give me a ~7% return or better, maybe much better, long term.
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Or oil may never recover and oil companies continue to underperform. It's a gamble, might pay off, might not. I can't be bothered contemplating these things so I'll stick with my all world tracker which has the market share of oil companies in it.
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Ok. I'm getting quite tired of trying to communicate this. Here goes another effort though. The S&P is just an aggregate of businesses. Agreed? Ok. Do you believe in the ability to evaluate and estimate a business' future return based on a purchase price, historical data, present information, etc.? If you say yes, then you should also believe that you can come up with an educated forecast for future returns for the S&P based on it's current price. If you say no, then we simply have a a difference of opinion that cannot be bridged. We fundamentally disagree on investing. It's seems that you believe that no one can value anything. For that reason, you will invest in everything, all the time - which is crazy in my opinion. Why not buy when from a fundamental perspective, you are positioned to have good returns? I really think the only difference between me and most everyone else on this forum comes down to this.
I'm curious what your educational background is?
The reason I ask this, is that the efficient market hypothesis is something taught in most business schools (maybe only finance, not sure). There are hundreds of analysts that cover the various business sectors whose entire job is to know everything there is to know about a sector. They're going to have the advantage of knowing way more than you ever could. And because of that knowledge, that will get priced into the current value of that sector. This means that the current price should be factoring everything you, as a lay person, think might happen.
The only way to "beat" that is to either have insider information (which gives you an advantage for a specific company, or a limited set of companies), or to be tracking a sector that is so obscure that no financial institution is going to bother have an analyst working it (or in one so small that there are maybe 1-2 overworked analysts who can't possibly process it all).
The reason people invest in a "portfolio" is to eliminate "market risk." Market risk is the stuff we can't control; oil prices decimating the economy, the Fed changing interest rates, wars, legislative changes, etc. Once that is gone, our basket of investments (the portfolio) then evens out everything else. The "risk" of one company going bankrupt is offset by the company that exceeds projections by 500%. The reason many of us choose a broad index fund that mimics the S&P is that it basically eliminates all market risk, and provides minimal equity risk (the risk that the stock market implodes).
What you're trying to do is incorporate more risk into your portfolio. You think you can beat the full time analysts. Maybe you'll find something that can beat them out, but my money would be on the financial firms.
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Keith, you have a lot of good knowledge and appear to think very rationally, so I think it's a shame that people immediately write you off, but I do think you're missing a few key pieces of assumptions in your analysis.
1. A lot of the posters making this point, and it's true - you can't account for all of the factors that influence market pricing. Many people have tried to fit things into a pretty equation, and it just doesn't work. You know this to an extent becuase you have your own business, vacancy is never what it's underwritten as, nor is maintenance/repairs. Well, for real estate, there's a lot less variables than the stock market because psychology and emotion doesn't come into play daily. The illiquidity of real estate helps in this regard because you can focus on the underlying cash flow. Another example is the profit margin point you are bringing up - what makes you think it will revert to the mean? And if it will, what makes you think the mean of 6.5% is correct? Businesses should be getting more and more efficient now (hence not a lot of companies are valued by P/B anymore) due to stealing good business processes/practices and rise of technology, and if the government starts deficit spending again, or if savings rates decrease, the private sector will benefit - are you saying that you will be able to predict both?
2. In your analysis, you seem to repeatedly harp on "today's" conditions. That demonstrates a real estate investor's line of thinking. Unless if you buy at a severe discount, real estate has capped potential. Buying a piece of real estate at a decent cap rate (let's say 10%) or at a fair price, is different than buying a piece of business at a fair price (let's use your example of 15.5 PE). Although the underlying earnings is higher on real estate, rents (and subsequently, total price) increase extremely slowly, historically at the rate of inflation, whereas the best businesses grow earnings at a rate that handily beats inflation. So to say "ignoring growth" isn't a fair, apples to apples, comparison. There's a reason that stocks have trounced treasuries so handily for 30 years even though long term treasury rates handily beat the earning yield of sp500 at the end of a lot of fiscal years (you can do a comparison using http://www.multpl.com/10-year-treasury-rate/table/by-year and calculating the earnings yield for SP500 from the same site).
3. Opportunity cost matters, and this is a reason why the Shiller PE's usefulness can be overstate, imo. By measuring Shiller PE as an absolute measure of expensiveness, you assume that alternative investments are always yielding the same amount. But logically, if Treasury notes are paying 10%, stocks *must* then be priced at 10 PE or less for it to be a fair deal, after accounting for the effects of growth and inflation. Currently, with ten year treasuries paying 2%, a 5% earnings yield on stocks is a pretty good sized premium (plus the 5% earnings can grow 7-10% at even the largest companies). You already mentioned this, so I'm confused as to why you haven't made the connection between low treasury rates and why an "inflated" Shiller PE can make sense. You can always invest in real estate, but again, you're probably capped in today's environment to ~8% cap rate, which can grow at 1-2% with inflation (not much inflation right now). Real estate though, has the advantage of structure, since in the US, you can leverage with fixed debt. The other perfectly good option if you are patient is to hold cash, and pick up assets once they become reasonably priced to you (either through a crash in pricing, or through stagnating pricing until earnings catch up)
EDIT: It's also odd to me that you say: "VDE has a 22 TTM PE right now in the middle of an energy crash. As is, this implies a return of 4.6%. However, I believe the last 12 months of earnings are not representative of what earnings will be in the future. They are obviously depressed. I expect them to be higher in the future which will push the pe back down into my comfortable range of 15 to 17 or lower which should safely give me a ~7% return or better, maybe much better, long term." but accept Shiller PE as a definitive measure, when PE10 includes 08-09, dramatically and temporarily reduced earnings for the entire US
For all of these reasons, the many factors governing the stock market, the growth component in stocks, and opportunity cost of "risk free" treasuries, I think the stock market isn't too overpriced currently. I do think that there are spots in the market that are making it seem that way, such as a lot of the consumer staples and (worst offender) start up tech/social network companies. Energy seems to be undervalued, as well as some financials (investor wariness still) and older tech. But overall, the market seems to be fairly priced.
In the end, I think you are very knowledgeable, but have some misunderstandings about how macro predictions actually affect the market - there's a lot of knowledge out there tho, and life experience is the best of all, since you seem to have a pretty good underlying economic engine (real estate business), I would say that my only advice to you is not to over do it, be conservative in how large your bets are and you should be fine
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The reason I ask this, is that the efficient market hypothesis is something taught in most business schools (maybe only finance, not sure). There are hundreds of analysts that cover the various business sectors whose entire job is to know everything there is to know about a sector. They're going to have the advantage of knowing way more than you ever could. And because of that knowledge, that will get priced into the current value of that sector. This means that the current price should be factoring everything you, as a lay person, think might happen.
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What you're trying to do is incorporate more risk into your portfolio. You think you can beat the full time analysts. Maybe you'll find something that can beat them out, but my money would be on the financial firms.
EMH is garbage that suffers from physics envy and a lack of understanding of human psychology. Equating buying in a different proportion than a preset number of stocks in the proportion picked by humans (SP500) or by other investors (market cap, with human psychology factor) as risk is misunderstanding that price does not equal value.
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Or oil may never recover and oil companies continue to underperform. It's a gamble, might pay off, might not. I can't be bothered contemplating these things so I'll stick with my all world tracker which has the market share of oil companies in it.
You very well might be right. I'm more optimistic about oil by looking at the history of the cycles though. I know that history doesn't predict the future, but I have trouble thinking "this time is different". I doubt oil is going back to $100 ever again, but it's very hard for me to buy the $30 forever argument. I'm buying VDE with oil at $30 and under as long as I can.
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Ok. I'm getting quite tired of trying to communicate this. Here goes another effort though. The S&P is just an aggregate of businesses. Agreed? Ok. Do you believe in the ability to evaluate and estimate a business' future return based on a purchase price, historical data, present information, etc.? If you say yes, then you should also believe that you can come up with an educated forecast for future returns for the S&P based on it's current price. If you say no, then we simply have a a difference of opinion that cannot be bridged. We fundamentally disagree on investing. It's seems that you believe that no one can value anything. For that reason, you will invest in everything, all the time - which is crazy in my opinion. Why not buy when from a fundamental perspective, you are positioned to have good returns? I really think the only difference between me and most everyone else on this forum comes down to this.
I'm curious what your educational background is?
The reason I ask this, is that the efficient market hypothesis is something taught in most business schools (maybe only finance, not sure). There are hundreds of analysts that cover the various business sectors whose entire job is to know everything there is to know about a sector. They're going to have the advantage of knowing way more than you ever could. And because of that knowledge, that will get priced into the current value of that sector. This means that the current price should be factoring everything you, as a lay person, think might happen.
The only way to "beat" that is to either have insider information (which gives you an advantage for a specific company, or a limited set of companies), or to be tracking a sector that is so obscure that no financial institution is going to bother have an analyst working it (or in one so small that there are maybe 1-2 overworked analysts who can't possibly process it all).
The reason people invest in a "portfolio" is to eliminate "market risk." Market risk is the stuff we can't control; oil prices decimating the economy, the Fed changing interest rates, wars, legislative changes, etc. Once that is gone, our basket of investments (the portfolio) then evens out everything else. The "risk" of one company going bankrupt is offset by the company that exceeds projections by 500%. The reason many of us choose a broad index fund that mimics the S&P is that it basically eliminates all market risk, and provides minimal equity risk (the risk that the stock market implodes).
What you're trying to do is incorporate more risk into your portfolio. You think you can beat the full time analysts. Maybe you'll find something that can beat them out, but my money would be on the financial firms.
You got me. I graduated from Babson College in 2005. I understand everything you are saying. The one big advantage I believe I have is I don't report to investors and no one can make me sell. This is a bigger advantage than you may think. When financial firms under-perform or the market in general tanks, people pull money from those funds and those firms are forced to sell equity positions that they might not otherwise want to. Very few firms tell their investors they can't have their money back if they want it. When herd selling and panic mentality sets in, things get undervalued. This is not a function of collective knowledge reflected in the market. It's plain panic selling that has no fundamental reason a lot of the time. Maybe that's why I'm drawn to crashes (housing, now energy). They seem to present the most opportunity to me on a fundamental level.
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Why is it that so many people assume the market can only go two directions, up or down? It can also go sideways, as it did last year. Sure the market is down 8% or so right now but we had a correction last year as well. Unless you have a crystal ball, we might very well be back to break even by the middle of the year. It's a lot of fear selling right now anyway. If oil prices start turning around and people get a feeling of relief you may see the media start latching on to positive economic data and the next thing you know everyone is buying. Who knows? The point is, taking your money in an out of the market at times like these almost inevitably means you catch some of the down side before getting out and miss some of the upside before getting back in, and those two combined are enough to kill a portfolio's return. At least Keith123 is letting his invested money ride where it is.
I'm rolling over a large portion of our net worth into Vanguard and Fidelity is apparently mailing me the check (not Vanguard, seriously man) and apparently it'll take like 2 weeks to do it - the market can drop (not go up) during that time plz.
:)
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Keith, you have a lot of good knowledge and appear to think very rationally, so I think it's a shame that people immediately write you off, but I do think you're missing a few key pieces of assumptions in your analysis.
1. A lot of the posters making this point, and it's true - you can't account for all of the factors that influence market pricing. Many people have tried to fit things into a pretty equation, and it just doesn't work. You know this to an extent becuase you have your own business, vacancy is never what it's underwritten as, nor is maintenance/repairs. Well, for real estate, there's a lot less variables than the stock market because psychology and emotion doesn't come into play daily. The illiquidity of real estate helps in this regard because you can focus on the underlying cash flow. Another example is the profit margin point you are bringing up - what makes you think it will revert to the mean? And if it will, what makes you think the mean of 6.5% is correct? Businesses should be getting more and more efficient now (hence not a lot of companies are valued by P/B anymore) due to stealing good business processes/practices and rise of technology, and if the government starts deficit spending again, or if savings rates decrease, the private sector will benefit - are you saying that you will be able to predict both?
2. In your analysis, you seem to repeatedly harp on "today's" conditions. That demonstrates a real estate investor's line of thinking. Unless if you buy at a severe discount, real estate has capped potential. Buying a piece of real estate at a decent cap rate (let's say 10%) or at a fair price, is different than buying a piece of business at a fair price (let's use your example of 15.5 PE). Although the underlying earnings is higher on real estate, rents (and subsequently, total price) increase extremely slowly, historically at the rate of inflation, whereas the best businesses grow earnings at a rate that handily beats inflation. So to say "ignoring growth" isn't a fair, apples to apples, comparison. There's a reason that stocks have trounced treasuries so handily for 30 years even though long term treasury rates handily beat the earning yield of sp500 at the end of a lot of fiscal years (you can do a comparison using http://www.multpl.com/10-year-treasury-rate/table/by-year and calculating the earnings yield for SP500 from the same site).
3. Opportunity cost matters, and this is a reason why the Shiller PE's usefulness can be overstate, imo. By measuring Shiller PE as an absolute measure of expensiveness, you assume that alternative investments are always yielding the same amount. But logically, if Treasury notes are paying 10%, stocks *must* then be priced at 10 PE or less for it to be a fair deal, after accounting for the effects of growth and inflation. Currently, with ten year treasuries paying 2%, a 5% earnings yield on stocks is a pretty good sized premium (plus the 5% earnings can grow 7-10% at even the largest companies). You already mentioned this, so I'm confused as to why you haven't made the connection between low treasury rates and why an "inflated" Shiller PE can make sense. You can always invest in real estate, but again, you're probably capped in today's environment to ~8% cap rate, which can grow at 1-2% with inflation (not much inflation right now). Real estate though, has the advantage of structure, since in the US, you can leverage with fixed debt. The other perfectly good option if you are patient is to hold cash, and pick up assets once they become reasonably priced to you (either through a crash in pricing, or through stagnating pricing until earnings catch up)
EDIT: It's also odd to me that you say: "VDE has a 22 TTM PE right now in the middle of an energy crash. As is, this implies a return of 4.6%. However, I believe the last 12 months of earnings are not representative of what earnings will be in the future. They are obviously depressed. I expect them to be higher in the future which will push the pe back down into my comfortable range of 15 to 17 or lower which should safely give me a ~7% return or better, maybe much better, long term." but accept Shiller PE as a definitive measure, when PE10 includes 08-09, dramatically and temporarily reduced earnings for the entire US
For all of these reasons, the many factors governing the stock market, the growth component in stocks, and opportunity cost of "risk free" treasuries, I think the stock market isn't too overpriced currently. I do think that there are spots in the market that are making it seem that way, such as a lot of the consumer staples and (worst offender) start up tech/social network companies. Energy seems to be undervalued, as well as some financials (investor wariness still) and older tech. But overall, the market seems to be fairly priced.
In the end, I think you are very knowledgeable, but have some misunderstandings about how macro predictions actually affect the market - there's a lot of knowledge out there tho, and life experience is the best of all, since you seem to have a pretty good underlying economic engine (real estate business), I would say that my only advice to you is not to over do it, be conservative in how large your bets are and you should be fine
I really appreciate your points. You made them well. I'll try to address as much as I can.
1. I'll agree that real estate investing does not translate well to stocks. I was using real estate to illustrate fundamental analysis, which seems to fall by the wayside on this forum. I don't know if the current corporate profit margins are sustainable. But looking at the past 65 years, it seems to be a very, very mean-reverting stat. Maybe the trend will be higher in the future. But a jump from an average of 6.5% over a 65 year period to a new norm of 10% doesn't seem plausible. That just doesn't seem realistic to me.
2. I didn't ignore growth in the comparison out of ignorance. It was to illustrate fundamental analysis in a simple fashion. While I realize the best businesses grow earnings at much higher rates than inflation, when you are buying whole market index funds, I look to this: "According to economist Robert Shiller, earnings per share on the S&P 500 grew at a 3.8% annualized rate between 1874 and 2004 (inflation-adjusted growth rate was 1.7%). Since 1980, the most bullish period in U.S. stock market history, real earnings growth according to Shiller, has been 2.6%." Not a lot of earnings growth over the long-term picture. I don't bank on a ton of above inflation growth going forward with whole market ETFs.
3. This is a good point that I have failed to mention. I am aware that the low interest rate environment in recent history has pushed more money into the market with investors looking for better returns than in regular stuff like CD's, savings accounts, T-bills, etc. That's great, but the more money that goes into the market, the lower the expected returns are. I hope the Fed is as committed to raising rates over time as they say they are. This should bring the market down for better returns as people return to traditional "safe" investments.
In regards to the EDIT, you have another good point. I suppose I just think 08/09 earnings didn't affect the shiller PE as much as the past 12 months of earnings affected the energy sector. The entire time frame for the TTM PE for the energy industry is depressed as opposed to just 20% of the time that the shiller PE was depressed.
Thank you for the advice and critique. I'll need it I'm sure. Best of luck.
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Many large companies have monopoly like qualities, so I think it's perfectly understandable why many have profit margins of 10%
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Many large companies have monopoly like qualities, so I think it's perfectly understandable why many have profit margins of 10%
Many probably have much higher than that. We are talking about the whole market's average corporate profit margin though, not just a company here or there. You don't think monopolyish companies existed in the past when average profit margins were 6.5%? Standard Oil, US Steel, etc.?
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Or oil may never recover and oil companies continue to underperform. It's a gamble, might pay off, might not. I can't be bothered contemplating these things so I'll stick with my all world tracker which has the market share of oil companies in it.
Sticking to a plan works but there are reasons why I think this conclusion is not the best.
When you own the index you own everything. If everything is generally going up you will go up a lot. The flip side is when everything goes down you will go down a lot. When large amounts of companies (say in the oil sector) go out of business-- you owned that too and that is zero. Its not a 40% loss of 0.2% of your portfolio its a 100% loss of whatever portion of your index. Think of your GPA. Its better to bomb one test then take a zero. 3 A's and 1 zero is 67%. Thats not quite an F, but a D is a fail. Meanwhile 3 B's and one 50% is a solid C grade. This is why active funds beat index on spans of 30 years. Don't believe me then look at the long term record with dividends reinvested in Growth fund of America. Sure VTI beat most funds in a 7 year bull market but I think the bear is going to tear that crap up. Just the community college opinion of a guy who's life wasn't stable enough for ivy league.
Now why you are wrong on Oil. Gas was $4 a gallon for how long? Why is that? Because it takes a lot of time to start things up. When you shut down 1,500 rigs and fire their employees-- the employees and experts say screw this, I have to eat, and they get a different job in a different field, and it will take years to bring that stuff on line again. Years. Meanwhile how many oil companies have filled for bankruptcy lately? How many will? You think they are just going to fire that up? Not a chance in hell. It's not that they won't want to. The profit will be obscene enough to attract it. They can't bring it online that fast. They just can't. That's why the US has to be involved in regulating its own oil prices by adjusting oil imports like the fed adjusts interest rates. We NEED United States production high.
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Keith, I'm also impressed by your subject knowledge and willingness to engage a fairly hostile audience. With that said, I still disagree with you.
If you buy a business for $10 that earns $1 per year, you will have a 10% return. So...if I want to have a 10% return on my money, I can't pay more than $10 for $1 of earnings. Now, we have to agree on an assumption to move forward from here. That assumption is: The stock market value, over the long-term, will correlate to earnings performance.
This is a huge oversimplification - the future prospects of the business matter at least as much as the current / average earnings. A business that earned 10% last year (i.e. PE of 10), and loses money this year and every year thereafter will not give provide a 10% return. Similarly, a business with a PE of 20 which grows earnings at 50% per year will return significantly more than the5% implied by its PE ratio. As you're likely aware given your background, the value of a business depends heavily on its future earnings. The problem is that these future factors are incredibly difficult to predict and can remain irrational for decades - certain valuation measures have been above their long term average since 1990.
Basically, if the overall market grows earnings, the market price will go up. If the overall market earnings shrink, so will the market price. This movement establishes long-term trends, ratios, benchmarks, etc. If you don't believe that, there isn't any point in discussion.
I agree that there is historical correlation between certain valuation metrics and market returns (Shiller). I think it is extremely risky to sell everything based on these valuation metrics, especially when they are only slightly outside of historical norms. You are then betting the farm on a correlation in past data. Imagine for a moment that there are long term social forces forces which very slowly reduce the average rate of return. The long term Shiller PE might tend to have a slight upward slope*. I don't claim that this is reality, but it is conceivable. In this case, an investor might sell based on high valuations and miss out on years of returns waiting for valuations to return to their historical (flat) average which they never will. The problem here is that we have less than 100 years of historical data to base correlations on. There may be long term trends which you are not accounting for that render your entire thesis moot. I would rather have the guaranteed market return (which historically has been more than enough to quickly retire) than try to do a little better and risk significantly under performing.
Let me leave you with a personal story. I spent seven years value investing based on the Buffet/Graham model. I put in several hours a week analyzing markets and reading earnings reports. After expending a huge amount of effort on the project... I had exactly matched the market returns for the period while incurring a moderate tax bill. In effect all those hours of analyzing were completely wasted. I wish you the best in your investing endeavors and hope sincerely that it is more worthwhile for you than it was for me.
*see some of William Bernstein's writings on the very long term return on equities. I don't know if he is correct, but he proposes that valuation metrics should increase very slowly with time.
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Many large companies have monopoly like qualities, so I think it's perfectly understandable why many have profit margins of 10%
Many probably have much higher than that. We are talking about the whole market's average corporate profit margin though, not just a company here or there. You don't think monopolyish companies existed in the past when average profit margins were 6.5%? Standard Oil, US Steel, etc.?
I keep reading that economists believe there has been so much consolidation is many industries that are leading to these monopolies, more so than in the past. The federal government has refused to stop these monopolies from forming.
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I'll give you a personal example, not stock related. My family has been in real estate for almost 40 years. We have a small real estate brokerage. Around 2005 and 2006, my father, with 30 years of real estate experience, told me that housing was going to crash. He knew that prices were unsustainable and that mortgages were being given out like candy. I was 22 or 23 back then and wanted to buy a house badly. He told me over and over again to wait for the right time. This was painful for me as I watched housing prices keep rising for the next several years. Well, we obviously know what happened to the housing market. In 2009 I bought a 3-unit for myself (for 122k) and 4 other single family houses that I flipped and sold for good profits shortly after. That 3-unit is now worth 250k and I plan on holding it forever. I also bought 2 condos to rent out in the past year that I plan on holding forever because while the housing market isn't cheap, its fair in my opinion. I don't mind buying during fair or cheap periods. So yeah, if I would have bought it for 300k in 2008, its rough value around then, I wouldn't have lost much money by now and I could have collected rent the entire time. But, because I waited for the right buying period, my returns are much, much greater. I hope this provides some perspective.
My whole point is don't buy or sell when it is obvious that the market is expensive. Expensive markets can get even more expensive for very, very long periods of time so stay in with what you already have in the market. Just don't add until it's fairly priced again. And I'll say it once again, this current market is very, very obviously expensive. When even John Bogle thinks the market is going to give poor returns for the near future, it's hard to argue with. http://www.marketwatch.com/story/john-bogle-says-you-wont-make-much-money-from-stocks-2015-11-05
Think about this period - it was a period when the general consensus was very strong that buying houses was a very good thing to do. That's a key bubble indicator, in contrast, I'd say the general consensus at the moment is that shares are a bad idea. I avoided buying shares in the years up to 2008 for the same reason you avoided buying real estate, it smelt like a bubble. So I don't think its impossible to avoid buying in bubbles. But if we're in a bubble now, its the most abnormal one that I know of.
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The reason I ask this, is that the efficient market hypothesis is something taught in most business schools (maybe only finance, not sure). There are hundreds of analysts that cover the various business sectors whose entire job is to know everything there is to know about a sector. They're going to have the advantage of knowing way more than you ever could. And because of that knowledge, that will get priced into the current value of that sector. This means that the current price should be factoring everything you, as a lay person, think might happen.
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What you're trying to do is incorporate more risk into your portfolio. You think you can beat the full time analysts. Maybe you'll find something that can beat them out, but my money would be on the financial firms.
EMH is garbage that suffers from physics envy and a lack of understanding of human psychology. Equating buying in a different proportion than a preset number of stocks in the proportion picked by humans (SP500) or by other investors (market cap, with human psychology factor) as risk is misunderstanding that price does not equal value.
+1
The voice of reason.
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The reason I ask this, is that the efficient market hypothesis is something taught in most business schools (maybe only finance, not sure). There are hundreds of analysts that cover the various business sectors whose entire job is to know everything there is to know about a sector. They're going to have the advantage of knowing way more than you ever could. And because of that knowledge, that will get priced into the current value of that sector. This means that the current price should be factoring everything you, as a lay person, think might happen.
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What you're trying to do is incorporate more risk into your portfolio. You think you can beat the full time analysts. Maybe you'll find something that can beat them out, but my money would be on the financial firms.
EMH is garbage that suffers from physics envy and a lack of understanding of human psychology. Equating buying in a different proportion than a preset number of stocks in the proportion picked by humans (SP500) or by other investors (market cap, with human psychology factor) as risk is misunderstanding that price does not equal value.
+1
The voice of reason.
EMH isn't garbage, its just oversold. All the people who first presented EMH showed, was that when new information is announced, say an interest rate hike, the start of a war, whatever, that it is almost immediately (i.e. efficiently) reflected in the price.
Some people have extrapolated that to say that the price of a share, immediately reflects the market consensus of what its worth - this is what I believe, which is why I think its damn hard to beat the stock market, but I also think the consensus can be wrong.
The strongest form of EMH is that the market always correctly reflects the price of things - which is where I'd join with others, and say garbage!
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The strongest form of EMH is that the market always correctly reflects the price of things - which is where I'd join with others, and say garbage!
Wait, so you're saying that the market doesn't accurately reflect the price of things?
Did you maybe mean to say "value" instead of "price"? Because I think it's pretty tautologically obvious that it correctly reflects the price, since it's the price that makes the market. There was a buyer and a seller, they agreed on a price, that's the price it sold for, that's what it costs right at that moment. You can argue about whether the price was too high or too low, but it was definitely "the price" in every sense of the word.
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The strongest form of EMH is that the market always correctly reflects the price of things - which is where I'd join with others, and say garbage!
Wait, so you're saying that the market doesn't accurately reflect the price of things?
Did you maybe mean to say "value" instead of "price"? Because I think it's pretty tautologically obvious that it correctly reflects the price, since it's the price that makes the market. There was a buyer and a seller, they agreed on a price, that's the price it sold for, that's what it costs right at that moment. You can argue about whether the price was too high or too low, but it was definitely "the price" in every sense of the word.
Yup, you're correct - bad me.
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The strongest form of EMH is that the market always correctly reflects the price of things - which is where I'd join with others, and say garbage!
Wait, so you're saying that the market doesn't accurately reflect the price of things?
Did you maybe mean to say "value" instead of "price"? Because I think it's pretty tautologically obvious that it correctly reflects the price, since it's the price that makes the market. There was a buyer and a seller, they agreed on a price, that's the price it sold for, that's what it costs right at that moment. You can argue about whether the price was too high or too low, but it was definitely "the price" in every sense of the word.
Yup, you're correct - bad me.
Okay, in that case we're now arguing about the potential difference between an investment's price and its value. I define price as the dollar figure that the investment trades for on the open market, which I think is easy to determine. I define value as the intrinsic worth of that investment as measured in what you should pay for its future cashflows, which is harder to know ahead of time since we never know if any particular investment is going to do well or do poorly.
Are price and value correlated in any way? EMH suggests that a whole bunch of people arguing about the value will eventually settle on a price, and that price IS the value as determined by everyone on all sides of the trade. It's what everyone agrees is the correct amount to pay for those future cashflows, using some assumptions about what those cashflows will be and what alternative investments could be made instead. If you believe the value is higher than the price the market has set, then you are in disagreement with everyone else who has agreed on a value, and decided to trade it at that price.
Maybe you're right and they're all wrong? That happens sometimes, particularly when fear grips the market and people fail to see a good value right in front of them because their expectations for future cashflows have been depressed. I think it also happens frequently when people start buying investments based on what they expect future buyers will pay for the same investment, rather than based on the cashflow they're actually buying, but at that point we might as well be trading football cards instead of fractional ownership shares in profitable businesses.
I don't think the EMH is garbage. I think it's misapplied frequently, I think it has spawned an undeservedly religious following in some circles, and I think market timers like to shit on it to justify their own delusions of superiority. But under all of that I think it's a sound idea, because all it says is that the value of the investment is hard to know but the market is a tool for letting everyone vote on what they think it should be, and then they make that the price. As long as people are rational and informed, that should work out as well as can be reasonably expected, for everyone, absent a working crystal ball.
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The strongest form of EMH is that the market always correctly reflects the price of things - which is where I'd join with others, and say garbage!
Wait, so you're saying that the market doesn't accurately reflect the price of things?
Did you maybe mean to say "value" instead of "price"? Because I think it's pretty tautologically obvious that it correctly reflects the price, since it's the price that makes the market. There was a buyer and a seller, they agreed on a price, that's the price it sold for, that's what it costs right at that moment. You can argue about whether the price was too high or too low, but it was definitely "the price" in every sense of the word.
Yup, you're correct - bad me.
Okay, in that case we're now arguing about the potential difference between an investment's price and its value. I define price as the dollar figure that the investment trades for on the open market, which I think is easy to determine. I define value as the intrinsic worth of that investment as measured in what you should pay for its future cashflows, which is harder to know ahead of time since we never know if any particular investment is going to do well or do poorly.
Are price and value correlated in any way? EMH suggests that a whole bunch of people arguing about the value will eventually settle on a price, and that price IS the value as determined by everyone on all sides of the trade. It's what everyone agrees is the correct amount to pay for those future cashflows, using some assumptions about what those cashflows will be and what alternative investments could be made instead. If you believe the value is higher than the price the market has set, then you are in disagreement with everyone else who has agreed on a value, and decided to trade it at that price.
Maybe you're right and they're all wrong? That happens sometimes, particularly when fear grips the market and people fail to see a good value right in front of them because their expectations for future cashflows have been depressed. I think it also happens frequently when people start buying investments based on what they expect future buyers will pay for the same investment, rather than based on the cashflow they're actually buying, but at that point we might as well be trading football cards instead of fractional ownership shares in profitable businesses.
I don't think the EMH is garbage. I think it's misapplied frequently, I think it has spawned an undeservedly religious following in some circles, and I think market timers like to shit on it to justify their own delusions of superiority. But under all of that I think it's a sound idea, because all it says is that the value of the investment is hard to know but the market is a tool for letting everyone vote on what they think it should be, and then they make that the price. As long as people are rational and informed, that should work out as well as can be reasonably expected, for everyone, absent a working crystal ball.
I actually think we are very close to agreement, i.e. of the three EMH levels
1) when new information is announced, say an interest rate hike, the start of a war, whatever, that it is almost immediately (i.e. efficiently) reflected in the price.
it sounds like you agree with this, as do I
2) Some people have extrapolated that to say that the price of a share, immediately reflects the market consensus of what its worth
I assume this is as far as you go, which is the same as me
3)The strongest form of EMH is that the market always correctly reflects the 'true value' of things
It sounds you don't think 3 always holds, which is also the same as me.
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I think EMH is a sort of philosophical Ativan.
A lot of the stress goes away when you know you are buying and selling at the right price. Of course a company is only worth what the market will pay for it right now until it is proven more valuable to ignorant and scholar alike. If you buy enough and are diversified enough the ignorance will pay off eventually, because the market knows what is right-- and it goes up. Is that the theory in a nutshell?
If so I don't see much of a difference between that and speculation that pays off eventually.
If the world was 100% index a company would carry a general market value right into bankruptcy. It would go from a market PE to zero in a second. Am I oversimplifying?
If all EMH says is that the market knows exactly what it will pay for a company-- I say duhhhhhh
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EMH certainly says that you can't use public information quickly enough to beat the market.
So, if you hear sanctions are being reapplied to Iran, you go ... oh that means oil will go up, I should buy oil, its too late.. its already gone up.
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I don't think the markets are perfectly efficient. They are, however, sufficiently efficient that the difference between value and price is not generally worth my effort to exploit.
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So you can't use public information, so everything is speculation then right-- because the market already knows and it does what it wants.
Well I can't make the market do what I want, but I did suspect-- and have been saying for a long time (long trollers be my witness) that Ford would do well on earnings, that is would increase sales, but the market didn't budge.. it didn't move.. it didn't care.. it said China dude. Numbers came back from China good. Market still doesn't care. I think the whole damn market is speculating in index funds. Forget Fords numbers because auto with be down because of X, X, and X. Market says Ford go down (Ford beats earnings) Market says Ford go down (Ford has recording smashing month) market says Ford go down (Ford pays special dividend on top of a 4.5% dividend because they are responsible enough not to expanding beyond their means) Market says screw you Ford Im buying Vanguard.
Seriously dude. That is how I see it.
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Maybe we need an "efficient high-frequency trading" theory of markets. I read a book (Flash Boys? Dark Pools?) that mentioned the time between a news event and a trade reflecting that news is measured in milliseconds. And only that first trade captures the opportunity from the news. Even if that's extreme, it certainly makes sense that high-frequency traders with automated parsing of news feeds trade well in advance of any individual investor. So under this "EHFT" theory, you don't trade on news because you know a high-frequency trader already did.
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So you can't use public information, so everything is speculation then right-- because the market already knows and it does what it wants.
Well I can't make the market do what I want, but I did suspect-- and have been saying for a long time (long trollers be my witness) that Ford would do well on earnings, that is would increase sales, but the market didn't budge.. it didn't move.. it didn't care.. it said China dude. Numbers came back from China good. Market still doesn't care. I think the whole damn market is speculating in index funds. Forget Fords numbers because auto with be down because of X, X, and X. Market says Ford go down (Ford beats earnings) Market says Ford go down (Ford has recording smashing month) market says Ford go down (Ford pays special dividend on top of a 4.5% dividend because they are responsible enough not to expanding beyond their means) Market says screw you Ford Im buying Vanguard.
Seriously dude. That is how I see it.
But that's it, as market prices incorporate the consensus opinion, you might as well just buy index funds, which seems to be the best thing for almost anyone to do.
Although, and this is why people dream, that consensus can be wrong, so if you believe something that's correct, and is contrary to consensus, then in the long term, you should be able to outdo the market. But of course, for this, many have tried, but few have succeeded.
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So you can't use public information, so everything is speculation then right-- because the market already knows and it does what it wants.
Well I can't make the market do what I want, but I did suspect-- and have been saying for a long time (long trollers be my witness) that Ford would do well on earnings, that is would increase sales, but the market didn't budge.. it didn't move.. it didn't care.. it said China dude. Numbers came back from China good. Market still doesn't care. I think the whole damn market is speculating in index funds. Forget Fords numbers because auto with be down because of X, X, and X. Market says Ford go down (Ford beats earnings) Market says Ford go down (Ford has recording smashing month) market says Ford go down (Ford pays special dividend on top of a 4.5% dividend because they are responsible enough not to expanding beyond their means) Market says screw you Ford Im buying Vanguard.
Seriously dude. That is how I see it.
But that's it, as market prices incorporate the consensus opinion, you might as well just buy index funds, which seems to be the best thing for almost anyone to do.
Although, and this is why people dream, that consensus can be wrong, so if you believe something that's correct, and is contrary to consensus, then in the long term, you should be able to outdo the market. But of course, for this, many have tried, but few have succeeded.
I use a different consensus. I use the consensus of people who are willing to average into individual companies for years never caring what the market does because they don't sell. Wana see?
Right here is one:
(http://i820.photobucket.com/albums/zz124/azwolf25/Screen%20Shot%202016-02-09%20at%201.03.38%20AM.jpg) (http://s820.photobucket.com/user/azwolf25/media/Screen%20Shot%202016-02-09%20at%201.03.38%20AM.jpg.html)
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Right here is one:
(http://i820.photobucket.com/albums/zz124/azwolf25/Screen%20Shot%202016-02-09%20at%201.03.38%20AM.jpg) (http://s820.photobucket.com/user/azwolf25/media/Screen%20Shot%202016-02-09%20at%201.03.38%20AM.jpg.html)
I'm sorry - I don't understand what you mean. Although - you have Penny!!! Many of my shares, including my Vanguard ETFs are managed by an Australia company called computershare - and so do they! I wonder if Buy Stock Direct and computershare are really the same company, or if they just share the same software and they couldn't be bothered customizing her.
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Yes it is the same company. You can buy all of those companies though it too. Even from over seas
And I mean the consensus of most active direct stock purchases under direct stock purchase plans
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Oh, so you mean, you buy the shares of the companies that are being most bought? Which is equivalent to, you buy the shares of the companies that are most traded. Is that correct?
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Oh, so you mean, you buy the shares of the companies that are being most bought? Which is equivalent to, you buy the shares of the companies that are most traded. Is that correct?
No. These are companies people hold not trade, and there is a reason people hold them. I could give you lots of reasons like Ford beating earnings and doing well yet losing value so being a value company even though the market thinks its worth less than 6 months ago. Yet you look at this and Mainstreet says Ford is a successful company worth giving your money. In fact, more people have long term confidence in Ford than McDonalds. The list is buy popular vote with PG#1 and XOM#2
Eh, what do I know? I didn't go to Harvard. Maybe I should buy an index. They are all going down too with much less yield.
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No. These are companies people hold not trade, and there is a reason people hold them. I could give you lots of reasons like Ford beating earnings and doing well yet losing value so being a value company even though the market thinks its worth less than 6 months ago. Yet you look at this and Mainstreet says Ford is a successful company worth giving your money. In fact, more people have long term confidence in Ford than McDonalds. The list is buy popular vote with PG#1 and XOM#2
Eh, what do I know? I didn't go to Harvard. Maybe I should buy an index. They are all going down too with much less yield.
Well, on average, what people hold most, should in general match the market, so as long as you are well diversified, you will probably get results very similar to an index. The only problem, is if there's a bubble, and then there will be a rush of people chasing dreams that could badly skew the results - which probably again says just buy an index.
Reading all the investment threads on here, I think a good rule of thumb is. If you think you can beat the index, buy a little bit of an index and track what you're doing. This should become a multiple year thing. If you discover you can't beat the index, then you should put any new money into an index.
If someone doesn't have the systems to see if they can beat the index or not, then they should just buy the index - the vast majority of people can't beat the index, so if you don't know if you can or not, you probably aren't beating it.
In spite of all that, I don't think there's much harm in say putting 90% of your new money into an index, and using 10% to try to beat the index - but unless you've got the systems/spreadsheets to know if you're doing it - how would you ever know?
On Harvard... I'm not in the US, but there's at least a few studies that show that overly educated types, are often such people that are arrogant enough to think they know best, and refuse any evidence to the contrary. To do well in the market, I think you either need to buy an index fund, or have an attitude of humility and self-doubt - so that you can learn and improve upon your mistakes.
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Define beating the market. Is the quarterly, annually, decade, or multi decade, or is it something different like reliable yield? If its multi decade I think I have a very strong chance. I also think My American Funds Roth IRA will likely win that equity race in decades provided I don't jump funds. You can throw all the facts at me but they all look backward. Every one of them. No doubt I have and will make mistakes but I will learn and adapt. Index is brute force investing with extreme diversification. Just an opinion but its mine.
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If you can beat the market on a multi-decade, and probably decade basis, and you know that (not just guess that) - I'd say stick at what you're doing. Any analysis is backward looking, but what else can you do? I've seen studies that suggest you need 12 years of data, to show that outperformance is 'true', and not just random chance.
I'm similar, I have a value-based approach, which for all I can tell, beats the market across multiple time spans. I'm a buy-and-hold investor, but I buy stocks that have good value attributes.
Looking at this forum is interesting. I do believe that for most people, the best/easiest thing they can do, is buy an index. But I do think you can do better - but that most people who try to do better - don't. So saying - buy an index fund - is the best advice for most people.
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Agreed. By the way, I love Australia. I have been to Freemantle and Perth. Probably the greatest trip of my life. I remember it being an artsy town full of street performers and the friendliest people that like to brawl I have ever met. Im going crash and watch Squawkbox. Cheers
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Define beating the market. Is the quarterly, annually, decade, or multi decade, or is it something different like reliable yield? If its multi decade I think I have a very strong chance. I also think My American Funds Roth IRA will likely win that equity race in decades provided I don't jump funds. You can throw all the facts at me but they all look backward. Every one of them. No doubt I have and will make mistakes but I will learn and adapt. Index is brute force investing with extreme diversification. Just an opinion but its mine.
Obviously they look backwards, you can't quantify your success you will have in the future 5 years from now - you measure success based on history.
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Keith, I'm also impressed by your subject knowledge and willingness to engage a fairly hostile audience. With that said, I still disagree with you.
If you buy a business for $10 that earns $1 per year, you will have a 10% return. So...if I want to have a 10% return on my money, I can't pay more than $10 for $1 of earnings. Now, we have to agree on an assumption to move forward from here. That assumption is: The stock market value, over the long-term, will correlate to earnings performance.
This is a huge oversimplification - the future prospects of the business matter at least as much as the current / average earnings. A business that earned 10% last year (i.e. PE of 10), and loses money this year and every year thereafter will not give provide a 10% return. Similarly, a business with a PE of 20 which grows earnings at 50% per year will return significantly more than the5% implied by its PE ratio. As you're likely aware given your background, the value of a business depends heavily on its future earnings. The problem is that these future factors are incredibly difficult to predict and can remain irrational for decades - certain valuation measures have been above their long term average since 1990.
Basically, if the overall market grows earnings, the market price will go up. If the overall market earnings shrink, so will the market price. This movement establishes long-term trends, ratios, benchmarks, etc. If you don't believe that, there isn't any point in discussion.
I agree that there is historical correlation between certain valuation metrics and market returns (Shiller). I think it is extremely risky to sell everything based on these valuation metrics, especially when they are only slightly outside of historical norms. You are then betting the farm on a correlation in past data. Imagine for a moment that there are long term social forces forces which very slowly reduce the average rate of return. The long term Shiller PE might tend to have a slight upward slope*. I don't claim that this is reality, but it is conceivable. In this case, an investor might sell based on high valuations and miss out on years of returns waiting for valuations to return to their historical (flat) average which they never will. The problem here is that we have less than 100 years of historical data to base correlations on. There may be long term trends which you are not accounting for that render your entire thesis moot. I would rather have the guaranteed market return (which historically has been more than enough to quickly retire) than try to do a little better and risk significantly under performing.
Let me leave you with a personal story. I spent seven years value investing based on the Buffet/Graham model. I put in several hours a week analyzing markets and reading earnings reports. After expending a huge amount of effort on the project... I had exactly matched the market returns for the period while incurring a moderate tax bill. In effect all those hours of analyzing were completely wasted. I wish you the best in your investing endeavors and hope sincerely that it is more worthwhile for you than it was for me.
*see some of William Bernstein's writings on the very long term return on equities. I don't know if he is correct, but he proposes that valuation metrics should increase very slowly with time.
I know it was a gross over simplification. I was just trying to illustrate the implied return from a PE ratio. I have the impression that a lot readers think it's a ratio that I'm using as a relative measure exclusively when I'm actually use it as an objective fundamental valuation measure. It's do believe it does give some insight as a relative measure also though.
In terms of earnings expectations: "According to economist Robert Shiller, earnings per share on the S&P 500 grew at a 3.8% annualized rate between 1874 and 2004 (inflation-adjusted growth rate was 1.7%). Since 1980, the most bullish period in U.S. stock market history, real earnings growth according to Shiller, has been 2.6%." - earnings, over the very long-term, don't grow much when you average it out. While the market's yearly earnings fluctuate a lot, individual companies even more, the very long term trend is small upward growth. I expect that.
Regarding how I use these measures, I never sell once I have invested. I ride out the ups and downs with whatever I have in the market. I only use the valuation metrics when I am buying. I know the market can stay elevated for painfully long periods. While 100 past years of market history isn't a huge sample, it does show long term patterns. Plus, its all we have to work with. I really don't spend as much time do research as everyone seems to think I do. I only look at macro stuff (sectors and the overall market) and only periodically. I don't invest in individual companies, options, etc.
Just to make it clear. If I was of the opinion that the total market could return 7% annually over the long term, I would go all in VTI with whatever I had. I'm not trying to beat the market, I'm trying to secure future annual returns of 7% or better safely. I don't think you can do that with VTI right now.
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Here's the problem with trying to time the market: a single screw-up will significantly hamper your returns for a very long time to come. And if you try to time your buys/sells based on the macro climate, in the long run you are bound to get at least one call wrong. Then you are toast vs. the index on a risk adjusted basis. If you sat out 2013, for example, you are so far behind that you may never recover to index levels without either a.) taking on far greater risk than the index, or b.) waiting a very long time. And there wasn't an obvious, glaring indicator leading up to that particular year. In hindsight the massive recovery helped along by easy monetary policy is perfectly obvious. But at the time, the macro view was muddied with euro-crisis fears, double dip predictions, record debt levels, income inequality activism, government shutdowns, etc.
I do believe that educated people can make accurate assessments of market valuation & general economic conditions at a given point in time. And I don't think it's hocus pocus to read up on the current economic environment, have a point of view, etc. But there is great danger in trying to make capital allocation decisions based on your macro views. Peter Lynch summed up this concept nicely in "beating the street". He would attend a panel each year with the top investors on wall street & each manager would lay out his predictions. Often times, these predictions were very gloomy - but the good managers, despite their outlook, would never stop buying. So on the one hand, these managers often believed the economy was heading down into the abyss - but on the other, they would keep buying good companies at good prices. He asserts in that book that one of the defining characteristics of successful investors is that they continue to invest despite their personal views about the general economic outlook.
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I'm not smarter. I don't have better information. If fundamentals imply a good enough return, buy. If they don't, you don't have to sell what you have, just don't add new money. Personally, I want a 7% return or greater for the long term because that is the average inflation-adjusted, dividends included annual return for the stock market over it's history. I don't think that is possible based on the fundamentals of the overall market right now. If you want a 3% or 4% return over the long-term, then buying the market right now seems ok. It depends on the return you want.
VDE has a 22 TTM PE right now in the middle of an energy crash. As is, this implies a return of 4.6%. However, I believe the last 12 months of earnings are not representative of what earnings will be in the future. They are obviously depressed. I expect them to be higher in the future which will push the pe back down into my comfortable range of 15 to 17 or lower which should safely give me a ~7% return or better, maybe much better, long term.
But if energy sector will return 8%, and VTI will return 4%, why doesn't everyone sell VTI and buy VDE until their PEs/returns are in line? Nobody would by something with 4% return if an option of 8% was available with the same risk.
So are you saying the market has accepted your number of 4% and 8% return and don't care, are are you in disagreement with the rest of the market about future returns?
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I'm not smarter. I don't have better information. If fundamentals imply a good enough return, buy. If they don't, you don't have to sell what you have, just don't add new money. Personally, I want a 7% return or greater for the long term because that is the average inflation-adjusted, dividends included annual return for the stock market over it's history. I don't think that is possible based on the fundamentals of the overall market right now. If you want a 3% or 4% return over the long-term, then buying the market right now seems ok. It depends on the return you want.
VDE has a 22 TTM PE right now in the middle of an energy crash. As is, this implies a return of 4.6%. However, I believe the last 12 months of earnings are not representative of what earnings will be in the future. They are obviously depressed. I expect them to be higher in the future which will push the pe back down into my comfortable range of 15 to 17 or lower which should safely give me a ~7% return or better, maybe much better, long term.
But if energy sector will return 8%, and VTI will return 4%, why doesn't everyone sell VTI and buy VDE until their PEs/returns are in line? Nobody would by something with 4% return if an option of 8% was available with the same risk.
So are you saying the market has accepted your number of 4% and 8% return and don't care, are are you in disagreement with the rest of the market about future returns?
There is more risk by investing in 1 sector than in a whole market. There is less diversification. I assume this is where you are going with this. It's not always reflected in the market though, which I believe is your assumption.
I believe the energy sector has been in near-panic selling mode. Panic selling is not based on fundamentals. When it swings too far on the downside due to panic and fear selling, there is often undervalued opportunities. The balance between risk and return get out of whack. Not to be cliche, but its classic Buffett "Buy when others are fearful." While I do not have the ability to forecast the future perfectly, I am making an educated guess that oil has swung too far to the downside and the risk/reward balance seems to be appealing over the long term at current price levels. More appealing than VTI right now.
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Here's the problem with trying to time the market: a single screw-up will significantly hamper your returns for a very long time to come. And if you try to time your buys/sells based on the macro climate, in the long run you are bound to get at least one call wrong. Then you are toast vs. the index on a risk adjusted basis. If you sat out 2013, for example, you are so far behind that you may never recover to index levels without either a.) taking on far greater risk than the index, or b.) waiting a very long time. And there wasn't an obvious, glaring indicator leading up to that particular year. In hindsight the massive recovery helped along by easy monetary policy is perfectly obvious. But at the time, the macro view was muddied with euro-crisis fears, double dip predictions, record debt levels, income inequality activism, government shutdowns, etc.
I do believe that educated people can make accurate assessments of market valuation & general economic conditions at a given point in time. And I don't think it's hocus pocus to read up on the current economic environment, have a point of view, etc. But there is great danger in trying to make capital allocation decisions based on your macro views. Peter Lynch summed up this concept nicely in "beating the street". He would attend a panel each year with the top investors on wall street & each manager would lay out his predictions. Often times, these predictions were very gloomy - but the good managers, despite their outlook, would never stop buying. So on the one hand, these managers often believed the economy was heading down into the abyss - but on the other, they would keep buying good companies at good prices. He asserts in that book that one of the defining characteristics of successful investors is that they continue to invest despite their personal views about the general economic outlook.
I never sell. Once I'm in, I'm in for the long-term. I only worry about buying during appealing valuation periods. I pretty much agree with Peter Lynch. I look for undervalued sectors within an overvalued market, and buy those ETFs. It's not like the whole market has to be undervalued for me to buy, but it would be nice. However, if there is not even a sector that looks appealing from a valuation standpoint, I wouldn't buy anything. I'd just accumulate cash and wait for an opportunity.
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Here's the problem with trying to time the market: a single screw-up will significantly hamper your returns for a very long time to come. And if you try to time your buys/sells based on the macro climate, in the long run you are bound to get at least one call wrong. Then you are toast vs. the index on a risk adjusted basis. If you sat out 2013, for example, you are so far behind that you may never recover to index levels without either a.) taking on far greater risk than the index, or b.) waiting a very long time. And there wasn't an obvious, glaring indicator leading up to that particular year. In hindsight the massive recovery helped along by easy monetary policy is perfectly obvious. But at the time, the macro view was muddied with euro-crisis fears, double dip predictions, record debt levels, income inequality activism, government shutdowns, etc.
I do believe that educated people can make accurate assessments of market valuation & general economic conditions at a given point in time. And I don't think it's hocus pocus to read up on the current economic environment, have a point of view, etc. But there is great danger in trying to make capital allocation decisions based on your macro views. Peter Lynch summed up this concept nicely in "beating the street". He would attend a panel each year with the top investors on wall street & each manager would lay out his predictions. Often times, these predictions were very gloomy - but the good managers, despite their outlook, would never stop buying. So on the one hand, these managers often believed the economy was heading down into the abyss - but on the other, they would keep buying good companies at good prices. He asserts in that book that one of the defining characteristics of successful investors is that they continue to invest despite their personal views about the general economic outlook.
I never sell. Once I'm in, I'm in for the long-term. I only worry about buying during appealing valuation periods. I pretty much agree with Peter Lynch. I look for undervalued sectors within an overvalued market, and buy those ETFs. It's not like the whole market has to be undervalued for me to buy, but it would be nice. However, if there is not even a sector that looks appealing from a valuation standpoint, I wouldn't buy anything. I'd just accumulate cash and wait for an opportunity.
If only I'd known it was so easy to beat the market I'd be miles ahead by now!
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Here's the problem with trying to time the market: a single screw-up will significantly hamper your returns for a very long time to come. And if you try to time your buys/sells based on the macro climate, in the long run you are bound to get at least one call wrong. Then you are toast vs. the index on a risk adjusted basis. If you sat out 2013, for example, you are so far behind that you may never recover to index levels without either a.) taking on far greater risk than the index, or b.) waiting a very long time. And there wasn't an obvious, glaring indicator leading up to that particular year. In hindsight the massive recovery helped along by easy monetary policy is perfectly obvious. But at the time, the macro view was muddied with euro-crisis fears, double dip predictions, record debt levels, income inequality activism, government shutdowns, etc.
I do believe that educated people can make accurate assessments of market valuation & general economic conditions at a given point in time. And I don't think it's hocus pocus to read up on the current economic environment, have a point of view, etc. But there is great danger in trying to make capital allocation decisions based on your macro views. Peter Lynch summed up this concept nicely in "beating the street". He would attend a panel each year with the top investors on wall street & each manager would lay out his predictions. Often times, these predictions were very gloomy - but the good managers, despite their outlook, would never stop buying. So on the one hand, these managers often believed the economy was heading down into the abyss - but on the other, they would keep buying good companies at good prices. He asserts in that book that one of the defining characteristics of successful investors is that they continue to invest despite their personal views about the general economic outlook.
I never sell. Once I'm in, I'm in for the long-term. I only worry about buying during appealing valuation periods. I pretty much agree with Peter Lynch. I look for undervalued sectors within an overvalued market, and buy those ETFs. It's not like the whole market has to be undervalued for me to buy, but it would be nice. However, if there is not even a sector that looks appealing from a valuation standpoint, I wouldn't buy anything. I'd just accumulate cash and wait for an opportunity.
If only I'd known it was so easy to beat the market I'd be miles ahead by now!
"According to economist Robert Shiller, earnings per share on the S&P 500 grew at a 3.8% annualized rate between 1874 and 2004 (inflation-adjusted growth rate was 1.7%). Since 1980, the most bullish period in U.S. stock market history, real earnings growth according to Shiller, has been 2.6%."
If you take dividends out, the real annual S&P 500 return (inflation-adjusted) from 1871 to 2016 is 2.17%. Use this - http://dqydj.net/sp-500-return-calculator/. Pretty close to Shiller's 1.7% real earnings growth number over a similar period. This is why I believe we all should be focused on earnings when doing valuation. It's seems to me that the real return of the S&P over the long-term (without dividends reinvested) is pretty correlated to the long-term real earnings growth rate of the S&P. If you are a buy and hold forever investor, which I assume is most everyone on this site, you can't ignore this.
It's all about earnings. Forget what the price might be in the future because of XYZ whatever. The market price, over the long-term, closely reflects earnings. Just pay a reasonable price multiple (CAPE around 15 for an 6.67% annual return with ~2% annual growth over the long-term) for those future earnings and you should do well based on 130 years of market history. Why is this so hard to digest?
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Why is this so hard to digest?
I think you're conflating "hard to digest" with "disagree."
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Why is this so hard to digest?
I think you're conflating "hard to digest" with "disagree."
Ok. I'll stick to math and history for investing though. I'll have to assume the other side of the argument is that there is no long-term predictability in the stock market whatsoever.
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Here's the problem with trying to time the market: a single screw-up will significantly hamper your returns for a very long time to come. And if you try to time your buys/sells based on the macro climate, in the long run you are bound to get at least one call wrong. Then you are toast vs. the index on a risk adjusted basis. If you sat out 2013, for example, you are so far behind that you may never recover to index levels without either a.) taking on far greater risk than the index, or b.) waiting a very long time. And there wasn't an obvious, glaring indicator leading up to that particular year. In hindsight the massive recovery helped along by easy monetary policy is perfectly obvious. But at the time, the macro view was muddied with euro-crisis fears, double dip predictions, record debt levels, income inequality activism, government shutdowns, etc.
I do believe that educated people can make accurate assessments of market valuation & general economic conditions at a given point in time. And I don't think it's hocus pocus to read up on the current economic environment, have a point of view, etc. But there is great danger in trying to make capital allocation decisions based on your macro views. Peter Lynch summed up this concept nicely in "beating the street". He would attend a panel each year with the top investors on wall street & each manager would lay out his predictions. Often times, these predictions were very gloomy - but the good managers, despite their outlook, would never stop buying. So on the one hand, these managers often believed the economy was heading down into the abyss - but on the other, they would keep buying good companies at good prices. He asserts in that book that one of the defining characteristics of successful investors is that they continue to invest despite their personal views about the general economic outlook.
I never sell. Once I'm in, I'm in for the long-term. I only worry about buying during appealing valuation periods. I pretty much agree with Peter Lynch. I look for undervalued sectors within an overvalued market, and buy those ETFs. It's not like the whole market has to be undervalued for me to buy, but it would be nice. However, if there is not even a sector that looks appealing from a valuation standpoint, I wouldn't buy anything. I'd just accumulate cash and wait for an opportunity.
If only I'd known it was so easy to beat the market I'd be miles ahead by now!
"According to economist Robert Shiller, earnings per share on the S&P 500 grew at a 3.8% annualized rate between 1874 and 2004 (inflation-adjusted growth rate was 1.7%). Since 1980, the most bullish period in U.S. stock market history, real earnings growth according to Shiller, has been 2.6%."
If you take dividends out, the real annual S&P 500 return (inflation-adjusted) from 1871 to 2016 is 2.17%. Use this - http://dqydj.net/sp-500-return-calculator/. Pretty close to Shiller's 1.7% real earnings growth number over a similar period. This is why I believe we all should be focused on earnings when doing valuation. It's seems to me that the real return of the S&P over the long-term (without dividends reinvested) is pretty correlated to the long-term real earnings growth rate of the S&P. If you are a buy and hold forever investor, which I assume is most everyone on this site, you can't ignore this.
It's all about earnings. Forget what the price might be in the future because of XYZ whatever. The market price, over the long-term, closely reflects earnings. Just pay a reasonable price multiple (CAPE around 15 for an 6.67% annual return with ~2% annual growth over the long-term) for those future earnings and you should do well based on 130 years of market history. Why is this so hard to digest?
In theory, the strategy is simple and should work. Applying it over years with a consistent discipline and assuming flawless execution is a different story. Furthermore, the market can undergo years, even decades of overvaluation. Then it can languish on for years at a high P/E, trading sideways until earnings catch up - then off to the races again. When do you buy, exactly, in a scenario like that? And, if the market P/E never drops below your threshold what do you do in the meantime? Just hold cash & miss out on decades of dividends and modest growth? Try to cherrypick sectors, etc leading to an imbalance? What is the threshold for exposure to one sector? How do you avoid value traps - based on P/E alone, oil stocks were very cheap this time last year. At some point, after years upon years of the strategy under-performing, would you just cave in & throw the money in an index?
A seemingly simple strategy can introduce a great deal of complexity into portfolio management. Systematic DCA has proven, in study after study, to provide an overwhelmingly high probability of out-performance versus the average investor. Simply matching the index puts you in the top quintile or even decile of all investors - amateur and professional. Introducing additional elements, even just a single one as simple as a valuation discipline, has the potential to lead to errors which could derail long term performance. It's certainly possible to outperform, and several investors have managed to do so. But it's highly unlikely that you will, and I think that's the reason you'll get pushback. Your strategy may outperform, but the odds are not in your favor. Try to buck the odds - you certainly won't be the first or last. But do so with eyes wide open to all of the potential pitfalls.
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Is there a way to bookmark this post and revisit it in 1, 2, and 5 years? It'll be interesting to see whose predictions bear out.
I haven't the foggiest what will happen; I have realized that like the weather, the stock market is a chaotic system and therefore literally unpredictable, at least in the short term.
We just recently left our financial planner and moved all our money into Vanguard index funds. No dollar-cost averaging here, just one big plunge. And we're just going to let it ride. If it drops, it drops. It will eventually recover, and then, over time, increase. If our seasoned, experienced financial planner couldn't beat the market (and she couldn't, even over 10 years of trying), I surely can't either, and I won't try.
Good luck to all.
I think you should reconsider. Please average in over the next 2 years minimum. Even the god of Vanguard, John Bogle, thinks the market is going to give poor returns for a while - http://www.marketwatch.com/story/john-bogle-says-you-wont-make-much-money-from-stocks-2015-11-05
Maybe not the 7% that most would like to see, but 4% doesn't sound so bad (and 3.5% for a balanced portfolio). Where can we do better with our money?
Also, to an earlier post about a 10 year window of investing (slow to low yields) I am reminded often that even though I may look to pull from my invested $$ in 2017 (plus no more contributions or DCA) I don't plan on taking it somewhere other than investing in a balanced portfolio (stocks and bonds). Maybe too simple?
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I'll have to assume the other side of the argument is that there is no long-term predictability in the stock market whatsoever.
You don't have to assume anything. The other side of the argument has been presented in detail by many different posters in multiple threads.
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If anyone is interested, please read this: http://archive.fortune.com/magazines/fortune/fortune_archive/1999/11/22/269071/index.htm
It is a talk by Warren Buffett in November 1999, right before the crash. The guy just has a ridiculous talent of explaining things so well and simply. It is without a doubt the most valuable piece of financial literature I have ever read.
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If anyone is interested, please read this: http://archive.fortune.com/magazines/fortune/fortune_archive/1999/11/22/269071/index.htm
It is a talk by Warren Buffett in November 1999, right before the crash. The guy just has a ridiculous talent of explaining things so well and simply. It is without a doubt the most valuable piece of financial literature I have ever read.
Let me summarize what I've been saying about the stock market: I think it's very hard to come up with a persuasive case that equities will over the next 17 years perform anything like--anything like--they've performed in the past 17. If I had to pick the most probable return, from appreciation and dividends combined, that investors in aggregate--repeat, aggregate--would earn in a world of constant interest rates, 2% inflation, and those ever hurtful frictional costs, it would be 6%. If you strip out the inflation component from this nominal return (which you would need to do however inflation fluctuates), that's 4% in real terms. And if 4% is wrong, I believe that the percentage is just as likely to be less as more. - Buffett November 22, 1999
S&P500 annualized returns from then till Jan 31, 2016, dividends reinvested, adjusted for inflation: 1.694%.
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And yet I'm putting as much money as I can get my hands on to work weekly...
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If anyone is interested, please read this: http://archive.fortune.com/magazines/fortune/fortune_archive/1999/11/22/269071/index.htm
It is a talk by Warren Buffett in November 1999, right before the crash. The guy just has a ridiculous talent of explaining things so well and simply. It is without a doubt the most valuable piece of financial literature I have ever read.
Let me summarize what I've been saying about the stock market: I think it's very hard to come up with a persuasive case that equities will over the next 17 years perform anything like--anything like--they've performed in the past 17. If I had to pick the most probable return, from appreciation and dividends combined, that investors in aggregate--repeat, aggregate--would earn in a world of constant interest rates, 2% inflation, and those ever hurtful frictional costs, it would be 6%. If you strip out the inflation component from this nominal return (which you would need to do however inflation fluctuates), that's 4% in real terms. And if 4% is wrong, I believe that the percentage is just as likely to be less as more. - Buffett November 22, 1999
S&P500 annualized returns from then till Jan 31, 2016, dividends reinvested, adjusted for inflation: 1.694%.
Exactly. All I'm suggesting is that there are periods of valuation when you shouldn't be investing, at least not in the total market index. You shouldn't invest all the time just because. There are times, like now in my opinion, when it is pretty likely that returns are going to be very low over the long-term. Right now it is simply too much to ignore. The market is already expensive by most measures. Interest rates can't go much lower to support equities (if the fed is being honest, rates will go up slowly over time, pushing down equity prices), corporate profit margins are very elevated vs its historical norm (reversion downward will hurt equity prices). We might not be at 1999 levels, but this is just not an attractive time to be investing in the total market.
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Long time lurker, great information on this forum in general but I found this discussion particularly interesting and wanted to chime in.
I am in agreement with Keith's perspective and i think views like that which go against the grain on this particular forum generate some very interesting conversation, which is important because it seems like the view of the majority here are of the 'continuously plow funds into straight index investing, regardless of what the market is doing'. How is that any different from being the completely opposite doom and gloom views?
All Keith is questioning is the wisdom of continuing to plow money into the overall market when it seems to be overvalued. Sure one can call it timing the market but I would personally consider it prudent, comparing the risk of missing some upside versus putting more funds at risk.
I came across this article recently and thought it was very interesting compared to the views generally represented here. Most important being a particular investor's time to retirement and WHEN one chooses to get into the market: http://www.zerohedge.com/news/2016-01-25/why-you-should-question-buy-and-hold-advice
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My 2 cents worth - If you are already invested in the market stay in - kinda goes without saying, but if your sitting on a large amount of bonds or cash I would be inclined to sit back and watch what happens
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All Keith is questioning is the wisdom of continuing to plow money into the overall market when it seems to be overvalued. Sure one can call it timing the market but I would personally consider it prudent, comparing the risk of missing some upside versus putting more funds at risk.
What Keith is proposing has a number of risks:
1. valuation methods are wrong and market does not correct 50% in any reasonable time frame
2. poorly diversified sector ETFs are not heavily undervalued and do not increase in value as expected
3. cash position devalues waiting for an asset class to meet valuation criteria
4. missing optimal market timing window when market corrects to appropriate levels and starts to recover
5. costs associated with moving $$ between sector ETFs and market as you determine what is correctly valued
If the strategy Keith is proposing was reasonably easy to implement and reliably outperformed regular contributions to broad based index funds I think you'd get a lot of takers, but folks are not seeing that based on what has been presented.
He is suggesting trading one set of risks for another set of risks. Most folks here are comfortable with the risks involved in regular contributions to index funds. Nobody is saying the typical MMM approach is risk free.
I really appreciate your feedback. I'm really not sure where I stand on this anymore. Maybe I'll try systematic indexing with 50% of my investment funds and try fundamental valuation strategy with the other 50%. Someone suggested that a while back.
Even Keith has noted several times he doesn't feel comfortable with the strategy he is promoting. Are you shocked other folks aren't rushing to get onboard with their life savings?
To my mind one of the most important aspects of an investment plan is having enough confidence in it to ride out the inevitable poor performance runs without doing something irrational. You need to be pretty committed to the plan for that to happen.
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Long time lurker, great information on this forum in general but I found this discussion particularly interesting and wanted to chime in.
I am in agreement with Keith's perspective and i think views like that which go against the grain on this particular forum generate some very interesting conversation, which is important because it seems like the view of the majority here are of the 'continuously plow funds into straight index investing, regardless of what the market is doing'. How is that any different from being the completely opposite doom and gloom views?
All Keith is questioning is the wisdom of continuing to plow money into the overall market when it seems to be overvalued. Sure one can call it timing the market but I would personally consider it prudent, comparing the risk of missing some upside versus putting more funds at risk.
I came across this article recently and thought it was very interesting compared to the views generally represented here. Most important being a particular investor's time to retirement and WHEN one chooses to get into the market: http://www.zerohedge.com/news/2016-01-25/why-you-should-question-buy-and-hold-advice
Congrats on the De-lurk! Welcome to the convo - hope you'll continue to participate.
I think reasonable people will agree that one can identify when the market is overvalued relative to historical averages. It's extremely simple actually - one google search for historical cape ratio, and voila! But very few people are able to accurately time buys and/or sells accordingly. Over the very long run, the market will revert back to the mean. But the market, in the short run, is often irrational and will run up for year after year despite high valuations.
Systematic dollar cost averaging has historically been an excellent strategy. I believe many people here recognized that fact at some point, developed a plan, and implemented it accordingly. That conclusion was not reached out of blind ignorance, as you suggest, but rather it was a willful decision and acknowledgement of one's own limitations. It's almost like a humble admission, "I can't time the market, I can't reliably time my buys based on valuation, I'm not smart enough, or disciplined enough, or lucky enough to pull that off successfully over a lifetime of 50+ years without running the risk of a major screwup. The evidence suggests that a systematic DCA program will generate great results over time, so that's what I'm going to do. It's a decision that will undoubtedly fall in and out of favor over the years, but I'm committed based on the evidence I've seen."
Make sense?
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So you can't use public information, so everything is speculation then right-- because the market already knows and it does what it wants.
Well I can't make the market do what I want, but I did suspect-- and have been saying for a long time (long trollers be my witness) that Ford would do well on earnings, that is would increase sales, but the market didn't budge.. it didn't move.. it didn't care.. it said China dude. Numbers came back from China good. Market still doesn't care. I think the whole damn market is speculating in index funds. Forget Fords numbers because auto with be down because of X, X, and X. Market says Ford go down (Ford beats earnings) Market says Ford go down (Ford has recording smashing month) market says Ford go down (Ford pays special dividend on top of a 4.5% dividend because they are responsible enough not to expanding beyond their means) Market says screw you Ford Im buying Vanguard.
Seriously dude. That is how I see it.
I think what you are talking about was raised in a interview with Bogle some time back - to my uneducated ear his response was that index funds in themselves do not add efficiency to the market - but went on to point out that currently only around 30% of the US market is in index funds - leaving the other 70% ( active funds) to add the efficiency an ensure stock prices reflect underlying company value, surprisingly the the number for the global market was only 5% indexed.
On the other side of the fence this article argues that Index funds distort the value of stocks -
"The combination of a long-toothed bull market and the significant shift to passive investing has indiscriminately buoyed all stocks in major indexes like the S.&P. 500 and the Russell 2000. Stocks that might not be bought singly on their own merits have been lifted by the package buying. Some portfolio managers, academics and market trackers now contend that the soaring of the mediocre alongside the exceptional has produced unusually elevated valuations."
“The evidence says that stock prices increasingly depend not just on fundamentals but also on the happenstance of index membership,”
http://www.nytimes.com/2015/10/11/business/mutfund/the-ease-of-index-funds-comes-with-risk.html?_r=0
Of course both sources have their own agenda - its something I always have an issue with - ie if people blindly buy/sell index funds the underlying stock price becomes distorted, or is Bogle correct ? anyone care to ally my concerns?
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Furthermore, the market can undergo years, even decades of overvaluation. Then it can languish on for years at a high P/E, trading sideways until earnings catch up - then off to the races again.
THIS. These two factors, earnings and price, are often discussed, but there seems to be an ever-present assumption that for things to 'correct' it requires that prices fall in order to come back down to where earnings are. But it is equally possible for earnings to rise until they are in line with price. Both are possible. Both are independent. Yes, there is a long-term general correlation, a mean to return to, but when and how is nigh impossible to predict.
The not-so-actively managed total index fund is the one island of sanity that has allowed me to even consider returning to equities. Unfortunately, we can't seem to learn 'fire....hot!' until we actually get burned.
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Congrats on the De-lurk! Welcome to the convo - hope you'll continue to participate.
I think reasonable people will agree that one can identify when the market is overvalued relative to historical averages. It's extremely simple actually - one google search for historical cape ratio, and voila! But very few people are able to accurately time buys and/or sells accordingly. Over the very long run, the market will revert back to the mean. But the market, in the short run, is often irrational and will run up for year after year despite high valuations.
Systematic dollar cost averaging has historically been an excellent strategy. I believe many people here recognized that fact at some point, developed a plan, and implemented it accordingly. That conclusion was not reached out of blind ignorance, as you suggest, but rather it was a willful decision and acknowledgement of one's own limitations. It's almost like a humble admission, "I can't time the market, I can't reliably time my buys based on valuation, I'm not smart enough, or disciplined enough, or lucky enough to pull that off successfully over a lifetime of 50+ years without running the risk of a major screwup. The evidence suggests that a systematic DCA program will generate great results over time, so that's what I'm going to do. It's a decision that will undoubtedly fall in and out of favor over the years, but I'm committed based on the evidence I've seen."
Make sense?
Absolutely... I really appreciate everyone's input. Personally, I had been leaning towards doom and gloom for some time prior to finding this forum and looking to take the step towards creating a proper AA and investing in the markets. However, I still cannot be convinced that TODAY is a good time to do it based on increased uncertainties in the market (oxymoron, i know... nothing certain other than death or taxes). If you look at it at the most fundamental level, investments (say VTSAX) is based on owning a % of the underlying cash flows and regardless of the actions taken by the powers that be (race to the bottom with negative rates!!!) there are significant deflationary pressures which does not bode well for corporate earnings.
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All Keith is questioning is the wisdom of continuing to plow money into the overall market when it seems to be overvalued. Sure one can call it timing the market but I would personally consider it prudent, comparing the risk of missing some upside versus putting more funds at risk.
What Keith is proposing has a number of risks:
1. valuation methods are wrong and market does not correct 50% in any reasonable time frame
2. poorly diversified sector ETFs are not heavily undervalued and do not increase in value as expected
3. cash position devalues waiting for an asset class to meet valuation criteria
4. missing optimal market timing window when market corrects to appropriate levels and starts to recover
5. costs associated with moving $$ between sector ETFs and market as you determine what is correctly valued
If the strategy Keith is proposing was reasonably easy to implement and reliably outperformed regular contributions to broad based index funds I think you'd get a lot of takers, but folks are not seeing that based on what has been presented.
He is suggesting trading one set of risks for another set of risks. Most folks here are comfortable with the risks involved in regular contributions to index funds. Nobody is saying the typical MMM approach is risk free.
I really appreciate your feedback. I'm really not sure where I stand on this anymore. Maybe I'll try systematic indexing with 50% of my investment funds and try fundamental valuation strategy with the other 50%. Someone suggested that a while back.
Even Keith has noted several times he doesn't feel comfortable with the strategy he is promoting. Are you shocked other folks aren't rushing to get onboard with their life savings?
To my mind one of the most important aspects of an investment plan is having enough confidence in it to ride out the inevitable poor performance runs without doing something irrational. You need to be pretty committed to the plan for that to happen.
I am simply open to accepting that I may be wrong. That is the difference between you (Retire-Canada) and me. You believe in DCA indexing like religion. I am open to accepting change if there is convincing data and evidence. I will admit that DCA index investing has a convincing argument. However, in case you didn't notice, some of the best investors in history are buy and hold, fundamental valuation investors. Wouldn't you study Michael Jordan if you wanted play basketball well?
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"You believe in DCA like a religion" is a ridiculous thing to say. By definition, DCA (really systematic lump-sum indexing) by definition, requires regular buys, otherwise you're not doing it. You do you, but quit yelling about how others choose to invest as if it's somehow a personal attack on you.
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I was a Boglehead before MMM, and never found the investing advice here to be up to their level (not trying to offend, I just don't think one forum is going to be good at everything, and the Boglehead Forum already has experienced and impartial investing experts). One gem from Bogleheads is the concept of 'willingness, need, and ability' to take risk. You have to spend a long time with those 3 words to understand what they are getting at. It is not market timing, but more in line with correlating your own returns with what your personal efficient frontier is per your horizon (https://www.bogleheads.org/forum/viewtopic.php?t=10444). I'm not claiming out-performance because my only benchmark is myself, but I've been diversifying my portfolio since 2011 into muni funds, foreign currencies, TIPS, emerging markets... basically things that are uncorrelated to or inversely correlated with the US economy. By any measure, I'm way more exposed to the US than I would like - my job, my house, my cash, and a majority of my retirement. That's not to say it hasn't been to my benefit so far. But once I hit my number and now value keeping my relative net worth (no willingness or need to take risk), I'm doing everything I can to diversify. Unfortunately, it is hard to find anything 'obviously' undervalued or with a satisfying expected rate of return in a ZIRP / QE cheap cash world. The best I can hope for is some good volatility and opportunities to goose returns via annual rebalancing...
Good luck Keith123 (and Bbub, et. al), thanks for keeping an interesting thread going.
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I am simply open to accepting that I may be wrong. That is the difference between you (Retire-Canada) and me. You believe in DCA indexing like religion. I am open to accepting change if there is convincing data and evidence. I will admit that DCA index investing has a convincing argument. However, in case you didn't notice, some of the best investors in history are buy and hold, fundamental valuation investors. Wouldn't you study Michael Jordan if you wanted play basketball well?
I wouldn't base my FIRE financial plans on Michael Jordan because I am aware I cannot play basketball like him. I would base my FIRE plans on a strategy I know I can execute with my skills and abilities.
For the record I'm not suggesting you or anyone else who is following any given investment strategy won't do better than simply buying index funds regularly over the course of their lives. How could I know either way without knowing the future? Just like you have no idea that what you are proposing will do better than the typical MMM approach.
I'm simply pointing out why the concept you propose is not getting a lot of traction here.
Each approach has some assumptions and some risks.
The only thing I know for sure is that I am not comfortable with what you are proposing and I wouldn't put my money to work that way.
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"You believe in DCA like a religion" is a ridiculous thing to say. By definition, DCA (really systematic lump-sum indexing) by definition, requires regular buys, otherwise you're not doing it. You do you, but quit yelling about how others choose to invest as if it's somehow a personal attack on you.
Dude, relax. Don't push this forum into that direction. This isn't the comments section on yahoo. I do not take any of this as a personal attack. I'm not yelling. I was simply pointing out that to be so bound to one strategy (DCA index investing) without considering other arguments is like believing in religion. Religion gives no room for change in beliefs, even when presented with convincing arguments and evidence. It is absolute. Attitudes like that are unproductive to areas like investing. It had nothing to do with "regular buys".
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I was simply pointing out that to be so bound to one strategy (DCA index investing) without considering other arguments is like believing in religion.
People have considered your arguments over multiple threads and several pages. You just aren't convincing a lot people with them. If the case you were presenting was compelling you'd get a lot of people agreeing.
As I noted above you are offering a strategy with a bunch of risk in it and saying "consider exchanging risk X,Y,Z for risks A,B,C." and folks are saying "No I am comfortable with risks X,Y,Z."
As I also noted being confident in your investment plan is critical to your success. If you can't weather the storm knowing you made a good choice you'll freak out and do something damaging. What you are proposing is not something folks feel confident will lead to a better outcome than the plan they are currently following.
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I am simply open to accepting that I may be wrong. That is the difference between you (Retire-Canada) and me. You believe in DCA indexing like religion. I am open to accepting change if there is convincing data and evidence. I will admit that DCA index investing has a convincing argument. However, in case you didn't notice, some of the best investors in history are buy and hold, fundamental valuation investors. Wouldn't you study Michael Jordan if you wanted play basketball well?
I wouldn't base my FIRE financial plans on Michael Jordan because I am aware I cannot play basketball like him. I would base my FIRE plans on a strategy I know I can execute with my skills and abilities.
For the record I'm not suggesting you or anyone else who is following any given investment strategy won't do better than simply buying index funds regularly over the course of their lives. How could I know either way without knowing the future? Just like you have no idea that what you are proposing will do better than the typical MMM approach.
I'm simply pointing out why the concept you propose is not getting a lot traction here.
Each approach has some assumptions and some risks.
The only thing I know for sure is that I am not comfortable with what you are proposing and I wouldn't put my money to work that way.
Ok. You have no argument from me in that respect. I would just like to point out though, that DCA index investing, from how I interpret it, assumes the investor has no skills or abilities at investing. Or at least that the investor believes there are no skills or abilities that are useful at investing? Is that a fair interpretation?
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Ok. You have no argument from me in that respect. I would just like to point out though, that DCA index investing, from how I interpret it, assumes the investor has no skills or abilities at investing. Or at least that the investor believes there are no skills or abilities that are useful at investing? Is that a fair interpretation?
No I wouldn't agree with that. There are lots of folks on this forum that are knowledgeable about investing and have nevertheless decided the MMM approach is the best option for them. I think that's obvious by the contributions of several folks to this thread and your other related threads.
That said there are for sure some folks who know very little about investing and like the simplicity of the MMM approach.
BTW - it's not DCA it's serial lump sum investing. DCA implies you have a big chunk of money which you intentionally invest slowly overtime.
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I'd also add that I don't plow money into VUN/VTI blindly every month. I hold 6 different globally diversified index funds and I rebalance every time I add money so to some degree buying what's cheaper.
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Inconsistency avoidance is a hard mental barrier to penetrate.
Retire-Canada, you're just playing with terminology now -
BTW - it's not DCA it's serial lump sum investing. DCA implies you have a big chunk of money which you intentionally invest slowly overtime.
DCA doesn't equal serial lump sum investing?
If a self directed investor wants to spend the time to gain the knowledge necessary (which is cumulative, so you are always getting better and learning more), he or she can generate excellent alpha over the market. Indexing by definition is acting as a "know nothing" investor, because you accept that the market knows what's best. That's outsourcing your thinking no matter how you look at it. This isn't by definition a bad thing, as many have pointed out, consistently contributing into an index fund over time has proven to work out acceptably in history. But making out a valuation approach to be impossible or a waste of time is close minded and ironic, given that the MMM values of reducing waste and unnecessary expenses is consistently looked down on as impossible or a waste of energy by the general populace.
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Inconsistency avoidance is a hard mental barrier to penetrate.
Retire-Canada, you're just playing with terminology now -
BTW - it's not DCA it's serial lump sum investing. DCA implies you have a big chunk of money which you intentionally invest slowly overtime.
DCA doesn't equal serial lump sum investing?
If a self directed investor wants to spend the time to gain the knowledge necessary (which is cumulative, so you are always getting better and learning more), he or she can generate excellent alpha over the market. Indexing by definition is acting as a "know nothing" investor, because you accept that the market knows what's best. That's outsourcing your thinking no matter how you look at it. This isn't by definition a bad thing, as many have pointed out, consistently contributing into an index fund over time has proven to work out acceptably in history. But making out a valuation approach to be impossible or a waste of time is close minded and ironic, given that the MMM values of reducing waste and unnecessary expenses is consistently looked down on as impossible or a waste of energy by the general populace.
No DCA doesn't equal serial lump sum investing. If you put 100% of your available money into your investments at any given time you are lump sum investing. DCA by definition implies you are holding back a portion of the money available to invest later.
There is a difference between being knowledgeable in an area and choosing a simple solution you feel is more effective for you compared to choosing a solution because you have no other option at your level of competence.
I wouldn't say what Keith is proposing is impossible. I've stated that clearly. I don't know whether it will turn out be better or worse in the long run. What I do know is that I am more comfortable with risks/rewards of the MMM approach than I am with what Keith is proposing.
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Inconsistency avoidance is a hard mental barrier to penetrate.
Retire-Canada, you're just playing with terminology now -
BTW - it's not DCA it's serial lump sum investing. DCA implies you have a big chunk of money which you intentionally invest slowly overtime.
DCA doesn't equal serial lump sum investing?
Retire-Canada is right. DCA is *only* when you have a larger sum that you invest in smaller pieces. Investing what you can from your biweekly paycheck (or whenever the funds become available) would be regular lump sum investing. It is true that many people (including a lot of the financial media) use DCA to mean scheduled, regular investments, but it's a misuse of the term.
https://en.wikipedia.org/wiki/Dollar_cost_averaging#Confusion
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Ok, the DCA vs lump sum is kind of derailing into a silly semantics argument. We all know what is meant by DCA in the context of this conversation: Invest $X each period regardless of general market conditions. Moving on...
Framing this discussion in another way. Consider a scenario in which we compiled a large sample of value-oriented forum participants then measured their performance vs. DCA continuous, automatic investing into an index over a 20 yr period. On average, do you think that group would under perform, match, or outperform the DCA continuous, automatic investing strategy?
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Ok, the DCA vs lump sum is kind of derailing into a silly semantics argument. We all know what is meant by DCA in the context of this conversation: Invest $X each period regardless of general market conditions. Moving on...
The DCA/lump sum 'correctors' are always out in force and it's positively boring and also irrelevant as to the performance of the investment. I guess with the rest of their time they go around correcting people that say PIN number because that makes it a Personal Identification Number Number.
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Ok, the DCA vs lump sum is kind of derailing into a silly semantics argument. We all know what is meant by DCA in the context of this conversation: Invest $X each period regardless of general market conditions. Moving on...
Framing this discussion in another way. Consider a scenario in which we compiled a large sample of value-oriented forum participants then measured their performance vs. DCA continuous, automatic investing into an index over a 20 yr period. On average, do you think that group would under perform, match, or outperform the DCA continuous, automatic investing strategy?
I'm inclined to think the value-oriented participants would outperform the automatic indexers. Just a guess. Does anyone think a hybrid is possible that could balance out the good and bad from each approach - value-oriented index investing? The automatic indexing side keeps you diversified and investing regularly while the value oriented side allocates it to the most likely places for long term solid returns.
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Framing this discussion in another way. Consider a scenario in which we compiled a large sample of value-oriented forum participants then measured their performance vs. DCA continuous, automatic investing into an index over a 20 yr period. On average, do you think that group would under perform, match, or outperform the DCA continuous, automatic investing strategy?
As a group they will underperform, but I will outperform.
;
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Ok, the DCA vs lump sum is kind of derailing into a silly semantics argument. We all know what is meant by DCA in the context of this conversation: Invest $X each period regardless of general market conditions. Moving on...
Framing this discussion in another way. Consider a scenario in which we compiled a large sample of value-oriented forum participants then measured their performance vs. DCA continuous, automatic investing into an index over a 20 yr period. On average, do you think that group would under perform, match, or outperform the DCA continuous, automatic investing strategy?
I'm inclined to think the value-oriented participants would outperform the automatic indexers. Just a guess. Does anyone think a hybrid is possible that could balance out the good and bad from each approach - value-oriented index investing? The automatic indexing side keeps you diversified and investing regularly while the value oriented side allocates it to the most likely places for long term solid returns.
The data suggests otherwise. Cycle after cycle, the average investor has always drastically under performed.
Hybrid? Sure - you can choose any strategy you'd like. The world isn't cut and dry, and we are all free to choose our own path. As far as I know, Ben Graham (The Intelligent Investor) pioneered the concept of the 'enterprising' vs 'passive' investor. His book is well worth the price if you haven't read it. The best strategy, IMO, is one you can stick with. Over time, assuming you're somewhat competent you will likely enjoy plenty of days in the sun & many cream pies to the face regardless of your strategy. Just make the best decision you can with the info you have, develop a solid program & stick with it for the long haul. If that program is a combo of various strategies, and you think you can stay on top of the added complexity then more power to you.
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Ok, the DCA vs lump sum is kind of derailing into a silly semantics argument. We all know what is meant by DCA in the context of this conversation: Invest $X each period regardless of general market conditions. Moving on...
Framing this discussion in another way. Consider a scenario in which we compiled a large sample of value-oriented forum participants then measured their performance vs. DCA continuous, automatic investing into an index over a 20 yr period. On average, do you think that group would under perform, match, or outperform the DCA continuous, automatic investing strategy?
I'm inclined to think the value-oriented participants would outperform the automatic indexers. Just a guess. Does anyone think a hybrid is possible that could balance out the good and bad from each approach - value-oriented index investing? The automatic indexing side keeps you diversified and investing regularly while the value oriented side allocates it to the most likely places for long term solid returns.
http://www.thinkadvisor.com/2015/03/30/value-investors-inconvenient-truth-they-lose-to-sp - from a company that manages a value fund, so keep that in mind. They found that people investing in value funds tended to try and time the market and they ended up underperforming by about 1%. If instead they had bought-and-held a value fund these investors would have beat the market.
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http://www.thinkadvisor.com/2015/03/30/value-investors-inconvenient-truth-they-lose-to-sp - from a company that manages a value fund, so keep that in mind. They found that people investing in value funds tended to try and time the market and they ended up underperforming by about 1%. If instead they had bought-and-held a value fund these investors would have beat the market.
Normally, value investing doesn't mean you buy value funds or value ETFs, that's a quantitative measure only. Value investing means picking securities where the expectations baked into the security price is worse than what you think will actually happen. Investing returns is the difference between expectations and what really happens to the operating results of the underlying business. You can buy the cheapest stock out there, but if it's going out of business and earnings begin declining even more than what the market believes/has priced the security at, you're going to lose money. Conversely, even if you pay something crazy like 100 P/E, if the reality turned out to be better than expectations, such as a McDonald's, Starbucks, Home Depot, Microsoft, etc., you'll end up beating the market. Most value investing is done somewhere in the middle of those two extremes
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Ok. You have no argument from me in that respect. I would just like to point out though, that DCA index investing, from how I interpret it, assumes the investor has no skills or abilities at investing. Or at least that the investor believes there are no skills or abilities that are useful at investing? Is that a fair interpretation?
On average, that assumption is correct -- most investors fail to beat the index. Moreover, you only find out whether you're skilled or not in hindsight (even if you think you're skilled, it could be the Dunning-Kruger effect (https://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect) instead). Therefore, for any random person asking "how do I invest" on this forum, index investing is the safest answer.
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http://www.thinkadvisor.com/2015/03/30/value-investors-inconvenient-truth-they-lose-to-sp - from a company that manages a value fund, so keep that in mind. They found that value investors people investing in value funds tended to try and time the market and they ended up underperforming by about 1%. If instead they had bought-and-held a value fund these investors would have beat the market.
Normally, value investing doesn't mean you buy value funds or value ETFs, that's a quantitative measure only. Value investing means picking securities where the expectations baked into the security price is worse than what you think will actually happen. Investing returns is the difference between expectations and what really happens to the operating results of the underlying business. You can buy the cheapest stock out there, but if it's going out of business and earnings begin declining even more than what the market believes/has priced the security at, you're going to lose money. Conversely, even if you pay something crazy like 100 P/E, if the reality turned out to be better than expectations, such as a McDonald's, Starbucks, Home Depot, Microsoft, etc., you'll end up beating the market. Most value investing is done somewhere in the middle of those two extremes
I should be more careful with my terms...quote fixed. They found that value investors did worse on average.
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http://www.thinkadvisor.com/2015/03/30/value-investors-inconvenient-truth-they-lose-to-sp - from a company that manages a value fund, so keep that in mind. They found that value investors people investing in value funds tended to try and time the market and they ended up underperforming by about 1%. If instead they had bought-and-held a value fund these investors would have beat the market.
Normally, value investing doesn't mean you buy value funds or value ETFs, that's a quantitative measure only. Value investing means picking securities where the expectations baked into the security price is worse than what you think will actually happen. Investing returns is the difference between expectations and what really happens to the operating results of the underlying business. You can buy the cheapest stock out there, but if it's going out of business and earnings begin declining even more than what the market believes/has priced the security at, you're going to lose money. Conversely, even if you pay something crazy like 100 P/E, if the reality turned out to be better than expectations, such as a McDonald's, Starbucks, Home Depot, Microsoft, etc., you'll end up beating the market. Most value investing is done somewhere in the middle of those two extremes
I should be more careful with my terms...quote fixed. They found that value investors did worse on average.
I think you should state the first sentence of that article
"The average value investor underperforms an S&P 500 index fund, even before fees, by almost a percentage point — even though the average value fund outperforms the S&P 500.",
I think that statement says that there is worth in a value focused approach, but that most people who try to use it, aren't successful. From the article, it seems to say if you DCA/lump sum into a value based index, on average you will outperform - but that most people try to trade in and out of such funds, and like most buy-and-sellers, they do that badly enough to cancel out the value based advantage.
I think its the same for index funds, I've read that most index fund investors underperform the index fund, because they try to trade in and out, and again, are unsuccessful at that.
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I think its the same for index funds, I've read that most index fund investors underperform the index fund, because they try to trade in and out, and again, are unsuccessful at that.
Ha! Nobody can index out being human. The only way to really index invest is to bury your head in the sand. Fear is usually greater than the reality and so is enthusiasm.
My main problem with index funds is I always view them as my money. I don't see it as ownership in something valuable. I do not deny historically they work if you leave them alone
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Ok, the DCA vs lump sum is kind of derailing into a silly semantics argument. We all know what is meant by DCA in the context of this conversation: Invest $X each period regardless of general market conditions. Moving on...
Framing this discussion in another way. Consider a scenario in which we compiled a large sample of value-oriented forum participants then measured their performance vs. DCA continuous, automatic investing into an index over a 20 yr period. On average, do you think that group would under perform, match, or outperform the DCA continuous, automatic investing strategy?
I'm inclined to think the value-oriented participants would outperform the automatic indexers. Just a guess. Does anyone think a hybrid is possible that could balance out the good and bad from each approach - value-oriented index investing? The automatic indexing side keeps you diversified and investing regularly while the value oriented side allocates it to the most likely places for long term solid returns.
I think your point here when you state just a guess is the key point. My take is that you believe that there is a way to beat the market. The problem is that this is really really hard. Just say that value oriented investors get it right. The thing is the value stocks will then rise in price. So you have to assume that you've gotten in before those people. Plus you won't be as diversified in stocks and there is the risk of one or some of those stocks not performing as well as expected.
The next point in my opinion is what sort of trade off will you get when it comes to time put into analysis and performance over time. I think it's unlikely that you will beat the market and its not worth the effort.
I think a better approach is to focus on your asset allocation and being comfortable with that.
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Cycle after cycle, the average investor has always drastically under performed.
I think they also under-perform because they try and win the game. If you aren't trying to win then I think you can actually beat the average investor a lot by simply indexing. I'll mention asset allocation again because your asset allocation is what will determine if you are comfortable with your returns and the associated risk.
If you choose to have say a 50/50 stock/bonds portfolio you won't have the same ups and downs as a 100% stock allocation but you might be comfortable with that.
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love how crazy this thread is.
I'm confused at so many people saying you can't beat the market. obviously one can beat the market. it's just that everyone has their own unique circumstances to consider (not the least of which is the capability to think up a real way to beat the market)
I don't understand why people think they can beat the market, outsmarting people with nearly unlimited resources who do this for a living.
So is Mr. Pro beating the market then? or have margins shrunk to 0?
Unlimited resources? how? if you had unlimited capital, I think you've broken the market, not beat it or underperformed it.
If you mean orders of magnitude more resources than another bruv, then bruv hopefully isn't limited to the exact same market options as Mr. Pro. Or bruv better have better info or processing of the info in a more novel way than Mr. Pro. More likely, Mr. Pro is in a different pond than bruv and both could be the ponds' respective big, predator fishs.
Forgot to mention all the people who decided in 2014 that Bitcoin was "the future" so bought in at $970 a pop to get on the action. There has to be a few threads right here on MMM a few years ago saying that was a great idea.
if some people bought high, some people bought low. Market profiteers and losers. Plenty of people bought that summer when it was $60.
(sound digital cash is absolutely a great idea, careful speculating though)
, you should have a darn good answer to the following question:
"Why doesn't everyone get rich doing this?"
quite right.
I don't think the EMH is garbage. I think it's misapplied frequently, I think it has spawned an undeservedly religious following in some circles, and I think market timers like to shit on it to justify their own delusions of superiority. But under all of that I think it's a sound idea, because all it says is that the value of the investment is hard to know but the market is a tool for letting everyone vote on what they think it should be, and then they make that the price. As long as people are rational and informed, that should work out as well as can be reasonably expected, for everyone, absent a working crystal ball.
I haven't actually read the original EMH. The way most people talk about it is 100% garbage and should be ignored (or use its popularity/acceptance to your advantage).
I am a fan of prediction markets, of course, but it's actually pretty amazing how dumb and inefficient (err.. bad at predicting) they can be.
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I've read several studies that find that value investing outperform indexing. So why doesn't this disappear? I think its because there is always a group of people who chase after the next best thing.
So what happens, company X has a great vision, and its price goes up, it might still not have any earnings, but maybe its revenue or 'eyeballs' or whatever is rapidly increasing, more and more true believers buy into this, and justify its high price on the basis that it will keep increasing rapidly, eventually it either slows down, or fails, at which time its growth premium is destroyed, and it drops in price.
Its similar with IPOs, studies seem to indicate that if you buy say $1000 in every IPO ever launched, and checked their prices a year later, they will have lost money.. For more or less the same reason, irrational enthusiasm.
Studies compare value (low PE) versus growth (high PE) stocks, and show that value stocks increase in value by more than growth stocks. Why, because growth stocks are priced, typically, as if their growth will continue for a long time, so when it almost inevitably falls short, they lose value.
So if growth/hyped shares underperform, any approach that doesn't buy those shares, should overperform, and that's pretty much how value shares work.
I sometimes think its a bit odd.. people get very righteous about avoiding funds that have say a 1% management ratio, and say indexing is sooooo much better. Well, studies typically show about a 1% improvement of value investing over straight indexing, so surely thats also, just sooooo much better.
I think with stocks, as long as you buy a diverse group of non-bubble stocks, and don't ever sell because of panic or despair, you'll do relatively well, and will be in the top percentiles of successful stock investors.
So, its very easy to just go with indexing, if that's what you what to do, I'm sure you'll be fine. But I think its very arrogant or close minded to think its impossible to do better. You might think its not worth your while to look into value stocks, but that does not mean you can be 100% sure that its not a worthwhile approach.
I'm not convinced its 100% successful, but from both the theory I've read, and my ability to beat straight indexing by using a value-based approach, I think its very worthwhile to consider.
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So is Mr. Pro beating the market then? or have margins shrunk to 0?
I think most don't beat the market over time. I just quickly googled this article so don't take it as gospel but the facts are the most fund managers don't beat the market over a shorter time period. I think over a longer time period it would be even rarer.
http://ritholtz.com/2013/01/mutual-fund-managers-who-beat-the-market/
Margins haven't shrunk to 0 for these guys. They keep making money because people are either uneducated, irrational or think they will be one of the ones who beat the market.
if some people bought high, some people bought low. Market profiteers and losers. Plenty of people bought that summer when it was $60.
Yes some people probably made a successful trade. Can they consistently beat the market though ? The data says that they don't and these aren't dumb people. Have you read the story of Long Term Capital Management. These guys were nobel prize winners. They were smart dudes. They went bust because they couldn't beat the market consistently. At one point they beat the market.
https://en.wikipedia.org/wiki/Long-Term_Capital_Management
Compare that to simply investing in the index.
Everyone has to make the call about what they want to do but I'm not as smart as the guys in LTCM so I'll put my money in non-leveraged index funds.
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So is Mr. Pro beating the market then? or have margins shrunk to 0?
I think most don't beat the market over time. I just quickly googled this article so don't take it as gospel but the facts are the most fund managers don't beat the market over a shorter time period. I think over a longer time period it would be even rarer.
http://ritholtz.com/2013/01/mutual-fund-managers-who-beat-the-market/
Margins haven't shrunk to 0 for these guys. They keep making money because people are either uneducated, irrational or think they will be one of the ones who beat the market.
if some people bought high, some people bought low. Market profiteers and losers. Plenty of people bought that summer when it was $60.
Yes some people probably made a successful trade. Can they consistently beat the market though ? The data says that they don't and these aren't dumb people. Have you read the story of Long Term Capital Management. These guys were nobel prize winners. They were smart dudes. They went bust because they couldn't beat the market consistently. At one point they beat the market.
https://en.wikipedia.org/wiki/Long-Term_Capital_Management
Compare that to simply investing in the index.
Everyone has to make the call about what they want to do but I'm not as smart as the guys in LTCM so I'll put my money in non-leveraged index funds.
LTCM went bust because their greedy arbitrage strategies stopped working or went the wrong way all at the same time. LTCM did not play in a buy and hold, long term value world, despite the name, so it's not really fair to compare value investors to them.
I don't think anyone in here is talking about those types of strategies. In fact the people you're arguing against explicitly say they don't sell, except to satisfy their personal cash flow needs.
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LTCM went bust because their greedy arbitrage strategies stopped working or went the wrong way all at the same time. LTCM did not play in a buy and hold, long term value world, despite the name, so it's not really fair to compare value investors to them.
I don't think anyone in here is talking about those types of strategies. In fact the people you're arguing against explicitly say they don't sell, except to satisfy their personal cash flow needs.
If you think that it's fine but I disagree with what you are stating. The point is that beating the market is hard. If you don't want to use LTCM as an example of the professionals not beating the market then use the average fund manager. The point is that beating the index isn't so simple and typically it leads to not beating the index but being below the index. If you add to that fees or your time the question becomes is it really worth it.
That is a call that everyone has to make.
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LTCM went bust because their greedy arbitrage strategies stopped working or went the wrong way all at the same time. LTCM did not play in a buy and hold, long term value world, despite the name, so it's not really fair to compare value investors to them.
I don't think anyone in here is talking about those types of strategies. In fact the people you're arguing against explicitly say they don't sell, except to satisfy their personal cash flow needs.
If you think that it's fine but I disagree with what you are stating. The point is that beating the market is hard. If you don't want to use LTCM as an example of the professionals not beating the market then use the average fund manager. The point is that beating the index isn't so simple and typically it leads to not beating the index but being below the index. If you add to that fees or your time the question becomes is it really worth it.
That is a call that everyone has to make.
It's really not, though. The "average fund manager" and "average investor" are worthless to compare against because, on average, they have huge turnover-induced drags. Buy and hold forever is a strategy that, over time will beat an index, simply by virtue of having less turnover. The Voya Corporate Leaders Trust (http://"https://investments.voya.com/Investor/Products/Mutual-Funds/Profile/index.htm?p=10") handily proves the point. They bought the DJIA in 1935 and never changed, except for mergers and spinoffs. Look at the chart on that page and tell me buy and hold can't beat the S&P 500. Sometimes it moves opposite the index, of course, and you can see that on this Google chart (https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=Logarithmic&chdeh=0&chfdeh=0&chdet=1455280233894&chddm=1592152&cmpto=INDEXSP:.INX&cmptdms=0&q=MUTF:LEXCX&&ei=Z9C9VuG1N8WO2Ab_grfgDQ) which unfortunately only goes back to 2000.
My point is that indexing is a valid strategy if you want to match the performance of a benchmark index without a lot of thought. Absolutely that's fine, and my wife employs it her accounts and I have a good chunk of my retirement money in VTSAX. That said, buying and holding good companies with a good margin of safety for a long time with zero turnover is also a perfectly valid strategy which will lead to different, sometimes better results than indexing.
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On average, that assumption is correct -- most investors fail to beat the index. Moreover, you only find out whether you're skilled or not in hindsight (even if you think you're skilled, it could be the Dunning-Kruger effect (https://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect) instead). Therefore, for any random person asking "how do I invest" on this forum, index investing is the safest answer.
This is probably the best single comment on this thread.
By definition, very few investors can consistently beat the market by any significant amount for any significant period of time. I used to subscribe to the (now defunct, alas) Outstanding Investor Digest and I was always impressed with the amount of hard work it required to discover a suitable investment gem in the piles of publicly traded companies.
Nobody here is likely to think they can beat a grandmaster level chess player, but for some reason we (mea culpa) think we can beat the guy on the other side of the trade. And even the people have the smarts and who are willing to do the hard work, many lack the temperament to sit on a large percentage of cash and wait for an overwhelming opportunity.
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The point *ISN'T* to consistently beat your bench mark EVERY year. The point is to beat the bench mark over the sum total of a *NUMBER* of years. Incidentally, this is why Bogle decries mutual funds, as the best returns (as advertised) have already passed investors by when most of the investors flock into them.
As far as individual stock selection versus buying an index fund, I don't care if I miss the ride up if the ride up consists of securities like Amazon, Facebook, or Netflix, I'm perfectly happy with my "inferior" returns since on a risk adjusted basis (which is NOT the same thing as volatility), I come out ahead. There's this misconception that value investors are beholden to the same timeline as fund managers, and really, I don't care about my quarterly performance, as long as long term, I'm coming out ahead, building up a deferred tax advantage, and don't have to worry about what Mr. Market is thinking. I also don't care about a "smooth" ride up, the end goal is the end goal, why does it matter if I get there by getting 30% one year and -15% the next or if I get there by getting a smooth 8% a year? Additionally, if you're focused ONLY on quantitative measures when value investing, you're doing it wrong.
The mass equation on this forum of value investing = market timing = fund managing=anyone that doesn't index just doesn't understand statistics is bewildering
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The point *ISN'T* to consistently beat your bench mark EVERY year.
The mass equation on this forum of value investing = market timing = fund managing=anyone that doesn't index just doesn't understand
I like you. What do you do?
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The mass equation on this forum of value investing = market timing = fund managing=anyone that doesn't index just doesn't understand statistics is bewildering
The thread is long with many a winding turn... Started with a proposal by OP to essentially time the market.
I think value investing got pulled in as a proposed hybrid value-investing-market-timing approach:
Why not combine a few of the lessons from the greatest investors into one awesome strategy? Bogle taught indexing, Buffett taught buy and hold value investing, Benjamin Graham taught margin of safety (25%). Why can't these co-exist? Why can't you buy and hold (Buffett) an indexed market fund, or sector ETF (Bogle) when there is a margin of safety from it's fair value (Benjamin Graham). When you can't do that with the overall market, sit on the bench or look for the same opportunities in individual sector ETF's of the market. If you still can't find anything, wait it out. There will be a "fat pitch" eventually.
Which conflated value investing with the idea that one could time the market by using value investing strategies. I agree, they are separate things.
Long term buy and hold value investing is a sound approach, assuming one is willing to invest the time and energy necessary and has the intestinal fortitude to stick with it and ignore market momentum.
Passive index investing is also a sound strategy, though probably more appropriate for the majority of investors because it is so simple. Like value investing, one needs to avoid trying to time the market.
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Buy and hold forever is a strategy that, over time will beat an index, simply by virtue of having less turnover.
It isn't this simple. Companies go bust.
That said, buying and holding good companies with a good margin of safety for a long time with zero turnover is also a perfectly valid strategy which will lead to different, sometimes better results than indexing.
I basically agree if:-
1. You pick them right. I assume some sort of value investing approach.
2. You accept that you may be less diversified than having an index fund.
3. You are prepared to spend extra time doing the research. This takes away time from doing something else.
I have a chunk of money in one company simply from working at that company and being given shares. The company has gone great and the returns have been fantastic. Personally though I don't like it because I'm not diversified at all. I also think that I (and everyone else) are better off focussing on an asset allocation that works for me (or you) rather than bothering picking any individual stocks. I don't think the additional return (if it occurs) is worth the effort.
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Long term buy and hold value investing is a sound approach, assuming one is willing to invest the time and energy necessary and has the intestinal fortitude to stick with it and ignore market momentum.
Passive index investing is also a sound strategy, though probably more appropriate for the majority of investors because it is so simple. Like value investing, one needs to avoid trying to time the market.
Some good points here. I also think value investing can work if you are prepared to be less diversified within your equity (in this case) portfolio. I just think it's not the real big issue. I think it comes down to in degree of importance:-
1. Saving money.
2. Choosing some asset allocation that works for you.
3. Being as diversified as possible within each asset class that you have.
4. Maybe having some special investments ala value investing.
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I basically agree if:-
1. You pick them right. I assume some sort of value investing approach.
Although, even if you pick say 6 stocks, and 3 are good, 2 are ho-hum and 1 is bad. Over time, the good stocks will grow to dominate your portfolio, and so their growth rates will tend to be your average growth rate (as long as you don't rebalance). This is why I say if you are diverse with non-bubble stocks, you'll probably be ok.
2. You accept that you may be less diversified than having an index fund.
Because index stocks are often dominated by large stocks, that's not necessarily true. I have around 50 stocks, none of these is more than 10% of my portfolio, and I don't have more than 20% in any sector/sub-sector. I'd say I have more diversity than most index funds - particularly where I am in Australia, where the index funds are dominated by mining and finance and about 6-10 large companies.
3. You are prepared to spend extra time doing the research. This takes away time from doing something else.
In my case, this is certainly true - although, if you buy a dividend biased index fund, or some other cheap value-based fund its not too much work. I know I spend a lot of time on this, but I enjoy doing it.
I have a chunk of money in one company simply from working at that company and being given shares. The company has gone great and the returns have been fantastic. Personally though I don't like it because I'm not diversified at all. I also think that I (and everyone else) are better off focussing on an asset allocation that works for me (or you) rather than bothering picking any individual stocks. I don't think the additional return (if it occurs) is worth the effort.
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You make a good point with index investing having its downside in relation to large stocks possibly dominating an index.. One of the indexes that I will invest in has 50% of the index comprised of the top 10 stocks.
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The thread is long with many a winding turn... Started with a proposal by OP to essentially time the market.
Um, no, I offered no such advice; my advice was to preserve capital. reducing allocations during declines is how you do that. I offered no specifics of buying and selling at a moving average, a certain percent down or a point range on an exchange. I would say its working well as evidenced below.
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Alright, I started this thread and in it I have been cast aside, been called out, been told I’m nothing but a trend follower, market timer and probably many other things; but I don’t care. I’m not trying to earn anyones business, praise or respect; besides I have made 8% this year shorting the market and I only know of myself and horseman capital that have done that, so blast away at me; I can handle the insults as I’m keeping that short open and am likely to make over 10% this year easily.
I’m a capital preservationist and I would think the MMM’ers would be the same. I have gotten some good information from the MMM site, so I am posting this and the original post in this thread to return the favor.
I am posting again now because our local financial guy has now advised to reduce equity exposure to his minimum level that he had in the worst of 2008, 15%; so this is essentially my final and will be last warning.
The average person lost 50% in 2008. If that happens again or you just lose 28%, the average decline in a bear market(which we are right on the edge of and would be in if the market didn’t rally on a record 12% increase in oil in one day), how long is it going to take you to earn it back ?
The market high was 2131, we are now about 14% lower; so for you to get back to even from here the market has to get to 2429 or for the dow it is now 15,973 had would have to get to 20,875 for you to be even. Where do you see that happening this year ? If you see it gaining that much after the decline it has had in 6 weeks, then go ahead; but that’s more optimistic than jp morgan and citigroup advisors.
My minimum advice would be to reduce exposure until we hit the average decline of 28% and then if you want to average it, at least you saved around 15% (although given the economic indicators and the fact that the market has a greater herd mentality than ever before which will give faster and greater losses than anyone predicts in a recession, I’d bet it declines more than 28%).
I’ll give that one resource I mentioned at my first post. He is now going to 15% equity exposure, his maximum reduction of equity exposure in the worst of 2008 and even considering shorting to reduce his equity exposure to zero and every rally this year that he has called has been weaker than he was expecting , so you can be pretty sure we are going much further down than just the 8% that we are down so far this year. If you’re better than a guy who manages over 100 million dollars go ahead and do your own thing. If not you might read his latest newsletter at: realinvestmentadvice.com.
Okay, that’s it. I’m out again. I will come back and eat the biggest crow if by some miracle the current world economic slowdown reverses itself and the market makes a new high this year. If not, I will not be back to give advise until a new recovery has started, which I’d bet my car, does not happen this year.
Best of luck to all of you.
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I am posting again now because our local financial guy has now advised to reduce equity exposure to his minimum level that he had in the worst of 2008, 15%; so this is essentially my final and will be last warning.
The average person lost 50% in 2008. If that happens again or you just lose 28%, the average decline in a bear market(which we are right on the edge of and would be in if the market didn’t rally on a record 12% increase in oil in one day), how long is it going to take you to earn it back ?
Using your example of 2008, it took the SP500 about 5 years to consistently stay above its Jan 1, 2008 price (not including dividend reinvestment, which would make that occur earlier).
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The thread is long with many a winding turn... Started with a proposal by OP to essentially time the market.
Um, no, I offered no such advice; my advice was to preserve capital. reducing allocations during declines is how you do that. I offered no specifics of buying and selling at a moving average, a certain percent down or a point range on an exchange. I would say its working well as evidenced below.
Changing allocations in anticipation of declines (or future/ongoing declines) is market timing (http://www.investopedia.com/terms/m/markettiming.asp). Unless of course you mean reducing allocations after declines, but that would be silly and the worst possible thing to do.
You're free to give advice, and others are free to agree or disagree with you. We all get to make our own decisions on how we invest, so it's good to hear many sides of the argument. It has been an interesting thread. Best wishes!
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besides I have made 8% this year shorting the market and I only know of myself and horseman capital that have done that, so blast away at me; I can handle the insults as I’m keeping that short open and am likely to make over 10% this year easily.
I moved to mostly bonds last summer also and have remained.
In the other thread you said you moved into mostly bonds this past summer. How have you made 8% this year with mostly bonds?
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The world is an amazing place. Unless we blow it up or destroy it, I see no reason why it will not be more amazing in the future.
+1. I don't think it has been mentioned yet, so I will plug the book "A Random Walk Down Wall Street" by Burton Malkiel and the random walk hypothesis as one of the key underpinnings of market theory that guides most investors here.
I invest with every paycheck and do not pay much attention to the markets ups and downs. An unfortunate corollary is that I speak up all the time - not paying much attention to whether my words are particularly artful, or painfully dull. Best wishes to you all, Ap.
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I am posting again now because our local financial guy has now advised to reduce equity exposure to his minimum level that he had in the worst of 2008, 15%; so this is essentially my final and will be last warning.
But, but, some other prognosticators are saying that we have a bottom! Who do I believe? ???
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The market high was 2131, we are now about 14% lower; so for you to get back to even from here the market has to get to 2429 or for the dow it is now 15,973 had would have to get to 20,875 for you to be even.
If the market high was 2131, to get to even it would have to get to 2131. If it goes to 2132 or higher, then you're ahead. Are you struggling with basic math again (http://forum.mrmoneymustache.com/investor-alley/about-to-sell-everything-talk-me-off-the-ledge-%28or-push-me-off%29-please!/msg961794/#msg961794)?
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If the market high was 2131, to get to even it would have to get to 2131. If it goes to 2132 or higher, then you're ahead. Are you struggling with basic math again (http://forum.mrmoneymustache.com/investor-alley/about-to-sell-everything-talk-me-off-the-ledge-%28or-push-me-off%29-please!/msg961794/#msg961794)?
I think this might be the problem.
http://realinvestmentadvice.com/why-you-should-question-buy-and-hold-advice/
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If the market high was 2131, to get to even it would have to get to 2131. If it goes to 2132 or higher, then you're ahead. Are you struggling with basic math again (http://forum.mrmoneymustache.com/investor-alley/about-to-sell-everything-talk-me-off-the-ledge-%28or-push-me-off%29-please!/msg961794/#msg961794)?
I think this might be the problem.
http://realinvestmentadvice.com/why-you-should-question-buy-and-hold-advice/
That is a good article.
I would state if you could reduce exposure prior to the market going down and then increase exposure prior to it going up and you didn't get smashed with tax issues then that would be the ideal approach.
I don't though believe that is possible so it comes back again to an appropriate asset allocation.
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If the market high was 2131, to get to even it would have to get to 2131. If it goes to 2132 or higher, then you're ahead. Are you struggling with basic math again (http://forum.mrmoneymustache.com/investor-alley/about-to-sell-everything-talk-me-off-the-ledge-%28or-push-me-off%29-please!/msg961794/#msg961794)?
I think this might be the problem.
http://realinvestmentadvice.com/why-you-should-question-buy-and-hold-advice/
That is one hell of an article. I'm sure it will be dismissed by most on this forum unfortunately.
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That is a good article.
That article blows goats.
Basically all he said is that the market can go sideways for long periods of time. Then he had lots of confusing charts that say the market can go sideways for long periods time. Thanks, but we already all knew that, or at least we should know that by now.
But he was also misleading. At the beginning of the article, he's careful to point out the average returns of the S&P are about 10% with dividends included. That's always something good to point out, because you can't look at just the price returns if you are trying to figure out the total, you must also include dividends. But then he says don't count on 10% every year. Fair enough, that what they tell you on the first day of Investing 101.
Then later on he says that the market went sideways from 1963 to 1983 (presumably making investors sad). Actually, this is his exact statement:
1) If you started investing in 1963, at the end of 1983 you had less money than you started with. (20 Years)
Now, that actually was a really bad time for stocks. However, he's completely full of shit, because he's only look at price and not including dividends. You know, the thing you are supposed to include. If reinvested the dividends, you almost quintipled your money, and you realized a reasonable 8%-ish a year average annual gain. Below average, but not horrific either.
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Then later on he says that the market went sideways from 1963 to 1983 (presumably making investors sad). Actually, this is his exact statement:
1) If you started investing in 1963, at the end of 1983 you had less money than you started with. (20 Years)
Now, that actually was a really bad time for stocks. However, he's completely full of shit, because he's only look at price and not including dividends. You know, the thing you are supposed to include. If reinvested the dividends, you almost quintipled your money, and you realized a reasonable 8%-ish a year average annual gain. Below average, but not horrific either.
And, more importantly for us, a portfolio with 100% stocks and a 4% inflation-adjusted withdrawal would've survived over a 30 year period from 1963-1993.
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Plus if you compound $100 at 10% for 5 years you end up with $161.05.
"Let’s assume an investor wants to compound their investments by 10% a year over a 5-year period."
With his example and the 10% loss it would have took 34.4% to get back to 10% compound over a 5-year period. His math is as bad as the OP but I guess you could call it a rounding error. The article has a good point if you are buying 1 time and holding forever but most of us are buying during the -10% loss also which he doesn't figure in. It might apply to a lottery winner that buys in at one point but I think there is a much bigger picture.
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That is a good article.
That article blows goats.
Basically all he said is that the market can go sideways for long periods of time. Then he had lots of confusing charts that say the market can go sideways for long periods time. Thanks, but we already all knew that, or at least we should know that by now.
But he was also misleading. At the beginning of the article, he's careful to point out the average returns of the S&P are about 10% with dividends included. That's always something good to point out, because you can't look at just the price returns if you are trying to figure out the total, you must also include dividends. But then he says don't count on 10% every year. Fair enough, that what they tell you on the first day of Investing 101.
Then later on he says that the market went sideways from 1963 to 1983 (presumably making investors sad). Actually, this is his exact statement:
1) If you started investing in 1963, at the end of 1983 you had less money than you started with. (20 Years)
Now, that actually was a really bad time for stocks. However, he's completely full of shit, because he's only look at price and not including dividends. You know, the thing you are supposed to include. If reinvested the dividends, you almost quintipled your money, and you realized a reasonable 8%-ish a year average annual gain. Below average, but not horrific either.
Quintipled your money? Where are you coming up with this?
I got 2.04% annual return (adjusted for inflation and dividends reinvested) from January 1963 to January 1983 - http://dqydj.net/sp-500-return-calculator/.
Even with another source, I'm only coming up with 2.86% (adjusted for inflation and dividends reinvested) - http://www.moneychimp.com/features/market_cagr.htm
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It's hilarious how many people think "the market" is made up of only 500 US companies.
My Market is made up of 952 Canadian Bonds 3 to 10 years duration, 231 Canadian companies, 3791 US companies, 1810 EAFE and 3106 Emerging markets. Average that!
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Quintipled your money? Where are you coming up with this?
I got 2.04% annual return (adjusted for inflation and dividends reinvested) from January 1963 to January 1983 - http://dqydj.net/sp-500-return-calculator/.
Even with another source, I'm only coming up with 2.86% (adjusted for inflation and dividends reinvested) - http://www.moneychimp.com/features/market_cagr.htm
I was just being consistent with the author. He didn't include inflation in his first example that set up the premise of the article, so I didn't include inflation either.
However, fact is he claimed you would have lost money from 1963 to 1983. However you slice it, inflation or no, we both agree that's a false statement.
Bottom line is he's either 1) very confused, 2) trying to mislead people, or 3) both.
None of those conditions are very impressive to me.
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wow this is specific
(http://i820.photobucket.com/albums/zz124/azwolf25/Mobile%20Uploads/24A3F42C-EA59-427A-827F-7BC037105D33.png) (http://s820.photobucket.com/user/azwolf25/media/Mobile%20Uploads/24A3F42C-EA59-427A-827F-7BC037105D33.png.html)
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But, but....what time after lunch will it bottom? 1:00? 2:30?? EST lunchtime or PCT lunchtime? What time does this clown...errrr, I mean analyst eat his lunch??
Specific my ass! I want the exact time dammit!
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That is one hell of an article. I'm sure it will be dismissed by most on this forum unfortunately.
That picture at the top does not bode well...anyway, off to read the article.
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The market high was 2131, we are now about 14% lower; so for you to get back to even from here the market has to get to 2429 or for the dow it is now 15,973 had would have to get to 20,875 for you to be even.
If the market high was 2131, to get to even it would have to get to 2131. If it goes to 2132 or higher, then you're ahead. Are you struggling with basic math again (http://forum.mrmoneymustache.com/investor-alley/about-to-sell-everything-talk-me-off-the-ledge-%28or-push-me-off%29-please!/msg961794/#msg961794)?
And since these "market" numbers don't factor in dividends, it doesn't even need to get to 2131 to break even.
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If the market high was 2131, to get to even it would have to get to 2131. If it goes to 2132 or higher, then you're ahead. Are you struggling with basic math again (http://forum.mrmoneymustache.com/investor-alley/about-to-sell-everything-talk-me-off-the-ledge-%28or-push-me-off%29-please!/msg961794/#msg961794)?
I think this might be the problem.
http://realinvestmentadvice.com/why-you-should-question-buy-and-hold-advice/
That is one hell of an article. I'm sure it will be dismissed by most on this forum unfortunately.
That picture at the top does not bode well...anyway, off to read the article.
Holy crap! That guy looks exactly like Chet from "Weird Science"! ...Just sayin'.
(http://50.116.73.124/~realinvestmentad/wp-content/uploads/revslider/home/bg-banner-2.png)
(http://media-cache-ak0.pinimg.com/736x/97/ee/ba/97eeba9f360cb04b26fac760b6d3bab6.jpg)
(http://images2.fanpop.com/images/photos/6300000/Chet-s-spit-cup-weird-science-6348290-450-331.jpg)
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The market high was 2131, we are now about 14% lower; so for you to get back to even from here the market has to get to 2429 or for the dow it is now 15,973 had would have to get to 20,875 for you to be even. Where do you see that happening this year ? If you see it gaining that much after the decline it has had in 6 weeks, then go ahead; but that’s more optimistic than jp morgan and citigroup advisors.
I do not understand this at all. If I had $10,000 invested in the S&P 500 @ 2131 and it dropped 14%, then returned to 2131, I would still have $10,000. What am I missing here?
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I think this might be the problem.
http://realinvestmentadvice.com/why-you-should-question-buy-and-hold-advice/
After reading that article, it's obvious that guy was just throwing around a bunch of charts and numbers and words to try and scare people into thinking they need a financial advisor. He shows a chart where the market has gone through four bull markets and four bear markets and then says it's all about timing because the market only made you money in half of the last four major cycles. Uh.....duh? That's kinda how it works with cycles. He's stating the obvious but making it look ugly and scary. The example he gives about needing a 30% return to recover from a 10% loss only works for the specific example he gives, but he makes it sounds like it applies universally, no matter how long the time line or what your previous returns were and that is simply untrue. Again, with the sowing fear and doubt.
If I were judging from that one article alone, I'd say that guy is the very definition of a shyster.
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The market high was 2131, we are now about 14% lower; so for you to get back to even from here the market has to get to 2429 or for the dow it is now 15,973 had would have to get to 20,875 for you to be even. Where do you see that happening this year ? If you see it gaining that much after the decline it has had in 6 weeks, then go ahead; but that’s more optimistic than jp morgan and citigroup advisors.
I do not understand this at all. If I had $10,000 invested in the S&P 500 @ 2131 and it dropped 14%, then returned to 2131, I would still have $10,000. What am I missing here?
You are missing nothing, and plus you would have dividends paid out during that period on top of that!
I think some people mixing things up with regards to percentages lost/gained. If the market drops 14% from it's high (100 * 0.86 = 86), then it has to gain ~16.3% from that low (86 * 1.163 = 100.02) to get back to the previous high. But if you are just dealing in the actual numbers, like the SP500 or the price of VTSAX or whatever, then 100 points regained is equivalent to the 100 points you lost the day before.
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http://realinvestmentadvice.com/why-you-should-question-buy-and-hold-advice/
That article is excellent. Thanks for sharing.
His main point is not that buy and hold is a bad idea, but that your expectations for receiving the average return in your own personal timeframe may be unrealistic depending on your portfolio.
When investors lose money in the market it is possible to regain the lost principal given enough time, however, what can never be recovered is the lost “time” between today and retirement. “Time” is extremely finite and the most precious commodity that investors have.
While I disagree with his implication at the bottom that moving in and out of asset classes is the solution (I believe smart buy-and-hold diversification up-front can work even better), I think his points about unrealistic investing expectations and the long periods of slow compound growth obscured by simple long-term averages are very poignant.
FWIW, I wrote a post (http://portfoliocharts.com/2016/02/17/a-laymans-guide-to-returns-uncertainty/) this morning that kinda touches on a similar theme. TL;DR -- the problem many people have with investing too heavily in stocks is the natural disconnect between their understanding of the long-term average and how that translates into what the annual returns actually look like. It's not simply a matter of emotion, but of rational cognitive dissonance caused by the difficulty in truly comprehending uncertainty. Rather than trying to ignore the tradeoffs of volatility, understanding them up front can make you a better and happier investor.
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The market high was 2131, we are now about 14% lower; so for you to get back to even from here the market has to get to 2429 or for the dow it is now 15,973 had would have to get to 20,875 for you to be even. Where do you see that happening this year ? If you see it gaining that much after the decline it has had in 6 weeks, then go ahead; but that’s more optimistic than jp morgan and citigroup advisors.
I do not understand this at all. If I had $10,000 invested in the S&P 500 @ 2131 and it dropped 14%, then returned to 2131, I would still have $10,000. What am I missing here?
You are missing nothing, and plus you would have dividends paid out during that period on top of that!
I think some people mixing things up with regards to percentages lost/gained. If the market drops 14% from it's high (100 * 0.86 = 86), then it has to gain ~16.3% from that low (86 * 1.163 = 100.02) to get back to the previous high. But if you are just dealing in the actual numbers, like the SP500 or the price of VTSAX or whatever, then 100 points regained is equivalent to the 100 points you lost the day before.
The only other thing I can think of is inflation, but it still doesn't account for the difference described.
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Then later on he says that the market went sideways from 1963 to 1983 (presumably making investors sad). Actually, this is his exact statement:
1) If you started investing in 1963, at the end of 1983 you had less money than you started with. (20 Years)
Now, that actually was a really bad time for stocks. However, he's completely full of shit, because he's only look at price and not including dividends. You know, the thing you are supposed to include. If reinvested the dividends, you almost quintipled your money, and you realized a reasonable 8%-ish a year average annual gain. Below average, but not horrific either.
The chart he is referencing in that quote is titled "Real S&P 500 index". The word "real" means it is inflation adjusted.
(http://realinvestmentadvice.com/wp-content/uploads/2016/01/SP500-1963-Present-Real-Log-012416.png)
The fact that the stock market (including dividends) lost inflation-adjusted money for the 20 year period starting in 1963 is backed up by other sources.
http://www.crestmontresearch.com/docs/Stock-Matrix-Tax-Exempt-Real3-11x17.pdf
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http://realinvestmentadvice.com/why-you-should-question-buy-and-hold-advice/
If I were judging from that one article alone, I'd say that guy is the very definition of a shyster.
That is a good article.
That article blows goats.
Ladies and gents: The Internet!
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The fact that the stock market (including dividends) lost inflation-adjusted money for the 20 year period starting in 1963 is backed up by other sources.
http://www.crestmontresearch.com/docs/Stock-Matrix-Tax-Exempt-Real3-11x17.pdf
Hey, two out of three ain't bad. Just for the sake of argument, let's use your numbers and we'll agree you would have lost money in that time frame. However, Lance is still being deceptive. He's clearly talking about the accumulation phase. Right before he introduces those charts, he says:
This leaves most individuals with just 20 to 25 productive work years before retirement age to achieve investment goals.
Here is the problem. There are periods in history, where returns over a 20-year period have been close to zero or even negative.
He's saying the poor slob who don't start saving until only 20 years to retirement won't get much by being in the market by the time he retires. We'll call the poor slob Frodo. Frodo guy started buying stock in 1963. Now it is 1983, he retires and because he's been making monthly contributions or whatever, he has a decent stash, but it is pretty much all principal. He's got nothing in the way of stock returns. Poor bastard.
Lance uses this as a warning. Don't be like Frodo. And for a fee, he can save you from the problem (his word) of winding up like Frodo. Whew! Glad a smart young man like that can help us dodge that bullet! Only the real problem is Lance is completely full of shit. Frodo is a fucking genius.
You see, Frodo was loading up on stocks at probably the best time in history to buy stocks. And just as he retires, the market takes off like a rocket! Frodo sees his portfolio explode with double digit returns year after year after year. Frodo is now in physical danger---from falling off his wallet and breaking an arm. And if he had bought a few bonds along the way, he would have made a bundle there, too. Just for grins, go look at your chart and see what the annual returns were from 1983 when he retires until say, 2003 when presumably he dies at age 85. I know. Pretty amazing.
One thing Lance is too stupid to realize is that you don't want the market to go up during the accumulation phase. You want it to stay low, so you can buy more stocks. Intelligent people don't give a shit about maintaining an specific annual return, they realize there will be volatility. The thing Lance described as a "problem" is actually the best thing that could happen to you. Frodo spent more than a decade buying stocks at a P/E of 10 or less, but the price didn't go up so Lance views that as a failure. You want to avoid that? Really? That's literally insane. Frodo should have been doubling down. Good thing Lance wasn't there to "save" him.
I'm piling on, but there was layer after layer of stupidity in the article. It is like an onion. You peel back one layer of stupid, and there is a stronger, more powerful stupid beneath. I would be very interested to see Lance's clients' actual returns, after he has extracted his fees and commissions from them. Everything about that article screams "Scam Artist" in big, red flashing letters. In a just world, Lance would be in jail instead of being loose on the streets separating good citizens from their hard earned money.
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The fact that the stock market (including dividends) lost inflation-adjusted money for the 20 year period starting in 1963 is backed up by other sources.
http://www.crestmontresearch.com/docs/Stock-Matrix-Tax-Exempt-Real3-11x17.pdf
Hey, two out of three ain't bad. Just for the sake of argument, let's use your numbers and we'll agree you would have lost money in that time frame. However, Lance is still being deceptive. He's clearly talking about the accumulation phase. Right before he introduces those charts, he says:
This leaves most individuals with just 20 to 25 productive work years before retirement age to achieve investment goals.
Here is the problem. There are periods in history, where returns over a 20-year period have been close to zero or even negative.
He's saying the poor slob who don't start saving until only 20 years to retirement won't get much by being in the market by the time he retires. We'll call the poor slob Frodo. Frodo guy started buying stock in 1963. Now it is 1983, he retires and because he's been making monthly contributions or whatever, he has a decent stash, but it is pretty much all principal. He's got nothing in the way of stock returns. Poor bastard.
Lance uses this as a warning. Don't be like Frodo. And for a fee, he can save you from the problem (his word) of winding up like Frodo. Whew! Glad a smart young man like that can help us dodge that bullet! Only the real problem is Lance is completely full of shit. Frodo is a fucking genius.
You see, Frodo was loading up on stocks at probably the best time in history to buy stocks. And just as he retires, the market takes off like a rocket! Frodo sees his portfolio explode with double digit returns year after year after year. Frodo is now in physical danger---from falling off his wallet and breaking an arm. And if he had bought a few bonds along the way, he would have made a bundle there, too. Just for grins, go look at your chart and see what the annual returns were from 1983 when he retires until say, 2003 when presumably he dies at age 85. I know. Pretty amazing.
One thing Lance is too stupid to realize is that you don't want the market to go up during the accumulation phase. You want it to stay low, so you can buy more stocks. Intelligent people don't give a shit about maintaining an specific annual return, they realize there will be volatility. The thing Lance described as a "problem" is actually the best thing that could happen to you. Frodo spent more than a decade buying stocks at a P/E of 10 or less, but the price didn't go up so Lance views that as a failure. You want to avoid that? Really? That's literally insane. Frodo should have been doubling down. Good thing Lance wasn't there to "save" him.
I'm piling on, but there was layer after layer of stupidity in the article. It is like an onion. You peel back one layer of stupid, and there is a stronger, more powerful stupid beneath. I would be very interested to see Lance's clients' actual returns, after he has extracted his fees and commissions from them. Everything about that article screams "Scam Artist" in big, red flashing letters. In a just world, Lance would be in jail instead of being loose on the streets separating good citizens from their hard earned money.
I LOL'd. Good job!
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One thing Lance is too stupid to realize is that you don't want the market to go up during the accumulation phase. You want it to stay low, so you can buy more stocks. Intelligent people don't give a shit about maintaining an specific annual return, they realize there will be volatility. The thing Lance described as a "problem" is actually the best thing that could happen to you. Frodo spent more than a decade buying stocks at a P/E of 10 or less, but the price didn't go up so Lance views that as a failure. You want to avoid that? Really? That's literally insane. Frodo should have been doubling down. Good thing Lance wasn't there to "save" him.
I respectfully disagree. Aside from the fact that most investors are not blithely bullish enough to take losses to their life savings for 20 straight years without changing course, the author's point is that not everyone's goals are more than 20 years out. IMHO, recognizing that everyone is different and planning accordingly is wise, not stupid.
I do completely agree with you that active management is not the solution. But ignoring how your investments should be matched to the timeframe of your goals is not the solution, either. I believe there's a middle ground where people can evaluate a variety of passive portfolios with different returns and levels of volatility and pick one that works for their personal goals. Putting all of your money in the stock market is one valid option, but it is not the only one or even the best one for all people.
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First off, let me just state that the op is apparently full of it. I hate it when people claim to have foreseen things that have already happened. If you really predicted a coming crash, please point to your published and unedited prediction dated before it started, as distinct from all of your other failed predictions of a coming crash that came before that.
Second, the market is up 5% in the past week. At what point does that crystal ball say you should buy back in to the market before it rises again? Avoiding losses by timing your sell doesn't help you unless you can also capture the subsequent gains by timing your buy.
Oh great and powerful market timing prognosticators, ye who have foreseen the future so clearly, please call the bottom for us just like you (retroactively) claim to have called the top.
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I respectfully disagree. Aside from the fact that most investors are not blithely bullish enough to take losses to their life savings for 20 straight years without changing course, the author's point is that not everyone's goals are more than 20 years out. IMHO, recognizing that everyone is different and planning accordingly is wise, not stupid.
But that's not what he said. He specifically used a 20 year time frame as his accumulation period before retirement. That was his chosen investing horizon, which he claimed was problematic. As proof, he then gave the example of the period 1963-83 as a particularly bad time to be buying and holding stocks prior to retirement because of poor returns during that time frame. There are, he said, MAJOR problems with buy and hold (emphasis his).
He is completely, totally, full of shit. The period 1963-83 (again, his example) was one of the best possible times in history to be buying and holding stocks. This is the time frame he chose as an example supporting his thesis that buy and hold doesn't work. Yet buy had hold worked incredibly, fabulously well! Almost unbelievably well. It would have been a monumental mistake not to buy stocks back then. Yet here he is, advocating people make the same epic mistake and pay him for the privilege.
Does that make any sense at all to anyone? I mean, we're talking hindsight here. He's saying people should avoid doing something in the future that that would have made them fabulously rich in the past. Is that advice anything other than ridiculously stupid?
You're right, a lot of people emotionally aren't going to invest in a down or sideways trending market. But it doesn't follow the emotional decision is automatically the right one. We should strive to make decisions based on reason and logic, at least some of the time. A bad decision based on emotion is still a bad decision.
And if you can't make the right decision in hindsight.... Good lord, this guy an idiot.
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I respectfully disagree. Aside from the fact that most investors are not blithely bullish enough to take losses to their life savings for 20 straight years without changing course, the author's point is that not everyone's goals are more than 20 years out. IMHO, recognizing that everyone is different and planning accordingly is wise, not stupid.
But that's not what he said. He specifically used a 20 year time frame as his accumulation period before retirement. That was his chosen investing horizon, which he claimed was problematic. As proof, he then gave the example of the period 1963-83 as a particularly bad time to be buying and holding stocks prior to retirement because of poor returns during that time frame. There are, he said, MAJOR problems with buy and hold (emphasis his).
He is completely, totally, full of shit. The period 1963-83 (again, his example) was one of the best possible times in history to be buying and holding stocks. This is the time frame he chose as an example supporting his thesis that buy and hold doesn't work. Yet buy had hold worked incredibly, fabulously well! Almost unbelievably well. It would have been a monumental mistake not to buy stocks back then. Yet here he is, advocating people make the same epic mistake and pay him for the privilege.
Does that make any sense at all to anyone? I mean, we're talking hindsight here. He's saying people should avoid doing something in the future that that would have made them fabulously rich in the past. Is that advice anything other than ridiculously stupid?
You're right, a lot of people emotionally aren't going to invest in a down or sideways trending market. But it doesn't follow the emotional decision is automatically the right one. We should strive to make decisions based on reason and logic, at least some of the time. A bad decision based on emotion is still a bad decision.
And if you can't make the right decision in hindsight.... Good lord, this guy an idiot.
Telecaster, these are great posts. And it highlights the much bigger problem--buying high and selling low, which is the overwhelming behavioral problem from which people suffer. Buying index funds with each available dollar each paycheck is something that people can handle, and handling it makes people rich.
How many people who believe e.g. Ford is amazing can put every available dollar there every paycheck for 20 years and not give in to the temptation ("smart valuation") that tells them to time the market becuase Ford looks particularly under or over valued? Warren Buffett does it. That's why you know his name. How many can name 10 more Buffetts?
I'm incredibly blessed to have sufficient money, no debt, and a ridiculous overage each paycheck that automatically goes in the market. And I STILL have pangs of regret when the money goes in and the market quickly drops even though I know it's actually good for me because I'm still accumulating. It's only because my contributions are automated and I don't need the money for other purposes that I'm able to stay committed to those dollars going in every couple weeks.
How many people can honestly do that buying individual stocks based on what they believe the valuations are at a given time, and then stick with it for years and years and years no matter what kind of beating they take over a short or medium time horizon? I suspect very few.
The behavioral weakness (buy high sell low) exists because it is the overwhelming tendency of people trying to make non-automated decisions. It doesn't mean that a person can't resist that temptation, but the number of people who believe they're special--special because they value a stock better, special because they can resist the temptation to buy or sell "value" stocks at the wrong time, special because they understand market trends better--is much greater than the number of special people out there.
I never beat the market, but I beat the people not in the market, and the people who continually get the market wrong. And I've made a lot of money as a result.
And missing in all this is the MMM point that--at least at until shortly before FI--the money gained from additional savings often dwarfs the money made in the market from chasing an extra percentage point or two. For the vast majority of people on this forum, the best possible approach is most likely make it, save it, and invest the extra in index funds--paycheck after paycheck after paycheck.
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Telecaster - I am only adding to this thread to thank you for the incredibly concise and simple way you laid out your explanation. You just made a switch go off in my head. Thanks for that.
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First off, let me just state that the op is apparently full of it. I hate it when people claim to have foreseen things that have already happened. If you really predicted a coming crash, please point to your published and unedited prediction dated before it started, as distinct from all of your other failed predictions of a coming crash that came before that.
Second, the market is up 5% in the past week. At what point does that crystal ball say you should buy back in to the market before it rises again? Avoiding losses by timing your sell doesn't help you unless you can also capture the subsequent gains by timing your buy.
Oh great and powerful market timing prognosticators, ye who have foreseen the future so clearly, please call the bottom for us just like you (retroactively) claim to have called the top.
Agreed. Survivorship Bias at it's finest. Failed market-timers tend not to promote their blunders. Maybe we should bump this thread a year or two from now to remind them?
In all the trading forums I've been to, people rarely make calls ahead of time. And when they do, the public embarrassment is palpable, as they inevitably lose.
Seriously, to all the Market-Timers in the thread, to continually debate this is silly. Publicly post your prediction, including a live follow-up to the effect of:
1. "Today I am reducing market exposure, as I predict the market will go down."
or
2. "Today I am increasing market exposure, as I predict the market will go up."
If you believe in your reasoning, then you shouldn't object to the results being publicly verified. Hmm, maybe we should make a new thread specifically for this. A database highlighting the public failures/successes of the forum's market timers. That'd be much more fun to see, than continual debates about someone making a claim that they predicted the future, but only after it came true.
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I see what you're saying and I'm really trying hard to be convinced. I mean, it would make my life so easy to just buy VTI with every spare dollar I have all the time. You would have no argument from me if we weren't at one of the record high points of valuation in the history of the market
Here's an exercise for you. Look at your chart:
(https://i.sli.mg/AJNWR7.gif)
and hide it party behind another window on your computer, so you can only see the graph up to 1985:
(https://i.sli.mg/5QujbH.png)
Now move the window slowly to the right, so you can see what this chart would look like in real-time, with 0 knowledge of what the future years hold.
Now mark down the points on the chart where you think the market was "obviously expensive":
(https://i.sli.mg/LXhMjj.png)
Then mark down the points on the chart where you would've started investing in the market again. Let me guess, you think you would've ended up putting all your money in the market at the bottom of the 2001 and 2008 crashes? Look at them from the perspective of someone who doesn't know the future, and tell me it doesn't look "obviously expensive",
(https://i.sli.mg/iJthsp.png)
(https://i.sli.mg/bd5HzS.png)
Finally, go to IndexView (http://thume.ca/indexView/#), and see if it would've made any difference in your returns. I think you'll be surprised. I just tried this exercise, and ended up losing money. If you're feeling particularly brave, upload your marked-up chart for us all to see. :)
We are still waiting for your marked-up chart Keith123. In the absence of a live-post indicating which dates it became safe/unsafe to add/reduce market exposure, the least you could do is look retroactively at your chart, and tell us when you would've made your determinations. :)
Then we can go to IndexView and confirm, again with the benefit of hindsight, how your moves would've turned out.
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I respectfully disagree. Aside from the fact that most investors are not blithely bullish enough to take losses to their life savings for 20 straight years without changing course, the author's point is that not everyone's goals are more than 20 years out. IMHO, recognizing that everyone is different and planning accordingly is wise, not stupid.
But that's not what he said. He specifically used a 20 year time frame as his accumulation period before retirement. That was his chosen investing horizon, which he claimed was problematic. As proof, he then gave the example of the period 1963-83 as a particularly bad time to be buying and holding stocks prior to retirement because of poor returns during that time frame. There are, he said, MAJOR problems with buy and hold (emphasis his).
He is completely, totally, full of shit. The period 1963-83 (again, his example) was one of the best possible times in history to be buying and holding stocks. This is the time frame he chose as an example supporting his thesis that buy and hold doesn't work. Yet buy had hold worked incredibly, fabulously well! Almost unbelievably well. It would have been a monumental mistake not to buy stocks back then. Yet here he is, advocating people make the same epic mistake and pay him for the privilege.
Does that make any sense at all to anyone? I mean, we're talking hindsight here. He's saying people should avoid doing something in the future that that would have made them fabulously rich in the past. Is that advice anything other than ridiculously stupid?
You're right, a lot of people emotionally aren't going to invest in a down or sideways trending market. But it doesn't follow the emotional decision is automatically the right one. We should strive to make decisions based on reason and logic, at least some of the time. A bad decision based on emotion is still a bad decision.
And if you can't make the right decision in hindsight.... Good lord, this guy an idiot.
Here's what it would've looked like if someone started working in 1963, and invested an inflation-adjusted $1,000 a month for 20 years:
(https://i.sli.mg/PnydKm.png)
(https://i.sli.mg/D1MXjW.png)
I don't see how anyone could live through this and perceive it as "taking losses to their life savings for 20 straight years". I agree, this guy is full of it. Fear-mongering at its worst. I posted a thorough breakdown showing how literally all his predictions from 2012 were laughably wrong...not only did no one respond, I see he's being linked to again. How many times do we have to show in this thread that he's an idiot before people stop taking him seriously?
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You are missing nothing, and plus you would have dividends paid out during that period on top of that!
I think that this was something that should have been in that article. I think it makes a big difference. If you are accumulating I also think a market not performing as well as possible is probably a good thing. You'd expect the market to go up at some point.
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The fact that the stock market (including dividends) lost inflation-adjusted money for the 20 year period starting in 1963 is backed up by other sources.
Tyler - I think yourself and myself both got out of that article that having some form of asset allocation that you can stick with may be better for you than 100% stocks. I didn't get the impression that the article was stating that market timing works but rather to utilise some form of asset allocation.
Still I think dividends and being in the accumulation phase does change the picture a lot.
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I posted a thorough breakdown showing how literally all his predictions from 2012 were laughably wrong...not only did no one respond, I see he's being linked to again. How many times do we have to show in this thread that he's an idiot before people stop taking him seriously?
Just FYI, that post was pretty much end thread for me. I skipped to the last page here to see how it ended up and can't believe you've had to continue the argument. You'd have to have your head literally buried in sand and screaming LA-LA-LA to ignore what you stated so simplistically in your initial response. Thanks and don't stop compounding interestedly.
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You see, Frodo was loading up on stocks at probably the best time in history to buy stocks. And just as he retires, the market takes off like a rocket! Frodo sees his portfolio explode with double digit returns year after year after year. Frodo is now in physical danger---from falling off his wallet and breaking an arm. And if he had bought a few bonds along the way, he would have made a bundle there, too. Just for grins, go look at your chart and see what the annual returns were from 1983 when he retires until say, 2003 when presumably he dies at age 85. I know. Pretty amazing.
One thing Lance is too stupid to realize is that you don't want the market to go up during the accumulation phase. You want it to stay low, so you can buy more stocks. Intelligent people don't give a shit about maintaining an specific annual return, they realize there will be volatility. The thing Lance described as a "problem" is actually the best thing that could happen to you. Frodo spent more than a decade buying stocks at a P/E of 10 or less, but the price didn't go up so Lance views that as a failure. You want to avoid that? Really? That's literally insane. Frodo should have been doubling down. Good thing Lance wasn't there to "save" him.
I'm piling on, but there was layer after layer of stupidity in the article. It is like an onion. You peel back one layer of stupid, and there is a stronger, more powerful stupid beneath. I would be very interested to see Lance's clients' actual returns, after he has extracted his fees and commissions from them. Everything about that article screams "Scam Artist" in big, red flashing letters. In a just world, Lance would be in jail instead of being loose on the streets separating good citizens from their hard earned money.
I think you are 100% correct. Frodo in this scenario was a genius. I think the article was trying to state that if you were accumulating you couldn't afford the losses but that is definitely not true. You could have retired with a lower number because you would have accumulated a lot.
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Telecaster - I am only adding to this thread to thank you for the incredibly concise and simple way you laid out your explanation. You just made a switch go off in my head. Thanks for that.
Just to add to this. Telecaster makes some great points here.
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A lot of this Frodo... thread, seems to focus too much on fixed points. Let's say Frodo starts saving in 1960, and retires in 1980, and roughly invests $1000 a year. So his return is
1000*(cagr of shares 1960-1980)^20+1000*(cagr of 1961-1980)^19+1000*(cagr of 1962-1980)^18+.....
so say there's a big crash in 1970. So the years, 1968,69, and 70 leading into the bubble might take 20 years to recover, or have poor cagrs even if there positive, but 1971 will probably have excellent returns, and 72,73 will probably be good.
So if you pick a point at the top of the boom and see what its like 20 years later, who really cares, people don't invest for just one year.
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If someone believes that the stock market is overvalued, then instead of betting in low-diversified sectors he could just short the market. If someone is sure a bear market is coming, shorting the market is the best investment choice. If you are not ready to do that, then maybe your conviction are not so strong and you should stick to buy&hold.
Everytime you think you are buying expensive stocks, ask yourself if you are ready to go short because "regression to the mean". Kudos to the ones that can walk the talk.
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If someone believes that the stock market is overvalued, then instead of betting in low-diversified sectors he could just short the market. If someone is sure a bear market is coming, shorting the market is the best investment choice. If you are not ready to do that, then maybe your conviction are not so strong and you should stick to buy&hold.
Everytime you think you are buying expensive stocks, ask yourself if you are ready to go short because "regression to the mean". Kudos to the ones that can walk the talk.
You are misunderstanding the point. It's not that the market is going to crash, it's that there are areas of the market that are better to place your money into than others. By not paying attention, the returns of someone who blindly indexes could lag those that invest in value stocks.
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If someone believes that the stock market is overvalued, then instead of betting in low-diversified sectors he could just short the market. If someone is sure a bear market is coming, shorting the market is the best investment choice. If you are not ready to do that, then maybe your conviction are not so strong and you should stick to buy&hold.
Everytime you think you are buying expensive stocks, ask yourself if you are ready to go short because "regression to the mean". Kudos to the ones that can walk the talk.
You are misunderstanding the point. It's not that the market is going to crash, it's that there are areas of the market that are better to place your money into than others. By not paying attention, the returns of someone who blindly indexes could lag those that invest in value stocks.
You have to put this into the proper context. Over your investment life cycle do you really believe that you can consistently beat the market ? This doesn't happen very much at all. Why can you do it when smart educated people don't ?
The index has a lot of advantages. Much less effort and a better chance statistically of beating people who think they can beat the market. Why would you invest against the odds ?
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You are misunderstanding the point. It's not that the market is going to crash, it's that there are areas of the market that are better to place your money into than others. By not paying attention, the returns of someone who blindly indexes could lag those that invest in value stocks.
You're ignoring the fact that "blindly indexing" is a perfectly valid choice. I WANT average returns. I think average returns would be awesome. There opportunity cost associated with everything. To me, the most acceptable opportunity cost is going broad and buying regularly over the course of years. COULD I miss out on above-average gains by making more targeted choices? Yes. Do I care? No, I don't care if the next person made 7% more than me. It doesn't affect my life.
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Telecaster: I actually think you proved the point from the value investor's perspective, not the indexer's. You cleverly pointed out how much of a genius Frodo was for accumulating during an under-valued period ("Frodo spent more than a decade buying stocks at a P/E of 10 or less") and how great the performance was when he stopped investing ("And just as he retires, the market takes off like a rocket! Frodo sees his portfolio explode with double digit returns year after year after year.") This a direct result from buying VALUE, not everything all the time. I'm not quite sure how this helps the "index at all times regardless of valuation" argument. I don't know how so many people seem to miss this correlation. The complete opposite was just as likely to happen in the reverse scenario (accumulate during 20 year overvalued period, then retire and the market shoots down like a rocket and stays there and you are screwed). The market reflects value over time. It can stay crazy high or crazy low for long periods, but in the end, it always reflects earnings performance. If you don't believe this, I don't know how you are investing. You must have some belief that regardless of any fundamentals, stocks just go up because they do. That is called faith. It has no place in investing.
Interest Compounder: I haven't done that chart thing because it doesn't further the discussion. Value is not relative. It is objective. What you're asking me to do with that chart is pick times when I thought the market was relatively overvalued or undervalued based on historical valuations.
Here is my answer for the Shiller PE. I think a Shiller P/E of 15 to 16 is fair right now. A P/E around there implies a return of around 6% to 7% without dividends. This is based on earnings, not some relative measure. You also have to take the interest rate environment into account as well as corporate profit margins and judge within that context. Typically, I think the average investor should shoot for 4% to 5% above the risk free rate. Right now the 10 year T-bond is 1.81%. So I'm looking for a 6% or 7% return right now for stocks, which equates to a Shiller PE of 15 or 16. Since the Shiller PE is 24.4 right now, it is over-valued, especially with sustained high corporate profit margins. If corporate profits revert back to the mean, which they have done for the past 65 years, the Shiller PE would likely be in the mid-30's.
For the Buffet Indicator: This is total market cap divided by GNP. Simply put, it is a measure of the size of the stock market compared to the size of the actual economy. Right now it is at 109%. So...the stock market is 9% bigger than the actual economy. It is overvalued. You are paying 9% over fair value when most smart investors should be looking for a 25% margin of safety aka a Buffett indicator percentage of 75%. Don't believe me, here's what Warren Buffet has to say about it, "If the percentage relationship falls to the 70% or 80% area, buying stocks is likely to work very well for you. If the ratio approaches 200% -- as it did in 1999 and a part of 2000 -- you are playing with fire." So yeah, the world isn't ending, but indexing the whole market is not a great idea right now if you are investing for the long-term.
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You are misunderstanding the point. It's not that the market is going to crash, it's that there are areas of the market that are better to place your money into than others. By not paying attention, the returns of someone who blindly indexes could lag those that invest in value stocks.
You're ignoring the fact that "blindly indexing" is a perfectly valid choice. I WANT average returns. I think average returns would be awesome. There opportunity cost associated with everything. To me, the most acceptable opportunity cost is going broad and buying regularly over the course of years. COULD I miss out on above-average gains by making more targeted choices? Yes. Do I care? No, I don't care if the next person made 7% more than me. It doesn't affect my life.
What if the average return is -5% for the next 10 years? Are you ok with that? It's not a trick question. I'm actually curious if you really are ok with whatever the average return is or if you've got an assumption of what average returns will be.
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I think a Shiller P/E of 15 to 16 is fair right now. A P/E around there implies a return of around 6% to 7% without dividends. This is based on earnings, not some relative measure. You also have to take the interest rate environment into account as well as corporate profit margins and judge within that context. Typically, I think the average investor should shoot for 4% to 5% above the risk free rate. Right now the 10 year T-bond is 1.81%. So I'm looking for a 6% or 7% return right now for stocks, which equates to a Shiller PE of 15 or 16. Since the Shiller PE is 24.4 right now, it is over-valued, especially with sustained high corporate profit margins. If corporate profits revert back to the mean, which they have done for the past 65 years, the Shiller PE would likely be in the mid-30's.
If I was a "revert to the mean" guy, one of my biggest fears would be the extended low interest rate environment, and the prospects that it may remain low for decades, could cause the mean to shift, invalidating the notion that a PE 15/16 is relevant for the next 10 or 20 years, which may be a substantial portion of my remaining lifetime. Trends change, and with only 100-130 years of financial data available, a statistician would tell you a sample set of 40 years is could have a high degree of inaccuracy for claiming "standards", based on what history might look like 200 or 400 years from now. Sure looking at history is as best we can do but I try to remember that before putting the "standards" (like a 7% return or the mean PE) up on a pedestal.
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A critical component in value investing is attempting to make an assessment of future business conditions. According to earnings estimates, the forward P/E is 15.6 for the s&p. Does this play into your decision-making process, or are you always looking backwards?
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I think a Shiller P/E of 15 to 16 is fair right now. A P/E around there implies a return of around 6% to 7% without dividends. This is based on earnings, not some relative measure. You also have to take the interest rate environment into account as well as corporate profit margins and judge within that context. Typically, I think the average investor should shoot for 4% to 5% above the risk free rate. Right now the 10 year T-bond is 1.81%. So I'm looking for a 6% or 7% return right now for stocks, which equates to a Shiller PE of 15 or 16. Since the Shiller PE is 24.4 right now, it is over-valued, especially with sustained high corporate profit margins. If corporate profits revert back to the mean, which they have done for the past 65 years, the Shiller PE would likely be in the mid-30's.
If I was a "revert to the mean" guy, one of my biggest fears would be the extended low interest rate environment, and the prospects that it may remain low for decades, could cause the mean to shift, invalidating the notion that a PE 15/16 is relevant for the next 10 or 20 years, which may be a substantial portion of my remaining lifetime. Trends change, and with only 100-130 years of financial data available, a statistician would tell you a sample set of 40 years is could have a high degree of inaccuracy for claiming "standards", based on what history might look like 200 or 400 years from now. Sure looking at history is as best we can do but I try to remember that before putting the "standards" (like a 7% return or the mean PE) up on a pedestal.
I believe you missed the point almost completely. I am only referring to reversion to the mean for corporate profits. There has been very strong evidence that corporate profits are not sustainable above 6% to 7% over the long term. We are at 10% right now. The reason for this is simple, competition. From Warren Buffet: "In my opinion, you have to be wildly optimistic to believe that corporate profits as a percent of GDP can, for any sustained period, hold much above 6%. One thing keeping the percentage down will be competition, which is alive and well. In addition, there's a public-policy point: If corporate investors, in aggregate, are going to eat an ever-growing portion of the American economic pie, some other group will have to settle for a smaller portion. That would justifiably raise political problems—and in my view a major reslicing of the pie just isn't going to happen."
There is no "standard" PE or return. That is what I am saying. If the risk-free rate (let's use 10yr T-bonds) was 5%, I'd look for 9% to 10% returns (4% to 5% over the risk free rate), which is a Shiller PE of around 9 or 10. If the risk free rate was 0%, I'd try to get 4% to 5% in the market, a Shiller PE of 20. Why would I settle for stock returns that are even close to the risk free rate? I am taking on risk in the market, I wouldn't be if I was buying T-bonds. I want to be compensated for the additional risk by at least 4 to 5 percentage points above the risk free rate. So, for right now, with the risk free rate at 1.8%, I want 6% to 7% return or taking on the additional risk isn't justified. With the Shiller PE currently at 24.4, the expected return of 4.1% just doesn't compensate me enough for the additional risk. If the risk free rate was -1% right now (which would be scary as hell by the way), the market would be fairly valued and I'd be indexing. Does that make sense?
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Tyler - I think yourself and myself both got out of that article that having some form of asset allocation that you can stick with may be better for you than 100% stocks. I didn't get the impression that the article was stating that market timing works but rather to utilise some form of asset allocation.
Still I think dividends and being in the accumulation phase does change the picture a lot.
Indeed.
While I interpret the article in question very differently, I share Telecaster's general prescription for investors. In accumulation, just pick a plan you like, stick with it, and save like crazy. Take all that energy you are wasting trying to time the market, and redirect it towards increasing your savings rate. As Interest Compound demonstrates (nice charts!), your investment returns may pale in comparison to the money you keep piling in.
My personal angle mainly comes down to the part about picking the plan you can stick with. In my experience, different people require different plans.
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Here is my answer for the Shiller PE. I think a Shiller P/E of 15 to 16 is fair right now. A P/E around there implies a return of around 6% to 7% without dividends. This is based on earnings, not some relative measure. You also have to take the interest rate environment into account as well as corporate profit margins and judge within that context. Typically, I think the average investor should shoot for 4% to 5% above the risk free rate. Right now the 10 year T-bond is 1.81%. So I'm looking for a 6% or 7% return right now for stocks, which equates to a Shiller PE of 15 or 16. Since the Shiller PE is 24.4 right now, it is over-valued, especially with sustained high corporate profit margins. If corporate profits revert back to the mean, which they have done for the past 65 years, the Shiller PE would likely be in the mid-30's.
Keith, by your logic, historically, a fair Shiller PE would have been 10 or below, since treasury rates have for the most part been above 5%, and you demand 5% above risk free rate, or 10%. When will you ever find a shiller PE of 10 (besides a brief period in the 70s when risk free rates were 10%+, which means you required a Shiller PE of 7 or less)? Again, you are overly discounting the growth component in stocks. Investing is not a look at a static situation, it's pari-mutuel betting
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Interest Compounder: I haven't done that chart thing because it doesn't further the discussion. Value is not relative. It is objective.
I hope the newbies of the thread can see this example for what it is, and I hope it helps them avoid falling into the same trap.
Looking back over the decades, there has always been a compelling reason to deviate from the index. There has always been someone claiming "This time is different", that indexing won't work anymore for this reason or that. Many of these reasons aren't even on our radar anymore, as history has shown them to be losers...but you wouldn't have known that 50 years ago. I've read it was normal for market-timers of decades past to allocate a substantial amount to Gold. Something like 30-50%.
If you aren't willing to go back a few decades, mentally place yourself in their shoes with the information available at the time, and see how your choices would've played out...things likely won't end well for you.
When someone claims they can bowl a perfect game, I don't argue with them about it. I take them bowling. Seriously, from your perspective, if you think you're smarter than everyone else (the market) why would you waste hours arguing about it? Show us. Actions speak louder than words. I look forward to your future live-post on when it's safe to increase market exposure.
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What if the average return is -5% for the next 10 years? Are you ok with that? It's not a trick question. I'm actually curious if you really are ok with whatever the average return is or if you've got an assumption of what average returns will be.
Yep. Mentally, I consider it "spent" money anyway. I'm not going to be touching it within the next 10 years, and I'll be buying the whole way down (or up).
Note, I'm talking about my retirement accounts here, my taxable has a different purpose and AA.
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Interest Compounder: I haven't done that chart thing because it doesn't further the discussion. Value is not relative. It is objective.
I hope the newbies of the thread can see this example for what it is, and I hope it helps them avoid falling into the same trap.
Looking back over the decades, there has always been a compelling reason to deviate from the index. There has always been someone claiming "This time is different", that indexing won't work anymore for this reason or that. Many of these reasons aren't even on our radar anymore, as history has shown them to be losers...but you wouldn't have known that 50 years ago. I've read it was normal for market-timers of decades past to allocate a substantial amount to Gold. Something like 30-50%.
If you aren't willing to go back a few decades, mentally place yourself in their shoes with the information available at the time, and see how your choices would've played out...things likely won't end well for you.
When someone claims they can bowl a perfect game, I don't argue with them about it. I take them bowling. Seriously, from your perspective, if you think you're smarter than everyone else (the market) why would you waste hours arguing about it? Show us. Actions speak louder than words. I look forward to your future live-post on when it's safe to increase market exposure.
I have no idea how to respond to you. Why you can't see that there are better times to invest than others just baffles me. I'm not smarter than anyone else, I can't predict the future, I don't claim supernatural knowledge of the markets. All I know is that if I want to make a certain return on an investment, I should use math, not faith. The math isn't always reflected in the market at all times, but it does get reflected over the long term. You refuse to even look at the numbers. It's incredible to me. Maybe I'm overly pessimistic, maybe I'm flat out wrong. I have never discounted that possibility. But at least I can explain why I made my decisions. You can't even do that. Your investing process is this: "Buy everything, all the time, because." I mean seriously, would you still be indexing if the s&p was at 10,000? There has to be a point where even you won't keep investing. If there is a point where you stop investing, then you need sit down, because it would then be a matter of where your "over-valued" limit is, not if there is one.
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Telecaster: I actually think you proved the point from the value investor's perspective, not the indexer's. You cleverly pointed out how much of a genius Frodo was for accumulating during an under-valued period ("Frodo spent more than a decade buying stocks at a P/E of 10 or less") and how great the performance was when he stopped investing ("And just as he retires, the market takes off like a rocket! Frodo sees his portfolio explode with double digit returns year after year after year.") This a direct result from buying VALUE, not everything all the time. I'm not quite sure how this helps the "index at all times regardless of valuation" argument. I don't know how so many people seem to miss this correlation. The complete opposite was just as likely to happen in the reverse scenario (accumulate during 20 year overvalued period, then retire and the market shoots down like a rocket and stays there and you are screwed). The market reflects value over time. It can stay crazy high or crazy low for long periods, but in the end, it always reflects earnings performance. If you don't believe this, I don't know how you are investing. You must have some belief that regardless of any fundamentals, stocks just go up because they do. That is called faith. It has no place in investing.
Hold on :) There's a lot there. I'll just response in bullet points to help keep my thoughts organized
1) I've said a bunch of times in these threads a high P/E implies lower than average returns going forward. But by definition your returns will be lower than average part of the time. So I don't see this as particularly worrisome or panic inducing because it is a mathematically unavoidable condition.
2) Interestingly enough, when Frodo started buying stocks, the P/E was around 22, about what it is right now. And the P/E was pretty high for about half the 20 year period he was investing. All he did was blindly index, and he wound up smelling like a rose. He in fact did buy everything all the time.
3) As Cycling Stash helpfully points out, during the accumulation phase the savings rate trumps the rate of return. ROI keeps you FIRE'd. Savings rate gets you there.
4) You've mentioned your plan is to rotate into sectors with more attractive valuations. I've asked you a couple times how that backtested. The real question being, how much do you expect your strategy to improve your returns? If you've answered, then I missed and I apologize. But I'm still curious what the answer is.
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Interest Compounder: I haven't done that chart thing because it doesn't further the discussion. Value is not relative. It is objective.
I hope the newbies of the thread can see this example for what it is, and I hope it helps them avoid falling into the same trap.
Looking back over the decades, there has always been a compelling reason to deviate from the index. There has always been someone claiming "This time is different", that indexing won't work anymore for this reason or that. Many of these reasons aren't even on our radar anymore, as history has shown them to be losers...but you wouldn't have known that 50 years ago. I've read it was normal for market-timers of decades past to allocate a substantial amount to Gold. Something like 30-50%.
If you aren't willing to go back a few decades, mentally place yourself in their shoes with the information available at the time, and see how your choices would've played out...things likely won't end well for you.
When someone claims they can bowl a perfect game, I don't argue with them about it. I take them bowling. Seriously, from your perspective, if you think you're smarter than everyone else (the market) why would you waste hours arguing about it? Show us. Actions speak louder than words. I look forward to your future live-post on when it's safe to increase market exposure.
I have no idea how to respond to you.
The only valid response, is your future live-post on when it's safe to increase market exposure. Then we can independently verify the results. If you could tell us the exact date you deemed it unsafe to increase market exposure, that would be nice too.
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4) You've mentioned your plan is to rotate into sectors with more attractive valuations. I've asked you a couple times how that backtested. The real question being, how much do you expect your strategy to improve your returns? If you've answered, then I missed and I apologize. But I'm still curious what the answer is.
The only valid response, is your future live-post on when it's safe to increase market exposure. Then we can independently verify the results. If you could tell us the exact date you deemed it unsafe to increase market exposure, that would be nice too.
In other words, Keith12, theories about value and whether it's low or high are well and good, but they're irrelevant unless you can produce a concrete, actionable strategy from them. And then prove that said strategy is good, and then explain why (given that it's almost certainly been thought of before) everybody hasn't already jumped on the bandwagon causing the market to adjust to eliminate the alpha.
And that's what in my opinion (and apparently the folks I quoted above's opinions) you've so far failed to do.
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Ok. Let's take a look at the Dogs of the Dow strategy. It's pretty similar to what I am suggesting in terms of investing in the most under-valued sectors. The Dogs of the Dow strategy suggests investing in the 10 most undervalued stocks from the Dow each year. The Small Dogs of the Dow is focused on the 5 most undervalued.
From wikipedia: O'Higgins and others back-tested the strategy as far back as the 1920s and found that investing in the Dogs consistently outperformed the market as a whole. Since that time, the data shows that the Dogs of the Dow as well as the popular variant, the Small Dogs of the Dow, have performed well. For example, for the 20 years from 1992 to 2011, the Dogs of the Dow matched the average annual total return of the Dow (10.8%) and outperformed the S&P 500 (9.6%) as reported by the Dogs of the Dow website located at dogsofthedow.com. The Small Dogs of the Dow, which are the five lowest priced Dogs of the Dow, outperformed both the Dow and S&P 500 with an average annual total return of 12.6%. When each individual year is reviewed it is clear that both the Dogs of the Dow and Small Dogs of the Dow did not outperform each and every year. In fact, the Dogs of the Dow and Small Dogs of the Dow struggled to keep up with the Dow during latter stages of the dot-com boom (1998 and 1999) as well as during the financial crisis (2007-2009). This suggests that an investor would be best served by viewing this as a longer-term strategy by giving this portfolio of stocks time to recover in case of a rare but extreme economic event (e.g., dot-com boom, financial crisis). While most any investor can back test an investment system that performed well over the recent past (data mining), what is unique about the Dogs of the Dow in this regard is that it has been forward tested for over two decades which included multiple booms and busts.
Here's more: http://www.dogsofthedow.com/dogyrs.htm
So, buying the most under-valued stocks leads to market beating returns. Why can this not be translated into buying the most undervalued sectors leads to similar results? Here's a back tested, proven strategy for beating the market. Please tell me again why value doesn't matter.
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The Dogs of the Dow was all the rage back in the day. There were even Dogs of the Dow mutual funds. Here's the problem with the Dogs of the Dow: It worked fine in the backtest, and stopped working after the discovery period. Your own wiki says as much: the Dogs matched the performance of the Dow. One problem was that back then the spreads and commissions were much larger than they are today. After you included the frictional costs, you were actually behind the index. Also, there is the non-trivial aspect of taxes. If you are trading a lot, you are paying capital gains on the increases. Bottom line is that the Dogs of the Dow went from being all the rage to no one using it because it didn't work.
Since then there have been a whole bunch of modifications to the Dogs. Some die out quickly, some sputter along and die out later. People keep trying,and it keeps not working. Motley Fool had a similar Dow strategy called the Foolish Four. TMF flogged it big time, saying basically everyone can beat the market and used it as a centerpiece for their model portfolios. Same thing happened there. Worked great in the backtest, stopped working out of the discovery period. The Foolish Four is now in the dustbin of history and you'll find hardly a mention of it on the TMF site. It is almost like it didn't happen.
It is easy to explain what is happening. If you take a sub-sample of anything (in this case a subsample of the Dow, which is a subsample of the larger market), each sample will vary from the "true" value part of the time, almost by definition. Flip a coin 100 times, and repeat the exercise five times in row. You would expect to get 50 heads and 50 tails each time. But in reality, you will almost never get exactly 50/50. And if you flip it 10,000 times, the odds are good you'll be pretty from from 50/50 at various point. There seems to be outperformance, but it is really just an illusion.
Before we get too far, I've mentioned a few times on the board that I invest in individual stocks. Occasionally, I come across a compelling stock that is a good deal and I buy it. You might call that a value approach or whatever. But I can't it every month, or even necessarily every year. I agree there are special cases when there are good deals to be had, but that's really not a general investing kind of topic.
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You are misunderstanding the point. It's not that the market is going to crash, it's that there are areas of the market that are better to place your money into than others. By not paying attention, the returns of someone who blindly indexes could lag those that invest in value stocks.
You're ignoring the fact that "blindly indexing" is a perfectly valid choice. I WANT average returns. I think average returns would be awesome. There opportunity cost associated with everything. To me, the most acceptable opportunity cost is going broad and buying regularly over the course of years. COULD I miss out on above-average gains by making more targeted choices? Yes. Do I care? No, I don't care if the next person made 7% more than me. It doesn't affect my life.
What if the average return is -5% for the next 10 years? Are you ok with that? It's not a trick question. I'm actually curious if you really are ok with whatever the average return is or if you've got an assumption of what average returns will be.
My take is that I'd be better off in the index than in individual stocks. If the market goes down -5% for the next 10 years I could live with it as well because I would be accumulating more and statistically at some point it should take off.
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Tyler - I think yourself and myself both got out of that article that having some form of asset allocation that you can stick with may be better for you than 100% stocks. I didn't get the impression that the article was stating that market timing works but rather to utilise some form of asset allocation.
Still I think dividends and being in the accumulation phase does change the picture a lot.
Indeed.
While I interpret the article in question very differently, I share Telecaster's general prescription for investors. In accumulation, just pick a plan you like, stick with it, and save like crazy. Take all that energy you are wasting trying to time the market, and redirect it towards increasing your savings rate. As Interest Compound demonstrates (nice charts!), your investment returns may pale in comparison to the money you keep piling in.
My personal angle mainly comes down to the part about picking the plan you can stick with. In my experience, different people require different plans.
I completely agree with investing without worrying about what the market is doing. As you state have a plan and stick to it. I also think forget about trying to cherry pick stocks. For me personally it's not worth the effort.
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Ok. Let's take a look at the Dogs of the Dow strategy. It's pretty similar to what I am suggesting in terms of investing in the most under-valued sectors. The Dogs of the Dow strategy suggests investing in the 10 most undervalued stocks from the Dow each year. The Small Dogs of the Dow is focused on the 5 most undervalued.
From wikipedia: O'Higgins and others back-tested the strategy as far back as the 1920s and found that investing in the Dogs consistently outperformed the market as a whole. Since that time, the data shows that the Dogs of the Dow as well as the popular variant, the Small Dogs of the Dow, have performed well. For example, for the 20 years from 1992 to 2011, the Dogs of the Dow matched the average annual total return of the Dow (10.8%) and outperformed the S&P 500 (9.6%) as reported by the Dogs of the Dow website located at dogsofthedow.com. The Small Dogs of the Dow, which are the five lowest priced Dogs of the Dow, outperformed both the Dow and S&P 500 with an average annual total return of 12.6%. When each individual year is reviewed it is clear that both the Dogs of the Dow and Small Dogs of the Dow did not outperform each and every year. In fact, the Dogs of the Dow and Small Dogs of the Dow struggled to keep up with the Dow during latter stages of the dot-com boom (1998 and 1999) as well as during the financial crisis (2007-2009). This suggests that an investor would be best served by viewing this as a longer-term strategy by giving this portfolio of stocks time to recover in case of a rare but extreme economic event (e.g., dot-com boom, financial crisis). While most any investor can back test an investment system that performed well over the recent past (data mining), what is unique about the Dogs of the Dow in this regard is that it has been forward tested for over two decades which included multiple booms and busts.
Here's more: http://www.dogsofthedow.com/dogyrs.htm
So, buying the most under-valued stocks leads to market beating returns. Why can this not be translated into buying the most undervalued sectors leads to similar results? Here's a back tested, proven strategy for beating the market. Please tell me again why value doesn't matter.
Another example for the newbies of the forum. If you were following Keith123's posts and nodding along, thinking it's a great idea and you should do it too...simply look at this response.
1. I asked him to mark-up his "Buffet Indicator" chart, indicating when he would've reduced/increased market exposure, and he refused.
2. Telecaster asked for data on how his specific "plan to rotate into sectors with more attractive valuations." backtested, and he responds with Dogs of the Dow. A plan he admits doesn't deal with sectors at all.
3. I asked him for information so we can publicly verify his results, and he has shown no indication of providing it.
This is why it's so hard to stay the course. During your investment horizon, you'll see a thousand and one different "Buffet Indicators", "Dogs of the Dow", and fast-talking people who can't/refuse to publicly verify their claims. Just keep your head down, keep investing, and you'll be mathematically guaranteed to beat or match over half of all dollars invested in the market, and with no worry of ever underperforming.
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Interest Compounder: I haven't done that chart thing because it doesn't further the discussion. Value is not relative. It is objective.
I hope the newbies of the thread can see this example for what it is, and I hope it helps them avoid falling into the same trap.
Looking back over the decades, there has always been a compelling reason to deviate from the index. There has always been someone claiming "This time is different", that indexing won't work anymore for this reason or that. Many of these reasons aren't even on our radar anymore, as history has shown them to be losers...but you wouldn't have known that 50 years ago. I've read it was normal for market-timers of decades past to allocate a substantial amount to Gold. Something like 30-50%.
If you aren't willing to go back a few decades, mentally place yourself in their shoes with the information available at the time, and see how your choices would've played out...things likely won't end well for you.
When someone claims they can bowl a perfect game, I don't argue with them about it. I take them bowling. Seriously, from your perspective, if you think you're smarter than everyone else (the market) why would you waste hours arguing about it? Show us. Actions speak louder than words. I look forward to your future live-post on when it's safe to increase market exposure.
I love this thread. I don't get why people think they can pick the market. It's like trying to predict the future.
I also trade foreign currency. Yes I have made one or two great picks but plenty of howlers. I think of it like betting on the horses. It is definitely not something that I would utilise when it comes to managing my retirement funds.
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It worked fine in the backtest, and stopped working after the discovery period.
I'll tell you something about my foreign currency trading. I came up with a couple of systems that really looked profitable. I work in databases and got the data and analysed it and came up with something that would work. I could though never trade off these systems.
Eventually I gave that up and realized that winning via trading requires a lot of different attributes rather than some backtested method. In my opinion it requires picking a position and going big when you get it right and not losing that much when you get it wrong. Lots of guru's state to use a stop loss to minimise your loss - the problem with this is that you lose a lot more.
Maybe this is why I love index investing. I just stupidly invest when I have the money. It doesn't require much thought at all. I have 3 ETF's that I buy and rotate between them. I won't beat the market. I will have losses. I will get average returns. Over time though that money will grow so that I can live off it without working so long as I just buy and hold.
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This is why it's so hard to stay the course. During your investment horizon, you'll see a thousand and one different "Buffet Indicators", "Dogs of the Dow", and fast-talking people who can't/refuse to publicly verify their claims. Just keep your head down, keep investing, and you'll be mathematically guaranteed to beat or match over half of all dollars invested in the market, and with no worry of ever underperforming.
I think that you are better off not even thinking about it. Just be stupid and focus on other areas of your life. I think mr stupid (me) will end up beating people who try and beat the market.
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Ok. Let's take a look at the Dogs of the Dow strategy. It's pretty similar to what I am suggesting in terms of investing in the most under-valued sectors. The Dogs of the Dow strategy suggests investing in the 10 most undervalued stocks from the Dow each year. The Small Dogs of the Dow is focused on the 5 most undervalued.
From wikipedia: O'Higgins and others back-tested the strategy as far back as the 1920s and found that investing in the Dogs consistently outperformed the market as a whole. Since that time, the data shows that the Dogs of the Dow as well as the popular variant, the Small Dogs of the Dow, have performed well. For example, for the 20 years from 1992 to 2011, the Dogs of the Dow matched the average annual total return of the Dow (10.8%) and outperformed the S&P 500 (9.6%) as reported by the Dogs of the Dow website located at dogsofthedow.com. The Small Dogs of the Dow, which are the five lowest priced Dogs of the Dow, outperformed both the Dow and S&P 500 with an average annual total return of 12.6%. When each individual year is reviewed it is clear that both the Dogs of the Dow and Small Dogs of the Dow did not outperform each and every year. In fact, the Dogs of the Dow and Small Dogs of the Dow struggled to keep up with the Dow during latter stages of the dot-com boom (1998 and 1999) as well as during the financial crisis (2007-2009). This suggests that an investor would be best served by viewing this as a longer-term strategy by giving this portfolio of stocks time to recover in case of a rare but extreme economic event (e.g., dot-com boom, financial crisis). While most any investor can back test an investment system that performed well over the recent past (data mining), what is unique about the Dogs of the Dow in this regard is that it has been forward tested for over two decades which included multiple booms and busts.
Here's more: http://www.dogsofthedow.com/dogyrs.htm
So, buying the most under-valued stocks leads to market beating returns. Why can this not be translated into buying the most undervalued sectors leads to similar results? Here's a back tested, proven strategy for beating the market. Please tell me again why value doesn't matter.
Another example for the newbies of the forum. If you were following Keith123's posts and nodding along, thinking it's a great idea and you should do it too...simply look at this response.
1. I asked him to mark-up his "Buffet Indicator" chart, indicating when he would've reduced/increased market exposure, and he refused.
2. Telecaster asked for data on how his specific "plan to rotate into sectors with more attractive valuations." backtested, and he responds with Dogs of the Dow. A plan he admits doesn't deal with sectors at all.
3. I asked him for information so we can publicly verify his results, and he has shown no indication of providing it.
This is why it's so hard to stay the course. During your investment horizon, you'll see a thousand and one different "Buffet Indicators", "Dogs of the Dow", and fast-talking people who can't/refuse to publicly verify their claims. Just keep your head down, keep investing, and you'll be mathematically guaranteed to beat or match over half of all dollars invested in the market, and with no worry of ever underperforming.
You are such a little troll.
1. I answered you. Because you don't like my answer doesn't mean I refused. You're asking me to pick buying periods from 1 chart. Not possible. As I have said, you need to know about interest rate environment, corporate profits, etc. to put it all in context. I'm not going to do something just because you say so.
2. I'm not going to spend hours and hours back-testing something for you. I did, however, provide you with the Dogs of the Dow example, which operates on a similar principle and has proven to beat the market over the long term. Once again, because you don't like it doesn't mean I have avoided the question.
3. What public information are you even referring to? Have I said at some point that I have been doing sector indexing for 10, 20, 30 or 40 years and have results to show you? I'm 32 and have mostly been investing in real estate and doing hard-money lending since 2009 which has been very rewarding. Let me guess, you want my tax returns too?
I started thinking about indexing because my available funds for investing right now are around 200k because those hard money loans are coming back and there are very few requests for new loans. I'm not about to blindly throw 200k at the market index that seems very likely to give low single digit returns. I've been clocking 12% annually with 2% on origination on those loans. You can keep investing for the low single digit returns. I'll keep looking or waiting for better opportunities, like the energy sector right now where I have bought 9k of VDE in the past 2 weeks and will very likely be buying much more over the coming months. I'll be more than glad to touch base with you in 3 to 5 years and let you know how that went. I'm pretty confident VDE will beat the market over that period. If I'm wrong, I'm wrong though. Since Warren Buffett and David Tepper are also buying in the energy industry right now, I have a feeling my line of thinking has some merit. The companies they are buying also happen to be in the top ten holdings of VDE.
Your arrogance and condescension is really irritating.
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You are such a little troll.
IC is not trolling you.
In Internet slang, a troll (/ˈtroʊl/, /ˈtrɒl/) is a person who sows discord on the Internet by starting arguments or upsetting people, by posting inflammatory,[1] extraneous, or off-topic messages in an online community (such as a newsgroup, forum, chat room, or blog) with the deliberate intent of provoking readers into an emotional response[2] or of otherwise disrupting normal on-topic discussion,[3] often for their own amusement.
His comments are on point and reasonable.
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You have to put this into the proper context. Over your investment life cycle do you really believe that you can consistently beat the market ? This doesn't happen very much at all. Why can you do it when smart educated people don't ?
The index has a lot of advantages. Much less effort and a better chance statistically of beating people who think they can beat the market. Why would you invest against the odds ?
Absolutely. Indexing has numerous advantages. It's a very simple system that provides average results. An excellent, safe recommendation for average investors.
However, one does not need to 'consistently beat the market' to have better returns. You can match the market in bad years and beat it in good years (or vice versa, depending upon your definitions of those terms), giving your annualized returns a significant boost.
Tyler - I think yourself and myself both got out of that article that having some form of asset allocation that you can stick with may be better for you than 100% stocks. I didn't get the impression that the article was stating that market timing works but rather to utilise some form of asset allocation.
Still I think dividends and being in the accumulation phase does change the picture a lot.
Indeed.
While I interpret the article in question very differently, I share Telecaster's general prescription for investors. In accumulation, just pick a plan you like, stick with it, and save like crazy. Take all that energy you are wasting trying to time the market, and redirect it towards increasing your savings rate. As Interest Compound demonstrates (nice charts!), your investment returns may pale in comparison to the money you keep piling in.
My personal angle mainly comes down to the part about picking the plan you can stick with. In my experience, different people require different plans.
I completely agree with investing without worrying about what the market is doing. As you state have a plan and stick to it. I also think forget about trying to cherry pick stocks. For me personally it's not worth the effort.
Sticking to the plan is another very important piece of any investing strategy. I totally agree with everyone who suggests that.
As it was pointed out - investing takes work. Not everyone is willing or able to search for values in the market, take the risk or to properly deal with the consequences of their choices. For these people, indexing is a fine choice. I am merely supporting the assertions that indexing, while a fine strategy for many, is not the end-all, be-all of investing.
Obviously I am not advocating any particular "strategy" or mathematical model; my risks, timeline, choices and results were my own. I've bet big and won big; I would never recommend it to anyone who was not willing or able to do the research, run the numbers and stick with their plan. Since retiring I use index funds as part of my asset allocation for all the reasons mentioned; they're simple, they are very likely continue to provide acceptable growth and I can see few areas in the market that are values to buy into.
As an aside, for further research for interested parties, I have found Wieners/DeMaso's 'Model Portfolio' an interesting blend of active/passive investing strategies - and with a 25 year track record of +2% over the market benchmarks. Also, cuz Vanguard :D
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Absolutely. Indexing has numerous advantages. It's a very simple system that provides average results. An excellent, safe recommendation for average investors.
I take issue with your adjectives. Yes, indexing allows you to acheive average returns. However, over the long run, average returns equal WAY above average results because you're never going to have a below average year. You're going to be in the 80-90th percentile with practically zero effort. This is thanks to those that think that they're better than "average investors" but somehow achieve lower returns.
However, one does not need to 'consistently beat the market' to have better returns. You can match the market in bad years and beat it in good years (or vice versa, depending upon your definitions of those terms), giving your annualized returns a significant boost.
Why not just beat the market every year then? I find it hard to belive that anyone can limit their low end return to the average return.
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Absolutely. Indexing has numerous advantages. It's a very simple system that provides average results. An excellent, safe recommendation for average investors.
I take issue with your adjectives. Yes, indexing allows you to acheive average returns. However, over the long run, average returns equal WAY above average results because you're never going to have a below average year. You're going to be in the 80-90th percentile with practically zero effort. This is thanks to those that think that they're better than "average investors" but somehow achieve lower returns.
However, one does not need to 'consistently beat the market' to have better returns. You can match the market in bad years and beat it in good years (or vice versa, depending upon your definitions of those terms), giving your annualized returns a significant boost.
Why not just beat the market every year then? I find it hard to belive that anyone can limit their low end return to the average return.
You are by all means free to take issue. I would simply argue that indexing gives, by definition, average returns. It's the average of the market. Perhaps you meant to say you take issue with the connotation of 'average'?
My example was not to be an all-encompassing example of how to have higher than average annualized returns. There are an infinite number of possible mathematical examples that would allow an investor to have greater annualized returns than their market benchmark. I did not mean to imply otherwise, and am sorry if I was vague.
If one wanted to absolutely limit the lower bounds of their returns to the market average, they could always index? (Though I know this may not be what you meant.)
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You are by all means free to take issue. I would simply argue that indexing gives, by definition, average returns. It's the average of the market. Perhaps you meant to say you take issue with the connotation of 'average'?
I would rephrase this a little. Indexing should lead to returns that correlate to market returns.
There are an infinite number of possible mathematical examples that would allow an investor to have greater annualized returns than their market benchmark. I did not mean to imply otherwise, and am sorry if I was vague.
If one wanted to absolutely limit the lower bounds of their returns to the market average, they could always index? (Though I know this may not be what you meant.)
My take of what you are stating is that market returns are average. I don't believe that this is the case. My take is that market returns are actually above average. The average investor that tries and beats the market doesn't beat the market but receives below average returns.
So I would rephrase your points to something like this:-
1. If you want to be an above average investor utilise indexing because you will match the market returns of your asset allocation.
2. If you are looking for below average returns you can try and beat the market. Statistically people that try and beat the market typically underperform the benchmark market return.
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For the Buffet Indicator: This is total market cap divided by GNP. Simply put, it is a measure of the size of the stock market compared to the size of the actual economy. Right now it is at 109%. So...the stock market is 9% bigger than the actual economy. It is overvalued. You are paying 9% over fair value when most smart investors should be looking for a 25% margin of safety aka a Buffett indicator percentage of 75%.
This is the danger of looking at a single number without context. Here is a fuller description of the Buffet indicator.
Numerator: The market capitalization of all companies listed on US stock exchanges
Denominator: The value of all goods and services produced in the US during one year
There is no particular reason these two numbers should correlate closely over long periods of time. Companies listed on US stock exchanges do not produce all of their goods and services within the US, and this has become increasingly true as globalization has continued. Accordingly, one would expect the Buffet indicator for the US to rise over time. For one data point, consider Alibaba's IPO in 2014. There's a company listed on the NYSE with a market cap of over $150 billion that does nearly all of its business outside the US.
The general principle can also be shown by imagining a Buffet indicator for the United Kingdom. I found a market cap of about $6 trillion for the London Stock Exchange as of 2014, and a GDP for the UK of $3 trillion as of 2014. That means the Buffet indicator was at 200%, 100% more than the value of the entire economy! Of course, stocks listed on the LSE might have been grossly overvalued, but it also seems likely that many of these companies are not tied solely to the UK economy.
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Keith. I like your thinking but find playing with sectors dangerous. The more variables that present themselves in a problem, the more likely you are to miss something. Its hard to predict the movement of 30 holdings but much easier to tell if one company will have good business opportunities.
I would rather sit in one Procter & Gamble than five Teslas. I'm pretty sure I will be using deodorant this year. I am not sure if people will buy enough electric cars in this gas environment to justify Tesla's multiple.
The issue with finding something that works is people will want you to prove it. If you indeed prove it they will use it until they break it. I think this is how most things become wrongly valued. People are sticking to what they know works and repeating it until they get burned. Perhaps several times.
Momentum works chase it--- oh it stopped
Hey value is working chase it--- oh they are all fairly priced
Dividends work chase it--- oh they are all yielding too low because they are over bought
Hey growth is working chase it--- oh their multiples are nuts and they are losing 30% in a day
Repeat forever
I think you have to be willing to adapt. That it is really difficult to prove how that would work. Therefore take heart because people will always chase what they know. Average into a index because it works. Meanwhile I am looking for something I want to own. I cant prove it will work but am sure it will.
Real money:
Got one position up 21%
Another up 5%
Another up 17%
Another up 15%
and one down 25%
Maybe its luck in a market down 10%. What are the odds of me picking that out of 500 holdings averaging down? The Oracle has always been one to secretly acquire. If you have a system-- keep it. The proof will be in your account.
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I'm 32 and have mostly been investing in real estate and doing hard-money lending since 2009 which has been very rewarding.
Every investing strategy has been successful since 2009. Very hard to lose money during that time period, so your apparent success is not surprising or impressive.
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Interest Compounder: I haven't done that chart thing because it doesn't further the discussion. Value is not relative. It is objective.
I hope the newbies of the thread can see this example for what it is, and I hope it helps them avoid falling into the same trap.
Looking back over the decades, there has always been a compelling reason to deviate from the index. There has always been someone claiming "This time is different", that indexing won't work anymore for this reason or that. Many of these reasons aren't even on our radar anymore, as history has shown them to be losers...but you wouldn't have known that 50 years ago. I've read it was normal for market-timers of decades past to allocate a substantial amount to Gold. Something like 30-50%.
If you aren't willing to go back a few decades, mentally place yourself in their shoes with the information available at the time, and see how your choices would've played out...things likely won't end well for you.
When someone claims they can bowl a perfect game, I don't argue with them about it. I take them bowling. Seriously, from your perspective, if you think you're smarter than everyone else (the market) why would you waste hours arguing about it? Show us. Actions speak louder than words. I look forward to your future live-post on when it's safe to increase market exposure.
I have no idea how to respond to you. Why you can't see that there are better times to invest than others just baffles me.
That's not at all what he's saying.
Of course there are better times than others to invest. It's just that it's really hard/nearly impossible to consistently pick those times accurately.
I'm not smarter than anyone else, I can't predict the future, I don't claim supernatural knowledge of the markets. All I know is that if I want to make a certain return on an investment, I should use math, not faith. The math isn't always reflected in the market at all times, but it does get reflected over the long term.
This is why several people have asked to see your math. It's difficult to take your claims seriously when you're unwilling to provide the mathematical method that you're using to beat everyone else and predict what the market will do.
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So much I want to say in this thread, I could literally write 10 pages worth. I'll keep it to myself. The active folks on this thread don't want to hear it, and the index folks don't want to hear it either. So instead of making everyone mad, I'll just post this.
It's a very simple explanation of why the average weighted returns of all active investors minus costs will always trail the average return of passive investors.
http://web.stanford.edu/~wfsharpe/art/active/active.htm (http://web.stanford.edu/~wfsharpe/art/active/active.htm)
One thing to note. Passive index investing with proper diversification will net you the average market return (not above market, but average). The average market return will be equal to the weighted average return of all active investors (not counting costs). This is important. It means that there is a group of active investors that beat the market and that there are a group of active investors that under perform the market. The weighted average return is equivalent to the market return which is equivalent to a passive investors return. The median return of all active investors is often below the market return.
Also, on the valuation metrics a few thoughts so everyone doesn't lose sleep at night.
1. Baltic Dry Index includes fuel costs. Oil has had a historic plunge, so it's not surprising to me that the Baltic Dry has also had a historic plunge
2. Shiller's CAPE does NOT account for accounting changes in recent years, specifically the treatment of goodwill on balance sheets. Because of this, today's earnings are counted at .85-.9 cents for every dollar that USED to be counted as earnings in a GAAP compliant statement. This will force the CAPE to be higher than historically counted by quite a lot
3. Buffet's indicator doesn't take into account foreign stocks market cap listed on our exchanges contribution to GDP AND it also doesn't take into account the prevailing interest rate environment. We are at historic interest rates which should cause a rise in the market compared to GDP
For the 3 points above, I have no idea what that means for the market moving forward, just some observations.
One final note - after buffet gave his speech at Sun Valley in 1999 he did not exit the market. He stayed in and continued investing. He simply lowered his expectations of his returns for the next few years.
Andy
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I think you have to be willing to adapt. That it is really difficult to prove how that
Real money:
Got one position up 21%
Another up 5%
Another up 17%
Another up 15%
and one down 25%
Maybe its luck in a market down 10%. What are the odds of me picking that out of 500 holdings averaging down? The Oracle has always been one to secretly acquire. If you have a system-- keep it. The proof will be in your account.
No offence, but given your previous lol ford thread it became apparent to me that you are investing very small sums of money. I don't like the way you pretend to be a sophisticated investor.
How about you put the nominal returns next to those percentages? I'm not trying to put you down for not having large sums invested, but please stop acting like you are some kind of legend.
The most dangerous phase in the learning curve is "you don't know what you don't know"
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Thank you. My method is simple. And you all say I can't beat the index. Well I have an index, have a fund, watch the index, and my picks do beat the index and my funds.
I never claimed to be sophisticated. In fact, I have repeatedly said "A JANITOR MADE 8.5 MILLION HAND PICKING STOCKS THAT HE HELD"
It usually comes down to "what is your education" or "how much do you invest" or "show me your method and mathematically prove it". This is the elitist crap I hate with a passion.
Im not going to prove anything. I have sold Ford to buy one. We are talking in thousands. If that is little for you great.
You don't have to be sophisticated is my point. Thats a bunch of smoke and mirrors from people that want to charge you for what a janitor can do himself. Mr Ronald Read is worth ten Bernsteins. I bet on the Davids. You keep betting Goliath
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"show me your method and mathematically prove it". This is the elitist crap I hate with a passion.
Im not going to prove anything.
How, exactly, is it "elitist" to ask you to substantiate extraordinary claims?
I could say "I'm an investment genius who has made ten billion dollars" but if I follow that up with "why no, I don't have any proof at all" then people probably aren't going to believe me either.
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"show me your method and mathematically prove it". This is the elitist crap I hate with a passion.
Im not going to prove anything.
How, exactly, is it "elitist" to ask you to substantiate extraordinary claims?
I could say "I'm an investment genius who has made ten billion dollars" but if I follow that up with "why no, I don't have any proof at all" then people probably aren't going to believe me either.
I haven't made ten billion. I quoted one example of someone who made 8.5 million. His method isn't hard to replicate "buy what you know that pays a dividend and hold it forever." He had 8.5 million despite holding Lehmon Brothers and Bear Sterns. He started in his 30's throwing 30 grand into a utility company I believe and went from there. 85 positions in total with approximately 20k a month in dividends.
Ultimately do what you are comfortable with. If you can't take a 50% hit without crying then stay in an index. That is the best general advice. Just like when the general public asks what they should do for self protection the response should be "buy mace"
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His method isn't hard to replicate "buy what you know that pays a dividend and hold it forever."
This.
Is not.
A method.
"Buy what you know that pays a dividend and hold it forever" is a meaningless turn of phrase. Methods are mechanisms and metrics which can be objectively evaluated and tested. They are actionable. I and countless others mostly gloss over everything you say (except when you start dishing out actively harmful advice, which is often) precisely because you dispense unquantifiable, inarticulable bullshit.
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I quoted one example of someone who made 8.5 million. His method isn't hard to replicate "buy what you know that pays a dividend and hold it forever." He had 8.5 million despite holding Lehmon Brothers and Bear Sterns. He started in his 30's throwing 30 grand into a utility company I believe and went from there. 85 positions in total with approximately 20k a month in dividends.
Just did some quick math out of curiosity.
I'm not saying Ronald Read's story isn't cool - but if you started in your 30's with a 30K lump sum and could have thrown it into an index fund for the last 62 years (the amount of time he invested) you would have only had to invest an additional $500 a month to wind up with roughly 8.5 million.
(assuming dividends reinvested, and a 6.8% average rate of return)
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His method isn't hard to replicate "buy what you know that pays a dividend and hold it forever."
This.
Is not.
A method.
Exactly.
Neither
Is
Just
Buy
the index
I quoted one example of someone who made 8.5 million. His method isn't hard to replicate "buy what you know that pays a dividend and hold it forever." He had 8.5 million despite holding Lehmon Brothers and Bear Sterns. He started in his 30's throwing 30 grand into a utility company I believe and went from there. 85 positions in total with approximately 20k a month in dividends.
Just did some quick math out of curiosity.
I'm not saying Ronald Read's story isn't cool - but if you started in your 30's with a 30K lump sum and could have thrown it into an index fund for the last 62 years (the amount of time he invested) you would have only had to invest an additional $500 a month to wind up with roughly 8.5 million.
(assuming dividends reinvested, and a 6.8% average rate of return)
That is a lot of money for a janitor that never made more the $14 an hour at JC Penny.
Maybe he did invest $500 a month. Im going to guess that will Murphy involved-- he invested less than that. That is a guess. Not exactly science. Although all his dividends were set to pay out in cash and he frequently used direct stock purchases.
Warren Buffett is a financial genius that is a lot more complicated, but I was just showing you that you don't have to be Warren. You can be a janitor from JC Penny's and never sell a thing. He wasn't even a dividend growth investor. He bought what he knew but it had to pay a dividend. He didn't care if they cut the dividend. He didn't care if the journal said his stock was going to zero. He held it.
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That is a lot of money for a janitor that never made more the $14 an hour at JC Penny.
Maybe he did invest $500 a month. Im going to guess that will Murphy involved-- he invested less than that. That is a guess. Not exactly science. Although all his dividends were set to pay out in cash and he frequently used direct stock purchases.
You're probably right that he didn't invest $500 a month.
I guess my point was that if you were in a position to invest that much (and considering many have car payments that are that much, I don't think its out of the question) you can reach his 8.5 million mark with much less risk. Though this does highlight the fact that without knowing how much he actually invested, it is difficult to know how much better he did compared to a basic index strategy.
Also, not to nitpick, but from what I've been able to find about him he reinvested all dividends.
He also bought a variety of sectors, in order to diversify. He also bought and held for the long term.
Looking at it in the broad strokes, his 'method' doesn't seem all that different from indexing - except for the fact that he took on more risk and was lucky enough to wind up on top. I'm not saying it's not possible, I'm just saying there is a reason he made the news.
Of course, in the end, I guess no one writes articles about the people who don't beat the market after 62 years of investing.
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That example sounds great but its one example. You expect that to happen. Will it occur again - maybe but maybe not.
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Maybe he did invest $500 a month. Im going to guess that will Murphy involved-- he invested less than that. That is a guess. Not exactly science. Although all his dividends were set to pay out in cash and he frequently used direct stock purchases.
Even if he did $300/month he should have been able to amass $8MM over that time period, just with normal market returns.
The extraordinary part is that very few people have the discipline to do it. His investment returns were pretty normal.
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Of course, in the end, I guess no one writes articles about the people who don't beat the market after 62 years of investing.
Yup. This is why anecdotes are not particularly strong evidence of anything.
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Yup. This is why anecdotes are not particularly strong evidence of anything.
Reminds me of one of my favorite sayings, 'the plural of anecdote is not data.'
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except for the fact that he took on more risk and was lucky enough to wind up on top.
Please separate the vehicle (an index) from the actual process. Just because you're buying an index versus someone who is buying a diversified basket of stocks, doesn't mean your index is less risky. Your current index is full of junk like Facebook, Amazon, and Netflix as top holdings (not to mention shipbuilders, aluminum, paper, and steel companies). Depending on the basket of stocks you are comparing it to, it's MORE risky, not less. In 2008, it held the same Lehman/Bear Stearns stocks Ronald Reed did. In 2001, it was full of startup tech companies with no real earnings. You get the idea.
When you buy an index, you're buying the diversified basket of stocks someone else picked, don't delude yourself into thinking that a total market index is "safer" than the basket of stocks Ronald Reed held just because you hold a higher number of stocks. The diversification benefit goes away after 20 to 30 stocks (the studies that say 100 stocks isn't enough is choosing haphazardly from the total universe of stocks, which includes stocks that are making no money with debt higher than liquid assets, whereas the earlier diversification studies put stringent criteria related to earnings and capital structure in place for its studies, so you should be able to see logically why later studies concluded there wasn't a limit to how diversified you could be. If you're diversified by holding a catalog of crap, you're still going to experience crap)
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Please separate the vehicle (an index) from the actual process. Just because you're buying an index versus someone who is buying a diversified basket of stocks, doesn't mean your index is less risky.
Fair enough, I should have been more clear.
My point was that by choosing individual stocks as opposed to investing in a total market index fund you run the risk of underperforming the market (while also having the potential benefit of 'beating' the total market).
As with many people here, I don't view the potential benefit of beating the market worth the potential risk of underperforming. That is a decision that we each make for ourselves.
There is risk in any investment (obviously) - I suppose what I was trying to say was that once we accept there is risk in the market, the least risky move seems to be to aim for average market returns over a long term (which is most easily done by indexing). We give up the hope of beating the market... and also the fear of underperforming it. But we are all still subject to the swings of the market as a whole, so yes, there is obviously still risk involved.
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Threads like this can really be dangerous. For people looking at investing in the market, consider the following:
First--you (average you) will not beat the market. You are not special.
Second--if you (average you) try to beat the market by timing the market, you will most likely lose to the market.
Third--if you make consistent investments in the market over the long term, you will most likely get rich. 7% annual growth with regular contributions over 20-30 years creates big numbers.
Fourth--if you are tempted to follow any advice here other than just invest in the market, ask yourself how you know something special that a trillion dollars in New York doesn't know. All the money on Wall Street is trying to beat the market. If you know it, so do they.
Fifth--save more (by spending less). That's where your "extra" growth is going to come from. And it ultimately reduces the amount you need to retire.
This forum is great for giving people a different way to look at money and early retirement. But some of the ideas put forth are really risky.
P.S. Market means Vanguard Total Market Index Fund, or close enough for average you's purpose. That captures a major part of the economic engine of the world. The top 500 US companies do business and bring in revenue from all over. Adding other funds and asset allocations are probably a fine idea, but overthinking it is a mistake. You're sure Facebook is the company that's crazy overvalued and makes the index not ideal? What do you know that New York doesn't? Don't worry about crap like that. Buy the market, keep buying the market, and sit back and get rich while other people post about how to beat the market.
Okay, off my soap box. Carry on.
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Buy the market, keep buying the market, and sit back and get rich while other people post about how to beat the market.
While other people post about how to beat the market, and fail.
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I think much of this discussion relies on the unspoken goal that each investor might have.
Those attempting to maximize returns and 'beat' the market seem to aim to to maximize wealth.
Don't get me wrong, I like money as much as anyone, but the truth is that I don't need 8.5 million in order to FIRE (and the potential benefit of gaining more than I need isn't worth increasing my risk at underperforming).
I think William Bernstein summed it up nicely when he wrote: "The goal is not to maximize the chances of getting rich, but rather to simultaneously allow for a comfortable retirement and to minimize the odds of dying poor."
Granted, everyone's goals may not be the same, and I think that may be where much of the disconnect in discussion comes from.
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I think much of this discussion relies on the unspoken goal that each investor might have.
Those attempting to maximize returns and 'beat' the market seem to aim to to maximize wealth.
People also really like to feel like they are a special unicorn. Even if that means they actually achieve a less than average result.
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Those attempting to maximize returns and 'beat' the market seem to aim to to maximize wealth.
I don't see it like this. I think we all want to maximise wealth. Some like myself don't want to be rich but want to FIRE as quickly as possible. Others probably have different goals.
My point with all of this is that trying to maximise wealth by trying to beat the market will typically lead to below average returns. That is why trying to bet on the market (the index) typically leads to beating the average investor. So index investing = market returns = above average investor. Trying to beat the market = more active investment = below market returns = average or below average investor.
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Threads like this can really be dangerous. For people looking at investing in the market, consider the following:
First--you (average you) will not beat the market. You are not special.
Second--if you (average you) try to beat the market by timing the market, you will most likely lose to the market.
People love to make absolute statements, but we don't have divine knowledge. I'd agree with your points if you changed First to
First - you will almost certainly not beat the market. You are not special.
People do, do it, like Buffett, over long enough periods (12 years) to be significant. Its not impossible, just, very, very hard, and as per your second point, most who try, fail.
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I don't think it's true that someone who doesn't habitually invest in indexes is necessarily trying to "time" the market. Granted, some of the people in this thread have demonstrated that some of their techniques, such as value investing or searching for down sectors, are tantamount to timing. However, my own personal philosophy is more geared towards capital preservation. Now, some may see that as having a low risk tolerance, but I don't agree. I just like my risks to have more upside than downside. At times I have been heavily invested in the market, while other times, like today, I have very little exposure.
So, am I trying to "time" the market? Indeed I do believe the market is expensive right now, and I am of the belief that the Fed has dramatically inflated equities with their policies in the past several years, and that it is unsustainable. If I am wrong, I will miss out on some nice gains that you perpetual index investors will grab. But if I'm right, I will avoid taking a big hit to my savings, and will have a ton of dry powder to invest after the carnage.
So sure, anyone is welcome to critique my strategy, but in no way do I think I'm going the "beat" the market. Rather, I accept the risk that I will miss some gains, with the main goal of avoiding loss. I do not think I am smarter than anyone on Wall Street - however: I do not believe the folks on Wall Street are playing the same game that the average investor is playing. Nor will I get a bail out, like they will, if things go sour. I just don't believe in following the herd, especially if the herd does not have my best interests in mind.
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I don't think it's true that someone who doesn't habitually invest in indexes is necessarily trying to "time" the market. Granted, some of the people in this thread have demonstrated that some of their techniques, such as value investing or searching for down sectors, are tantamount to timing. However, my own personal philosophy is more geared towards capital preservation. Now, some may see that as having a low risk tolerance, but I don't agree. I just like my risks to have more upside than downside. At times I have been heavily invested in the market, while other times, like today, I have very little exposure.
So, am I trying to "time" the market? Indeed I do believe the market is expensive right now, and I am of the belief that the Fed has dramatically inflated equities with their policies in the past several years, and that it is unsustainable. If I am wrong, I will miss out on some nice gains that you perpetual index investors will grab. But if I'm right, I will avoid taking a big hit to my savings, and will have a ton of dry powder to invest after the carnage.
So sure, anyone is welcome to critique my strategy, but in no way do I think I'm going the "beat" the market. Rather, I accept the risk that I will miss some gains, with the main goal of avoiding loss. I do not think I am smarter than anyone on Wall Street - however: I do not believe the folks on Wall Street are playing the same game that the average investor is playing. Nor will I get a bail out, like they will, if things go sour. I just don't believe in following the herd, especially if the herd does not have my best interests in mind.
I understand where you are coming from but how do you do it and how successful will it be ? I think all you can do is basically just get a feeling that the market is overvalued and then amend your holdings. You may get it right but you may also get it wrong. It may also have tax implications. You could state that you are using indicators but those indicators aren't really forward looking.
It's easy to state what you are stating. It's harder to turn that into an actionable plan that works over the long term.
Meanwhile if you just keep putting money into indexes as per your asset allocation over time you can be pretty confident that you will more than likely beat most investors doing what you are doing.
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I understand where you are coming from but how do you do it and how successful will it be ? I think all you can do is basically just get a feeling that the market is overvalued and then amend your holdings. You may get it right but you may also get it wrong. It may also have tax implications. You could state that you are using indicators but those indicators aren't really forward looking.
It's easy to state what you are stating. It's harder to turn that into an actionable plan that works over the long term.
Meanwhile if you just keep putting money into indexes as per your asset allocation over time you can be pretty confident that you will more than likely beat most investors doing what you are doing.
I should clarify: I'm not talking about short-term decisions like buying dips or anything like that. I've made very few moves in and out of the market over the last 20 years, with no intentions of quickly reversing them. I might be out of the market for many years to come, and I'm fine with that.
And actually, that's one advantage I (and all of us) have over the fund managers who don't beat the market. Yes, they are smarter than I am. But they have to answer to their bosses, and their investors. I do not. A fund manager cannot do what I'm doing. He cannot write quarterly letters saying "all your money is in cash, and has been for years, and may continue to be indefinitely. Peace out." But I can. People in this thread have said how important it is to stick to your plan, but I wonder how many fund managers or Wall Street traders really have that luxury.
I don't use indicators at all, for the reason you state among others. I'm just going on the notion that seven years of zero percent interest rates, trillions of dollars of QE, and a bull market that has tripled the low point, might possibly point to a market that is inflated well beyond where it should be, and that such a thing is unsustainable. I think our economy is stagnant at best and the world economy sucks. So, I don't care what the indicators say; I just don't see equities soaring under these conditions. I could certainly be wrong. But I don't see my decision to exit the market being "dangerous" as was mentioned earlier. To me, missing out on some returns isn't real danger. Danger is seeing your life savings getting demolished.
As far as buy-and-hold "beating most investors", I'm not trying to beat anyone. If other people make better returns than I do, that's great for them. There will always be people richer, and poorer, than I am. But I would find no solace during a market crash that hey, everyone else is going down with me, and nobody is beating me. I just don't want to go down, period.
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Right now my 401k is 100% sitting in cash waiting for a big correction. I don't call that market timing. I'm calling it oh crap there's a bunch of dark clouds and I'm hiding in my house sleeping soundly under my blanket to the tune of that hard rain outside. I might even watch some cool Netflix movies while waiting for the storm to pass.
My other personal savings are siphoning into a trading account. I'm taking 1-5% each position while learning everyday how to ju jit su the market. I may get punched in the face here and there, but as long as you play with high probability and have defined risk/hedge your positions. You should be able to slaughter the market. Easy. The key here is to educate yourself. Don't let the market determine your returns because investing/indexing is only a long position/ up directional play. That means you are at the mercy of a bear with no way of ptofitting from it because your money is stuck. How does that make much sense is beyond me. My opinion is, take control of your money, you can manage it yourself people. Learn, educate yourself, deploy your capital efficiently. Beating the market is easier than you think. Pssh what is that, like 7%? C'mon
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Right now my 401k is 100% sitting in cash waiting for a big correction. I don't call that market timing. I'm calling it oh crap there's a bunch of dark clouds and I'm hiding in my house sleeping soundly under my blanket to the tune of that hard rain outside. I might even watch some cool Netflix movies while waiting for the storm to pass.
My other personal savings are siphoning into a trading account. I'm taking 1-5% each position while learning everyday how to ju jit su the market. I may get punched in the face here and there, but as long as you play with high probability and have defined risk/hedge your positions. You should be able to slaughter the market. Easy. The key here is to educate yourself. Don't let the market determine your returns because investing/indexing is only a long position/ up directional play. That means you are at the mercy of a bear with no way of ptofitting from it because your money is stuck. How does that make much sense is beyond me. My opinion is, take control of your money, you can manage it yourself people. Learn, educate yourself, deploy your capital efficiently. Beating the market is easier than you think. Pssh what is that, like 7%? C'mon
Doesn't matter what you decide to call it. It's literally the definition of market timing.
So you think you're beating the market. That's great. Have you calculated your personal returns and compared them to a benchmark? I'm shocked that 100% of the people I've asked that question either say, "No", or they say "Yes" then end up having 0 knowledge on how to actually calculate returns.
To a person, literally 100% of the people I've met who think they're beating the market, fail this test. And when we properly run the numbers, they end up way behind. Keith123 failed this test pretty embarrassingly. The "I'm not going to spend hours and hours back-testing something for you." response is quite telling. Not because he won't do it for me...he even refuses to do it for himself.
To the newbies of the thread, I'd like you to think about that for a moment. Does this sound like a good idea?
These type of posts are incredibly damaging to the community. I think it's time for that Market-Timers thread. Would you like to contribute? Simply let us know when you exited the market, and make a live-post when you get back in. Then we'll all have a single thread to point to when someone is about to do something stupid. Sure, we all know the stories of people who got out in early 2009, and are still waiting to get back in...but that doesn't quite sound as good as, "Don't do it! You don't want to end up like ScarElbow!!"
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As far as buy-and-hold "beating most investors", I'm not trying to beat anyone. If other people make better returns than I do, that's great for them. There will always be people richer, and poorer, than I am. But I would find no solace during a market crash that hey, everyone else is going down with me, and nobody is beating me. I just don't want to go down, period.
This to me sounds okay but I definitely wouldn't do it. It sounds like a very risk averse approach where you are looking for the perfect entry point. This approach in my opinion is more risky than buying at some point because you may miss the upward movement.
You should be able to slaughter the market. Easy. The key here is to educate yourself.
Your choice but this sounds really really really bad. I can't emphasis this enough. It's not easy to beat the market over the long term. It definitely doesn't come down to education.
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Deciding when the best time is to enter and exit the market is timing. You are timing the market as a whole
Picking areas you believe to be undervalued is entirely different. There is a reason for multiple definitions. Thats because timing doesn't cover them all.
I am one of the heretics that believe in timing. I said to get out when Disney dumped and the market did drop like a rock. I said there was billions waiting on the sidelines recently and they just started stepping back in.
Further, Im tired of listening to people said you need to mathematically prove something. Let me tell you something. Good judgement is one of the most complicated things out there. The Skipper of a ship makes snap judgements on imprecise and incomplete information. When I look at the market that is exactly what I am doing. No I don't want to trade. I do think that I can find the right timing to turbo charge a new long term investment. If you don't believe you can do that then don't try. Indexing works.
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These type of posts are incredibly damaging to the community. I think it's time for that Market-Timers thread. Would you like to contribute? Simply let us know when you exited the market, and make a live-post when you get back in. Then we'll all have a single thread to point to when someone is about to do something stupid. Sure, we all know the stories of people who got out in early 2009, and are still waiting to get back in...but that doesn't quite sound as good as, "Don't do it! You don't want to end up like ScarElbow!!"
I still don't like this idea. It's easy to have a winner or two. Then you go - "f... yeah I'm so smart". I've done it. The problem is getting consistent returns over a long period of time is a lot harder.
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Didn't know I had horns that thick. You're making me out to be a bad guy. I'm simply advacating self education/empowerment. You know, as in power to the people. You have your opinions and seems to me regurgitated from some other readings. Point is, don't take absolute position. That is likely a herd mentality, however logical/valid/traditional/conservative/whatever that is. Educate then initiate then innovate. I believe Einstein said that. And Einstein absolutely slaughtered the market.
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I just don't want to go down, period.
Not to beat a dead horse, but here's the issue. And there are two ways of looking at in.
One--don't be in the market at all. There is a risk premium because there is risk. That's what gets you your rate of return over the savings rate. Sometimes up, sometimes down, more often up over time.
Two--unless you invested in the market for the first time in Summer 2015, the market has never lost money. It's just a question of how long you held it for.
The reason market timers don't beat the market is because they time the market wrong--they buy high and sell low. Yes, the market is probably going to go down, but when will it go up for good? Did you catch the 6% bump last week? Did you go all in in March 2009 on the way to doubling your money? March 2010 and make about 80%? March 2011 and make about 60%? March 2012 and make about 30%?
It's hard to stomach the volatility, but that's why the market gives the return it does. And why there is a risk premium--because people can't take it and bail at the wrong time.
I say this like it's easy, but it's not. Behavioral economics takes people down--repeatedly. My secret for making several hundred thousand in the market since 2002? Max the retirement accounts and know that market risk over long, long periods is almost nil. And the very first $5,000 I put in a non-retirement account I had to convince myself that my life probably wouldn't come down to $5,000. Even if I lost every penny, I would be fine. And almost every pay check since--I made the decision about some portion of it, and into the market it went.
I have been crazy conservative with my money. I have paid off all my debts. I have paid off my house. I knew that I couldn't stomach the huge market drop if it meant I suddenly couldn't pay off my mortgage. That's not economically rational, but it addressed the behavioral weakness that I knew would exist. Once that was taken care of, I maxed every penny into the market knowing that it was the most rational approach, and that being willing to lose every penny is what would make me one of those rare investors--the ones who don't time the market, and who win as a result.
Btw, I still don't trust myself, so I have everything set up to contribute automatically. My strength is knowing my weakness, and accounting for it.
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These type of posts are incredibly damaging to the community. I think it's time for that Market-Timers thread. Would you like to contribute? Simply let us know when you exited the market, and make a live-post when you get back in. Then we'll all have a single thread to point to when someone is about to do something stupid. Sure, we all know the stories of people who got out in early 2009, and are still waiting to get back in...but that doesn't quite sound as good as, "Don't do it! You don't want to end up like ScarElbow!!"
I still don't like this idea. It's easy to have a winner or two. Then you go - "f... yeah I'm so smart". I've done it. The problem is getting consistent returns over a long period of time is a lot harder.
Haha! I've played this game before. They all lose. Every last one of them. You don't even have to wait that long.
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Didn't know I had horns that thick. You're making me out to be a bad guy. I'm simply advacating self education/empowerment. You know, as in power to the people. You have your opinions and seems to me regurgitated from some other readings. Point is, don't take absolute position. That is likely a herd mentality, however logical/valid/traditional/conservative/whatever that is. Educate then initiate then innovate. I believe Einstein said that. And Einstein absolutely slaughtered the market.
My question may have gotten lost above, so I'll try again.
Have you calculated your personal returns and compared them to a benchmark?
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Question marks are naughty, ya know. Don't you just love the way they're bent?
Yes, I've calculated my returns. Over the last 2 years, 47% and 38%. And so far this year my return thus far is an incredible $158.88 on 2 small positions. There. Data. BAM!!
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Question marks are naughty, ya know. Don't you just love the way they're bent?
Yes, I've calculated my returns. Over the last 2 years, 47% and 38%. And so far this year my return thus far is an incredible $158.88 on 2 small positions. There. Data. BAM!!
Great job! How did you calculate those returns? You say 2 small positions, but I'm asking about your whole portfolio. Wouldn't want to exclude all your losers :)
Would you be willing to participate in the Market-Timers thread? Make a live-post when you enter back into the market? Then this can all be publicly verified.
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Didn't know I had horns that thick. You're making me out to be a bad guy. I'm simply advacating self education/empowerment. You know, as in power to the people. You have your opinions and seems to me regurgitated from some other readings. Point is, don't take absolute position. That is likely a herd mentality, however logical/valid/traditional/conservative/whatever that is. Educate then initiate then innovate. I believe Einstein said that. And Einstein absolutely slaughtered the market.
You aren't really discussing the issue that is being discussed. All the talk about horns and power to the people etc doesn't really help does it. It comes down to facts and results. It's not a rhetorical argument.
I think I'm pretty well educated on this topic as well. Not many people beat the market and even less do it consistently over their investment life. My opinion is that you should try and get the odds in your favour. You get this via choosing your asset allocation and using low cost index funds to construct your portfolio. I think it's pretty simple.
Save money. Invest it wisely. That to me is power to the people.
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Question marks are naughty, ya know. Don't you just love the way they're bent?
Yes, I've calculated my returns. Over the last 2 years, 47% and 38%. And so far this year my return thus far is an incredible $158.88 on 2 small positions. There. Data. BAM!!
This is exactly why I don't like the market timing /show me your returns approach.
I made 150% and 87% over the last 2 years. My approach is a simple trend following momentum agnostic approach. I'm speaking shit but who really knows that I am. Even if I got the supposed returns I've stated I could lose it all next week. There is a difference between getting a winner or two and managing your portfolio to fund your retirement. The difference is freaken huge. A hot run for a year or two could honestly be a massively losing approach over 20-30 years.
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If I am wrong, I will miss out on some nice gains that you perpetual index investors will grab. But if I'm right, I will avoid taking a big hit to my savings, and will have a ton of dry powder to invest after the carnage.
I ask this sincerely - how will you know 'the carnage' has passed? What are you looking for exactly as your cue to re-enter the market?
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Question marks are naughty, ya know. Don't you just love the way they're bent?
Yes, I've calculated my returns. Over the last 2 years, 47% and 38%. And so far this year my return thus far is an incredible $158.88 on 2 small positions. There. Data. BAM!!
This is exactly why I don't like the market timing /show me your returns approach.
I made 150% and 87% over the last 2 years. My approach is a simple trend following momentum agnostic approach. I'm speaking shit but who really knows that I am. Even if I got the supposed returns I've stated I could lose it all next week. There is a difference between getting a winner or two and managing your portfolio to fund your retirement. The difference is freaken huge. A hot run for a year or two could honestly be a massively losing approach over 20-30 years.
Agreed. I've had a +100% year with market-timing, only to lose all the gains and more in the span of a week. This is why it's so funny to hear people talk like beating the market is easy, then give stats for 2 years worth of trading! Are we to believe they only started investing 2 years ago? Of course not. But "those other years don't count, I wasn't educated yet" (http://gifsec.com/wp-content/uploads/GIF/2014/03/Frank-Underwood-Eye-roll-GIF.gif?gs=a)
I've seen dozens of "gurus" get laughed off the forum (it's especially fun when they delete all their threads out of embarrassment!) after signing up for one of those sites that publishes their wins/losses for all to see. I doubt the "experts" here would actually publish their picks on a site like that, so I think a public "live-post" is the best we'll get.
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Hey gals and dudes! It's called options trading, not long term investing/indexing. Thought I mentioned that. If you know what I'm talking about, there's a thing called defined risk and defined profit in each trade with the exact probability of profit for the duration of the trade. You then manage your winners and losers within that duration. Granted, these are skills that will take some time to master. But learn it, expose yourself, ju jit su that thing. It's just so beautiful man. Blah blah blah. Indexing
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Hey gals and dudes! It's called options trading, not long term investing/indexing. Thought I mentioned that. If you know what I'm talking about, there's a thing called defined risk and defined profit in each trade with the exact probability of profit for the duration of the trade. You then manage your winners and losers within that duration. Granted, these are skills that will take some time to master. But learn it, expose yourself, ju jit su that thing. It's just so beautiful man. Blah blah blah. Indexing
(http://treasure.diylol.com/uploads/post/image/358212/resized_your-music-is-bad-meme-generator-your-post-is-bad-and-you-should-feel-bad-e72301.jpg)
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It sounds like a very risk averse approach where you are looking for the perfect entry point.
Well, certainly a better entry point, if not perfect. Risk-averse? I suppose by definition it is, and of course you are correct that the downside, which I am accepting, is missing upswing.
Not to beat a dead horse, but here's the issue. And there are two ways of looking at in.
One--don't be in the market at all. There is a risk premium because there is risk. That's what gets you your rate of return over the savings rate. Sometimes up, sometimes down, more often up over time.
Two--unless you invested in the market for the first time in Summer 2015, the market has never lost money. It's just a question of how long you held it for.
The reason market timers don't beat the market is because they time the market wrong--they buy high and sell low. Yes, the market is probably going to go down, but when will it go up for good? Did you catch the 6% bump last week? Did you go all in in March 2009 on the way to doubling your money? March 2010 and make about 80%? March 2011 and make about 60%? March 2012 and make about 30%?
It's hard to stomach the volatility, but that's why the market gives the return it does. And why there is a risk premium--because people can't take it and bail at the wrong time.
I say this like it's easy, but it's not. Behavioral economics takes people down--repeatedly. My secret for making several hundred thousand in the market since 2002? Max the retirement accounts and know that market risk over long, long periods is almost nil. And the very first $5,000 I put in a non-retirement account I had to convince myself that my life probably wouldn't come down to $5,000. Even if I lost every penny, I would be fine. And almost every pay check since--I made the decision about some portion of it, and into the market it went.
I have been crazy conservative with my money. I have paid off all my debts. I have paid off my house. I knew that I couldn't stomach the huge market drop if it meant I suddenly couldn't pay off my mortgage. That's not economically rational, but it addressed the behavioral weakness that I knew would exist. Once that was taken care of, I maxed every penny into the market knowing that it was the most rational approach, and that being willing to lose every penny is what would make me one of those rare investors--the ones who don't time the market, and who win as a result.
Btw, I still don't trust myself, so I have everything set up to contribute automatically. My strength is knowing my weakness, and accounting for it.
Excellent, and I completely agree about market risk and the associated benefits and premiums. As steveo alluded to, I can't build much of an argument against my being risk-averse, and I concede that my main priority is capital preservation. Whether or not that means I can't "stomach" a downturn or if I'm logically looking for a better entry point, I suppose that is subjective.
Here's the thing - I used to be buy-and-hold. I started investing as a youngin back in 1995, and I bought-and-held through the dot com bust, 9/11, and the beginning of the bear market in 2007. It was the collapse of Bear Stearns and the near-collapse of Lehman Brothers that made me question continuing to hold, and I got out. Certainly not at the high, but before the steep selloff Q4 of 2008. I started moving back in mid 2009.
So, it worked out for me that time. How much of it was luck that I missed a downswing? I'm sure a lot of it was. But sometimes maybe it really is better to be lucky than good. And it was a great ride back up again as the market took off. But as I mentioned, I just don't believe this long, dramatic bull market can be based purely on fundamentals, given the $3.5 trillion in QE and seven years of 0% rates that helped fuel it, and I just don't want to be around if/when the bottom falls out again.
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I started investing as a youngin back in 1995, and I bought-and-held through the dot com bust, 9/11, and the beginning of the bear market in 2007. It was the collapse of Bear Stearns and the near-collapse of Lehman Brothers that made me question continuing to hold, and I got out. Certainly not at the high, but before the steep selloff Q4 of 2008.
Out of curiosity - any idea what your average return was in that time (from 95 to 08)?
Just curious.
But sometimes maybe it really is better to be lucky than good.
If we could choose, I would pick 'luck' every time.
:)
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Hey gals and dudes! It's called options trading, not long term investing/indexing. Thought I mentioned that. If you know what I'm talking about, there's a thing called defined risk and defined profit in each trade with the exact probability of profit for the duration of the trade. You then manage your winners and losers within that duration. Granted, these are skills that will take some time to master. But learn it, expose yourself, ju jit su that thing. It's just so beautiful man. Blah blah blah. Indexing
I'll take that as a, "I won't discuss how I calculated my returns. I won't discuss if I've compared them against a benchmark. I won't make my claims publicly verifiable."
I don't blame you. FVelociraptor is a big proponent of option trading as well, and 90% of the 350 trades he made over the last year underperformed the market according to the tracking website he uses:
(https://i.sli.mg/MmJqpw.png)
http://caps.fool.com/player/fvelociraptor.aspx?tab=qs
Considering that site doesn't include dividends for the index, but does include dividends for FVelociraptor's trades, it's even worse than it looks. I completely understand why you'd want to avoid letting us see your ju jit su. But if you're going to make ridiculous claims, you'll have to do better than "Data. BAM!!" if you don't want to look like an idiot.
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If I am wrong, I will miss out on some nice gains that you perpetual index investors will grab. But if I'm right, I will avoid taking a big hit to my savings, and will have a ton of dry powder to invest after the carnage.
I ask this sincerely - how will you know 'the carnage' has passed? What are you looking for exactly as your cue to re-enter the market?
Ha, well, as Han Solo once said, "that's the real trick, isn't it?" I do not know the answer. There isn't a certain level on the S&P or any technicals that would trigger it. I would just need some confidence that the QE $$ and low-interest-rate avoidance has washed out of the market. Whether it's a huge selloff, or a very long time in a sideways market, I don't know. But you're right, I have to be right twice - when I get out, and when I get back in.
It's quite possible I'm just a contrarian at heart. Cycling Stache mentioned how the market has never lost money. I might be the world's biggest pessimist, but I don't think by rule that has to continue to be true. It's an entirely different world now than it was for the previous 100 years. Maybe I need a tin-foil hat or something to take the final step into full-on paranoia. But whenever I hear something is a sure-thing and has never gone wrong, I get skeptical. The world is a mean place. It doesn't care what the markets have always done in the past. It really doesn't.
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Out of curiosity - any idea what your average return was in that time (from 95 to 08)?
Just curious.
Oh, I really couldn't say. I mean, I started with just a few thousand dollars, and made full contributions to my 401k every year, and would occasionally put accumulated savings into mutual funds (index funds weren't all the rage yet). I would imagine I tracked pretty close to what the market did during that time. I never made any moves in or out of the market. I believe the DOW was in the 7000's back in '95, and I think my '08 exit was around 11,000 (about 3,000 off the all-time high to that point).
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Hey gals and dudes! It's called options trading, not long term investing/indexing. Thought I mentioned that. If you know what I'm talking about, there's a thing called defined risk and defined profit in each trade with the exact probability of profit for the duration of the trade. You then manage your winners and losers within that duration. Granted, these are skills that will take some time to master. But learn it, expose yourself, ju jit su that thing. It's just so beautiful man. Blah blah blah. Indexing
I'm really confident that over time you will not only not beat the market but you will lose money. I think the odds are against you.
http://www.travismorien.com/FAQ/trading/futradersuccess.htm
It's your choice but it definitely isn't something that I would consider doing with my retirement funds.
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Nah, man, get outta here with that loser talk! Just gotta educate yourself, man, ju jit su the shit out of that market! Einstein blew the hell out of it and you can too!
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Nah nah dawg. Don't educate yourself, man. Just DCA that dough into a fund. Market goes up, down , and sometimes sideway. But eventually it will go up. Have faith. Chill out. One love one love.
Hmm, the tonality turns ugly quick in this thread. Sigh. OK OK I admit defeat. Indexing is king. I will now walk in shame with my head down.
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Have you calculated your personal returns and compared them to a benchmark?
I do.
S&P 500 Total Return Index 5yr 9.71% 10yr 6.31% 15yr 4.67%
Our performance 5yr 8.01% 10yr 6.88% 15yr 6.97%
Our performance is net of fees but does not account for some long term capital gains and dividend income taxes paid along the way. Passively owning the benchmark would have given zero cap gains but more dividends. Our performance numbers are from Quicken.
My main strategy would be described as long term buy and hold value investing. Our portfolio is not well diversified. I personally think it is less risky than owning the stock index right now, conventional wisdom would say it is more risky. Market outperformance is not achieved by following the conventional wisdom.
At times I have thought that the effort involved wasn't really worth it. I have gotten a free education in finance, accounting, markets, economics, etc. So that's good. Going forward I'm looking to passively index more of the portfolio...but not until valuations are reasonable.
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Have you calculated your personal returns and compared them to a benchmark?
I do.
S&P 500 Total Return Index 5yr 9.71% 10yr 6.31% 15yr 4.67%
Our performance 5yr 8.01% 10yr 6.88% 15yr 6.97%
Our performance is net of fees but does not account for some long term capital gains and dividend income taxes paid along the way. Passively owning the benchmark would have given zero cap gains but more dividends. Our performance numbers are from Quicken.
My main strategy would be described as long term buy and hold value investing. Our portfolio is not well diversified. I personally think it is less risky than owning the stock index right now, conventional wisdom would say it is more risky. Market outperformance is not achieved by following the conventional wisdom.
At times I have thought that the effort involved wasn't really worth it. I have gotten a free education in finance, accounting, markets, economics, etc. So that's good. Going forward I'm looking to passively index more of the portfolio...but not until valuations are reasonable.
That's great! Is that a money-weighted return, or a time-weighted return? My understanding is that Quicken isn't a good tool for this, as it doesn't provide returns in a way that can be compared to an index.
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Nah nah dawg. Don't educate yourself, man. Just DCA that dough into a fund. Market goes up, down , and sometimes sideway. But eventually it will go up. Have faith. Chill out. One love one love.
Hmm, the tonality turns ugly quick in this thread. Sigh. OK OK I admit defeat. Indexing is king. I will now walk in shame with my head down.
good luck. Don't worry, you'll find solace in your quick millions made from beating the market with your genius investing techniques.
Are you really surprised that in an enlightened forum of experienced investors who have seen many of your ilk before that nobody really cares what you think, other than worry you may cause damage to an unitiated investors' wallet?
Perhaps you should head over the Bogleheads forum next and try and convince them? I'm sure they will be more open to your supreme investing prowess.
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Out of everyone who tries to "educate" himself to beat the market, half will necessarily fail, because for every winning trade there is a losing counterparty.
If you think being on the winning side is "easy," you must necessarily be able to explain how and why you're smarter than all the people who are just as "educated" as you! (And that includes other individual-investor counterparties, who also don't have to answer to managers and clients.)
And you -- all of you so far in this thread -- have utterly and completely failed to do it, despite repeated attempts. You've lost, and you don't even realize it yet.
It's like Global Thermonuclear War: the only winning move is not to play (https://www.youtube.com/watch?v=uOoXwxqeVzg). Or, at least, to stop trying to win (https://www.youtube.com/watch?v=gGc7yCZQ8CE).
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Out of everyone who tries to "educate" himself to beat the market, half will necessarily fail, because for every winning trade there is a losing counterparty.
If you think being on the winning side is "easy," you must necessarily be able to explain how and why you're smarter than all the people who are just as "educated" as you! (And that includes other individual-investor counterparties, who also don't have to answer to managers and clients.)
And you -- all of you so far in this thread -- have utterly and completely failed to do it, despite repeated attempts. You've lost, and you don't even realize it yet.
It's like Global Thermonuclear War: the only winning move is not to play (https://www.youtube.com/watch?v=uOoXwxqeVzg). Or, at least, to stop trying to win (https://www.youtube.com/watch?v=gGc7yCZQ8CE).
I don't understand why this tone is necessary. It's not like people on this forum who choose to make their own portfolio of companies instead of buying someone else's don't know the alternatives.
Also, why do you think the buying and selling that happens at a stock exchange is a zero sum game? Or that people always trade rationally, weighting all information both public and private calmly and thoughtfully? If you actually put a bit of thought into it you'd see that EMH is maybe not complete donkey dung, it's not often reflective of reality. People trade for all kinds of reasons, most of which have nothing to do with any particular company. Emotions play an enormous role.
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Nah nah dawg. Don't educate yourself, man. Just DCA that dough into a fund. Market goes up, down , and sometimes sideway. But eventually it will go up. Have faith. Chill out. One love one love.
Hmm, the tonality turns ugly quick in this thread. Sigh. OK OK I admit defeat. Indexing is king. I will now walk in shame with my head down.
good luck. Don't worry, you'll find solace in your quick millions made from beating the market with your genius investing techniques.
Are you really surprised that in an enlightened forum of experienced investors who have seen many of your ilk before that nobody really cares what you think, other than worry you may cause damage to an unitiated investors' wallet?
This is a little tough, but it highlights the concern: that new investors might read these posts and decide it's a good idea to emulate. If you have extra money that you've saved to put in the market and try your investment techniques, then you're probably in good shape anyway, and it won't matter as much if things don't pan out. But for people trying to figure out what to do with their initial investments, or serious long-term holdings, that's probably a mistake.
ScarElbow and MrPercentage, both of you have posted previously about investing pretend money. ScarElbow--you're going to try options, and like that you can practice for 60 days to "see how you'd do" before doing any real trading. MrPercentage, you're excited about how you're doing in an investing competition and posting about what kind of returns you would have gotten if the money had been real.
Those aren't bad things. But the pushback you're getting is from people who have been in the market a while, and who have real assets at real risk. We see this forum as a place where people can come and make informed decisions about money, savings, and investing. And the talk about how each person is a unique butterfly with jujitsu market talents is--statistically--inaccurate. That's just not how it actually works.
You might make some money doing what you do, but your odds are probably no better than gambling. And just like the vast majority of people believe they're above-average drivers, the market (especially in the last 5 years) can make everyone feel like a success. Why? Because just like other people try to avoid hitting and getting hit by you (so look how well you drive), the market generally goes up, so most positions are going to be a success over time. It's just a question of whether they're more successful than the market over that same time period, which is why you keep getting pressed about how you're doing compared to a benchmark.
The desire to learn more about the market, and specific companies, is a good thing. But the advice you're getting is to be very careful when you start feeling like you're special. A lot of people make mistakes that way, especially in the market.
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These type of posts are incredibly damaging to the community. I think it's time for that Market-Timers thread. Would you like to contribute? Simply let us know when you exited the market, and make a live-post when you get back in. Then we'll all have a single thread to point to when someone is about to do something stupid. Sure, we all know the stories of people who got out in early 2009, and are still waiting to get back in...but that doesn't quite sound as good as, "Don't do it! You don't want to end up like ScarElbow!!"
I still don't like this idea. It's easy to have a winner or two. Then you go - "f... yeah I'm so smart". I've done it. The problem is getting consistent returns over a long period of time is a lot harder.
Haha! I've played this game before. They all lose. Every last one of them. You don't even have to wait that long.
Oh yeah. This is why people lose money playing the stock market.
I have played that game too. I made a sector bet at the beginning of my investing career that paid off big time (not in absolute numbers because I was a pauper back then, but it trounced percentage returns). It's still my biggest investing mistake because in retrospect I had no idea what I was doing.
I have since sold that position and plan on keeping my 100% win record, by never making bets again.
I still believe value investing has its place for sophisticated investors, but I certainly don't have the chops or the stomach for it.
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I don't understand why this tone is necessary. It's not like people on this forum who choose to make their own portfolio of companies instead of buying someone else's don't know the alternatives.
Because some noob who really doesn't know about the alternatives (or who has an inflated sense of his own skill because you and/or others in this thread have called it "easy!") will take your advice and go bankrupt. It's dangerous and irresponsible.
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Out of everyone who tries to "educate" himself to beat the market, half will necessarily fail, because for every winning trade there is a losing counterparty.
This claim is flawed because different people risk different amounts of money. For example, I might be on the winning side of a bet in which I had invested $1,000,000, but the losing side didn't involve a single investor risking $1,000,000 but rather a million investors each risking $1. In that case, there would be a million losers but only one winner. In the result, there's no simple way to calculate the ratio of people who "beat the market".
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Out of everyone who tries to "educate" himself to beat the market, half will necessarily fail, because for every winning trade there is a losing counterparty.
This claim is flawed because different people risk different amounts of money. For example, I might be on the winning side of a bet in which I had invested $1,000,000, but the losing side didn't involve a single investor risking $1,000,000 but rather a million investors each risking $1. In that case, there would be a million losers but only one winner. In the result, there's no simple way to calculate the ratio of people who "beat the market".
Good point. If we can assume that the people who win tend to accumulate assets (or clients with assets) -- a not unreasonable assumption, I think -- and thus make larger and larger trades over time, then the odds against a small individual investor look even much worse than I claimed before.
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Posted by: Jack
« on: Today at 10:39:04 AM »
Good point. If we can assume that the people who win tend to accumulate assets (or clients with assets) -- a not unreasonable assumption, I think -- and thus make larger and larger trades over time, then the odds against a small individual investor look even much worse than I claimed before.
You're almost right. What you can say is that the equity market by itself is not a zero sum game, however options, futures, and active trading are zero sum (there are lots of proofs out there that prove this, my favorite is from Fama). So while for every winning trade there isn't a absolute single losing trade you can say that the average of all active investors before costs must equal the return of all passive investors. Once costs are included, then active investing as an aggregate must trail the returns of passive investors. That makes active investing a zero sum game sans fees and a negative sum game with fees as a whole (this includes opportunity costs when compared to the market benchmark, not absolute returns).
So for every person that crushes the market by 20% with active investing, there is a person, or collection of people, that under perform the market by the same.
The question all active investors must ask themselves (which include myself for transparency) is why are you winning and the other folks are losing. Warren Buffet said it more colloquially when he said that every poker table has a pasty and if you don't know who the patsy is, it's you. He said that within the context of active investing.
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Posted by: Jack
« on: Today at 10:39:04 AM »
Good point. If we can assume that the people who win tend to accumulate assets (or clients with assets) -- a not unreasonable assumption, I think -- and thus make larger and larger trades over time, then the odds against a small individual investor look even much worse than I claimed before.
You're almost right. What you can say is that the equity market by itself is not a zero sum game, however options, futures, and active trading are zero sum (there are lots of proofs out there that prove this, my favorite is from Fama). So while for every winning trade there isn't a absolute single losing trade you can say that the average of all active investors before costs must equal the return of all passive investors. Once costs are included, then active investing as an aggregate must trail the returns of passive investors. That makes active investing a zero sum game sans fees and a negative sum game with fees as a whole (this includes opportunity costs when compared to the market benchmark, not absolute returns).
So for every person that crushes the market by 20% with active investing, there is a person, or collection of people, that under perform the market by the same.
The question all active investors must ask themselves (which include myself for transparency) is why are you winning and the other folks are losing. Warren Buffet said it more colloquially when he said that every poker table has a pasty and if you don't know who the patsy is, it's you. He said that within the context of active investing.
Are you defining "active" as anyone who doesn't solely invest all of their money in an index fund? Because I invest in individual stocks and consider myself pretty dang passive with my one measly buy order per month (not per company, that's one trade per month across all of my holdings).
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Yes - that is the definition. Buying individual stocks, even holding for long time frames is a negative sum game.
Fama and French
https://www.dimensional.com/famafrench/essays/why-active-investing-is-a-negative-sum-game.aspx (https://www.dimensional.com/famafrench/essays/why-active-investing-is-a-negative-sum-game.aspx)
The Monevator - a pretty good description as well.
http://monevator.com/is-active-investing-a-zero-sum-game/ (http://monevator.com/is-active-investing-a-zero-sum-game/)
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Out of everyone who tries to "educate" himself to beat the market, half will necessarily fail, because for every winning trade there is a losing counterparty.
This claim is flawed because different people risk different amounts of money. For example, I might be on the winning side of a bet in which I had invested $1,000,000, but the losing side didn't involve a single investor risking $1,000,000 but rather a million investors each risking $1. In that case, there would be a million losers but only one winner. In the result, there's no simple way to calculate the ratio of people who "beat the market".
Good point. If we can assume that the people who win tend to accumulate assets (or clients with assets) -- a not unreasonable assumption, I think -- and thus make larger and larger trades over time, then the odds against a small individual investor look even much worse than I claimed before.
I think that you are massively understating the chance of beating the market for a couple of reasons:-
1. You aren't taking into account fees. A high trading approach will involve a lot of fees. This will hammer you.
2. You aren't taking into account the fact that you can make money in 10 trades and lose it all in 1. This happens as well.
3. Winning via active trading is hard because your winners tend to be subject to capital gains tax. Your losers though tend just to be counted as losses for tax purposes. Everyone's tax rules may be different but this makes a big difference. I've traded and won but this really hurt me.
If you are a buy and hold value based investor you may not be subject to all of the points I've stated above but you probably won't be as diversified. You will also have to spend some more time on choosing what you invest in. It's not a bad approach but for a lazy investor like myself I don't see the benefit.
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Yes - that is the definition. Buying individual stocks, even holding for long time frames is a negative sum game.
Fama and French
https://www.dimensional.com/famafrench/essays/why-active-investing-is-a-negative-sum-game.aspx (https://www.dimensional.com/famafrench/essays/why-active-investing-is-a-negative-sum-game.aspx)
The Monevator - a pretty good description as well.
http://monevator.com/is-active-investing-a-zero-sum-game/ (http://monevator.com/is-active-investing-a-zero-sum-game/)
These are just making the argument, that the return on average of active investors, is the average return of the market, minus fees.
I have no problem with this - but it doesn't change the basic question of are their strategies that do do better than average. It just says that to find such strategies is hard - and if it has high fees - the likelihood of such a strategy working, is less.
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I have tried to stay out of this thread even though I started it because it's not really my responsibility to try and save anyone from losing money in 2016, that decision is up to you; but it has gotten so much attention that occasionally I will check it.
And when I see posts like this, I feel the need to step in:
Threads like this can really be dangerous. For people looking at investing in the market, consider the following:
First--you (average you) will not beat the market. You are not special.
Second--if you (average you) try to beat the market by timing the market, you will most likely lose to the market.
Third--if you make consistent investments in the market over the long term, you will most likely get rich. 7% annual growth with regular contributions over 20-30 years creates big numbers.
again, I am not trying to time the mkt, my goal is capital preservation; and continuing to keep mkt exposure to 100% equities while an economy is contracting is a certain way to lose money.
current example:
"While for most of 2015, tax withholdings rose at a rate of 5% or more from a year ago, on the back of job growth and gains in wages, commissions and other incentive pay, in recent months there has been a substantial dropoff in this key indicator.
As shown in the chart below, revenue inflows to the Treasury Department steadily slowed through the fall, bringing the annual growth rate down to just below 4% by the start of 2016. That’s when growth seemingly collapsed — to just 1.8% over the past five-plus weeks, from Jan. 11 through Feb. 16."
http://www.zerohedge.com/news/2016-02-20/alarm-goes-threatening-strong-us-jobs-myth-withheld-income-taxes-are-stalling (http://www.zerohedge.com/news/2016-02-20/alarm-goes-threatening-strong-us-jobs-myth-withheld-income-taxes-are-stalling)
This doesn't happen in an economy that is expanding. If it looks more and more like a storm is coming, wouldn't you look to protect yourself ? That is what is happening, it is not mkt timing; if anything it's recession timing and trying not to be all in equities when it looks like one is starting.
As far as lose to the mkt by timing it or the "7%".
Where anywhere does economic data show you that in 2016, you're going to make 7% over the more likely losing 28% in a bear mkt that many countries in the world are already in(this was posted on zerohedge in the past few days) ? Outside of more monetary intervention by the FED, there is nothing.
No, I beat the mkt last year by paying attention to the early economic signs and decreasing exposure last may and have done the same this year and I have extended the same possibility the mmm community could reduce it's loses in 2016 by the initial post.
Again, my question is if you could save money this year by reducing exposure over losing it and having to wait additional years before you could retire because you now have to wait to get back the gains you lost; would you ? That is capital preservation and if that's "scary", so be it. I think it's going to be more scary to be 100% in the mkt after April and the seasonally stock period is over.
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Yes - that is the definition. Buying individual stocks, even holding for long time frames is a negative sum game.
Fama and French
https://www.dimensional.com/famafrench/essays/why-active-investing-is-a-negative-sum-game.aspx (https://www.dimensional.com/famafrench/essays/why-active-investing-is-a-negative-sum-game.aspx)
The Monevator - a pretty good description as well.
http://monevator.com/is-active-investing-a-zero-sum-game/ (http://monevator.com/is-active-investing-a-zero-sum-game/)
These are just making the argument, that the return on average of active investors, is the average return of the market, minus fees.
I have no problem with this - but it doesn't change the basic question of are their strategies that do do better than average. It just says that to find such strategies is hard - and if it has high fees - the likelihood of such a strategy working, is less.
Totally agree. It says nothing about specific strategies, only that in the universe of active investing, it is - at the whole - a negative sum game.
The question of "are there strategies that do better than average", it all comes down to are there strategies that can systemically take advantage of a common type of behavior error from other active investors. I think value investing fits that description as it attempts to take advantage of the fact that the market (i.e. other investors) can irrationally push an asset down past it's intrinsic value due to overreaction to news and information.
I'm a value investor, and I've had great success using that approach compared to the market. My point is that it is really hard to do, on the whole it averages out to be worse than passive investing, and that when I make gains that beat the market it comes at the expense of someone else's bad investing choices. If someone doesn't understand those points, then active investing really isn't for them because they truly don't understand the risks or that for a few people to do really well a lot of people have to do poorly (which means the odds are such that any one random individual is more likely to be in the poor camp than better camp).
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Again, my question is if you could save money this year by reducing exposure over losing it and having to wait additional years before you could retire because you now have to wait to get back the gains you lost; would you ? That is capital preservation and if that's "scary", so be it. I think it's going to be more scary to be 100% in the mkt after April and the seasonally stock period is over.
Cougar, the objections you've gotten have been regarding the belief that you can foresee the market--and especially, if you get out, when you get back in.
That said, if preserving capital is your goal, then yes, you're probably absolutely right to get out now. Doing so creates two issues though. First, when do you get back in? Second, if you don't, how do you get the growth you need in the long term?
The 25x rule and all the other MMM metrics presume being in the market and getting market growth over the long term. Pulling out means you need a lot more money.
You (and many, many people) are worried about the volatility right now. And the overall market seems messed up where people celebrate bad news because it might convince the Fed to hold off raising interest rates, which is a crazy dynamic. But on the other hand, we've already had a 20% drop (before the 6% gain the last week). A 30% drop is a pretty big deal and doesn't happen all that much. I expect it, but when? I don't know. And I don't know how quickly it will bounce back. A 50% drop? That's what we got in 2008-2009, and it's happened like twice. That's why it was such a crazy big deal.
So, your bear market is 15% away from here, and catastrophe is 35% away, which is a lot, but not absurd. That's your downside. But the odds of getting it right on getting back in are very low. How do I know? Because you're almost certainly not special (don't worry--neither am I). And not special people lose when they time the market.
There's a reason that asset allocations become more conservative as people get closer to retirement. Capital preservation becomes more important, and short-term volatility is a bigger problem. But that's not where most people are here when it comes to investing in the market. And especially for early retirement, you need the growth in your portfolio because your time horizon for needing money is 30-50 years.
I'm blessed and have done very well, but I'm also very attuned to what I don't know. And I know that I don't know which way the market is going, when, and when it's coming back. And unless you or the other timers are special, you don't know either. Calling it going down doesn't mean anything unless you bank the profit on the way back up.
The reason this thread has gotten such a response is because much more money gets lost following timing prescriptions--both because of poor timing, and because of fear of investing at all. Your point wasn't off for purposes of people focused on capital preservation, but at the point where you "called" the market, you triggered a huge response.
And to those responses regarding value investing taking advantage of irrational behavior of investors that push the price down below its worth, that's absolutely correct. Which is why value investors make money over the long term. But when you talk about timing the market on that basis--well, that requires trying to predict irrational behavior, which is even more difficult than trying to value an asset better than everyone else. Like the market, value investors make money over the very long term because eventually (usually) the asset gets to its correct price. But with the irrationality, that can take a long time (which is fine).
P.S. I do have a market timing thought for the long term. I wonder what the impact is going to be when the boomers start to shift from stocks to preserve capital as they get closer to the end (that sounds morbid). That seems like a lot of money that's going to come out of the market not in reaction to any particular economic metric, but just to be "safe." I'll be curious to see if that creates downward pressure on the market in the next 10-15 years, but I don't know.
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I'm a buy-and-hold value investor who's moderately beaten the markets average growth over 15 years - so I believe its possible to beat the market.
However, people who post things on this forum - saying fire, fire its all going down!, are the opposite of what I think, which is goody, goody, goody the market's getting cheap!
But I also hold off buying sometimes, but its not after a crash - its before a crash if the market's frothy. I haven't done this though since 2005-2007.
So if people come on here now and post, the markets overvalued I'm selling out. My main thought is.. what, but you had your money in the market 4 months ago, when markets were higher, and you thought that was fine.
The big error that most investors do, is they buy high - when the mass opinion is positive, and sell low - when the market is negative, and of course they find justifications to do this at both times.
The only, I'm selling the market post I'm likely to pay attention to, is something along the lines of: Hey everyone I sold out 6 months ago, and I'm still waiting for a good time to buy back in. Anything else, seems like its more coming from panic, than anything else.
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I'm a buy-and-hold value investor who's moderately beaten the markets average growth over 15 years - so I believe its possible to beat the market.
How do you calculate your returns?
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I'm a buy-and-hold value investor who's moderately beaten the markets average growth over 15 years - so I believe its possible to beat the market.
How do you calculate your returns?
I have a multi-page spreadsheet, in one, I record how much in each year I purchased of each company I hold, in another I record how much in dividends I receive each year for each company, I also record their current market price as well as their market price at the end of each year.
From this for each share, I can work out the average year when I bought each company (weighted by the amount of money I spend), for each year. So then, given the final value of a company + the dividends the company has given me, I can work out the average growth rate of the company, or alternatively of my entire portfolio (mainly by keeping totals of all the columns of each sub-spreadsheet).
I have almost 50 shares, and two of them are actually index funds (an entire market, and a high dividend weighted index). So using the same approach, I can work out their average growth rate - which is one way I can do comparisons. Although, I only bought the index funds in 2014 - so I can only do this comparison over the last few years.
I can also work out the average growth of a share/or the portfolio in a year, so then chaining them all together, say something like 100*1.05*0.95*1.20*.... I can work out how $100 would have grown over 15 years, and can then work out the average growth rate over 15 years.
In case you're wondering how I work out average growth rates, say I worked out that $100, 15 years ago, grew into say $300 today, the formula in excel is 100*power(300/100,1/15)-100.
As an example, for a company, say I bought in year 1 $100 of the company, year 2 $200, and year 3 $300, that means on average I bought the company in (1*100+2*200+3*300)/6= 1400/6 = 2.33, say its now worth $800 and its paid $50 in dividends, so then excel would work out
100*power(850/600,1/(current year-2.33))-100.
Well, actually I'd work out
100*power(850/600,1/(0.5+current year-2.33))-100
because I assume I bought the share in the middle of the year.
There's quite a few other subtleties to account for dividend reinvestments, and the few times I've sold shares (mainly when a company of mine is taken over) - but the above is the general gist of what I do. Clear as mud??
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I'm a buy-and-hold value investor who's moderately beaten the markets average growth over 15 years - so I believe its possible to beat the market.
How do you calculate your returns?
I have a multi-page spreadsheet, in one, I record how much in each year I purchased of each company I hold, in another I record how much in dividends I receive each year for each company, I also record their current market price as well as their market price at the end of each year.
From this for each share, I can work out the average year when I bought each company (weighted by the amount of money I spend), for each year. So then, given the final value of a company + the dividends the company has given me, I can work out the average growth rate of the company, or alternatively of my entire portfolio (mainly by keeping totals of all the columns of each sub-spreadsheet).
I have almost 50 shares, and two of them are actually index funds (an entire market, and a high dividend weighted index). So using the same approach, I can work out their average growth rate - which is one way I can do comparisons. Although, I only bought the index funds in 2014 - so I can only do this comparison over the last few years.
I can also work out the average growth of a share/or the portfolio in a year, so then chaining them all together, say something like 100*1.05*0.95*1.20*.... I can work out how $100 would have grown over 15 years, and can then work out the average growth rate over 15 years.
In case you're wondering how I work out average growth rates, say I worked out that $100, 15 years ago, grew into say $300 today, the formula in excel is 100*power(300/100,1/15)-100.
As an example, for a company, say I bought in year 1 $100 of the company, year 2 $200, and year 3 $300, that means on average I bought the company in (1*100+2*200+3*300)/6= 1400/6 = 2.33, say its now worth $800 and its paid $50 in dividends, so then excel would work out
100*power(850/600,1/(current year-2.33))-100.
Well, actually I'd work out
100*power(850/600,1/(0.5+current year-2.33))-100
because I assume I bought the share in the middle of the year.
There's quite a few other subtleties to account for dividend reinvestments, and the few times I've sold shares (mainly when a company of mine is taken over) - but the above is the general gist of what I do. Clear as mud??
Wow! Thanks for the detailed response! I'm used to hearing "BAM!" when I ask that question :-P
So it sounds like it's a money-weighted calculation, how are you comparing this to the index? Are you also recording what price the index was trading at that day, and calculating how much money you'd have if each individual purchase was made in the index instead?
(Therefore comparing your money-weighted return to the money-weighted return you would've received in the index)
Or do you have a separate calculation where you're also calculating the time-weighted return of your portfolio, so you can compare it to the published time-weighted return of the index from Morningstar/Vanguard...etc?
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Wow! Thanks for the detailed response! I'm used to hearing "BAM!" when I ask that question :-P
So it sounds like it's a money-weighted calculation, how are you comparing this to the index?
I also keep track of what the ASX-all ord is at the end of each year (well actually I've found stats for it back to about 1860). So starting in 2000, I know how much it gained, and in 2001, and in 2002...
So I multiply them all together and use that formula I gave above. So, since 2000, the ASX has grown at an average of 3.5% a year, add in dividends, call that 7.5%. Do the same for me, and I'm ... dumpty daaahhh... 14.9.
I think the difference isn't really that big, I did much better in the first few years, when I had some lucky opportunities with some capital raisings for the small number of shares I had.
So more recently, my Vanguard index, lost 4.7% in 2014, lost 4.5 in 2015 and has lost 4.4 this year. (which is calculated, for say 2014, how much were my shares worth at the end of 2013+all dividends up to and including 2013+how much more of the share I bought in 2014. Compared to what were my shares worth at the end of 2014+all dividends up to and including 2014).
Doing the same for my shares it was 11.9 in 2014, 7.1 in 2014 and I'm down 3.6 this year. Actually, looking at that, maybe I can say I'm still outperforming by 7% or so a year - but that seems a bit crazy.
Are you also recording what price the index was trading at that day, and calculating how much money you'd have if each individual purchase was made in the index instead?
(Therefore comparing your money-weighted return to the money-weighted return you would've received in the index)
Or do you have a separate calculation where you're also calculating the time-weighted return of your portfolio, so you can compare it to the published time-weighted return of the index from Morningstar/Vanguard...etc?
No, I use the simplification that I assume I buy all shares in the middle of each year. Which isn't too bad - I tend to work out how much shares I can buy each year, divide it by 26, and spend that each fortnight.
But as I use the same approach for my shares, and the vanguard index I use, I assume I can't be too far off.
Although, based on whether randomly I bought at a higher or lower price, than average, that might skew it a bit - but that should average out over companies, and years.
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I'm a buy-and-hold value investor who's moderately beaten the markets average growth over 15 years - so I believe its possible to beat the market.
How do you calculate your returns?
I have a multi-page spreadsheet, in one, I record how much in each year I purchased of each company I hold, in another I record how much in dividends I receive each year for each company, I also record their current market price as well as their market price at the end of each year.
From this for each share, I can work out the average year when I bought each company (weighted by the amount of money I spend), for each year. So then, given the final value of a company + the dividends the company has given me, I can work out the average growth rate of the company, or alternatively of my entire portfolio (mainly by keeping totals of all the columns of each sub-spreadsheet).
I have almost 50 shares, and two of them are actually index funds (an entire market, and a high dividend weighted index). So using the same approach, I can work out their average growth rate - which is one way I can do comparisons. Although, I only bought the index funds in 2014 - so I can only do this comparison over the last few years.
I can also work out the average growth of a share/or the portfolio in a year, so then chaining them all together, say something like 100*1.05*0.95*1.20*.... I can work out how $100 would have grown over 15 years, and can then work out the average growth rate over 15 years.
In case you're wondering how I work out average growth rates, say I worked out that $100, 15 years ago, grew into say $300 today, the formula in excel is 100*power(300/100,1/15)-100.
As an example, for a company, say I bought in year 1 $100 of the company, year 2 $200, and year 3 $300, that means on average I bought the company in (1*100+2*200+3*300)/6= 1400/6 = 2.33, say its now worth $800 and its paid $50 in dividends, so then excel would work out
100*power(850/600,1/(current year-2.33))-100.
Well, actually I'd work out
100*power(850/600,1/(0.5+current year-2.33))-100
because I assume I bought the share in the middle of the year.
There's quite a few other subtleties to account for dividend reinvestments, and the few times I've sold shares (mainly when a company of mine is taken over) - but the above is the general gist of what I do. Clear as mud??
Wow! Thanks for the detailed response! I'm used to hearing "BAM!" when I ask that question :-P
So it sounds like it's a money-weighted calculation, how are you comparing this to the index? Are you also recording what price the index was trading at that day, and calculating how much money you'd have if each individual purchase was made in the index instead?
(Therefore comparing your money-weighted return to the money-weighted return you would've received in the index)
Or do you have a separate calculation where you're also calculating the time-weighted return of your portfolio, so you can compare it to the published time-weighted return of the index from Morningstar/Vanguard...etc?
I believe if he's properly calculated his return over the holding period (i'm assuming from his description that the holding period is a year) then it sounds to me like he is describing time-weighted returns which would be directly comparable to the published index
http://www.investopedia.com/exam-guide/cfa-level-1/quantitative-methods/discounted-cash-flow-time-weighted-return.asp (http://www.investopedia.com/exam-guide/cfa-level-1/quantitative-methods/discounted-cash-flow-time-weighted-return.asp)
Unless I've missed something here?...
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I'm a buy-and-hold value investor who's moderately beaten the markets average growth over 15 years - so I believe its possible to beat the market.
How do you calculate your returns?
I have a multi-page spreadsheet, in one, I record how much in each year I purchased of each company I hold, in another I record how much in dividends I receive each year for each company, I also record their current market price as well as their market price at the end of each year.
From this for each share, I can work out the average year when I bought each company (weighted by the amount of money I spend), for each year. So then, given the final value of a company + the dividends the company has given me, I can work out the average growth rate of the company, or alternatively of my entire portfolio (mainly by keeping totals of all the columns of each sub-spreadsheet).
I have almost 50 shares, and two of them are actually index funds (an entire market, and a high dividend weighted index). So using the same approach, I can work out their average growth rate - which is one way I can do comparisons. Although, I only bought the index funds in 2014 - so I can only do this comparison over the last few years.
I can also work out the average growth of a share/or the portfolio in a year, so then chaining them all together, say something like 100*1.05*0.95*1.20*.... I can work out how $100 would have grown over 15 years, and can then work out the average growth rate over 15 years.
In case you're wondering how I work out average growth rates, say I worked out that $100, 15 years ago, grew into say $300 today, the formula in excel is 100*power(300/100,1/15)-100.
As an example, for a company, say I bought in year 1 $100 of the company, year 2 $200, and year 3 $300, that means on average I bought the company in (1*100+2*200+3*300)/6= 1400/6 = 2.33, say its now worth $800 and its paid $50 in dividends, so then excel would work out
100*power(850/600,1/(current year-2.33))-100.
Well, actually I'd work out
100*power(850/600,1/(0.5+current year-2.33))-100
because I assume I bought the share in the middle of the year.
There's quite a few other subtleties to account for dividend reinvestments, and the few times I've sold shares (mainly when a company of mine is taken over) - but the above is the general gist of what I do. Clear as mud??
Wow! Thanks for the detailed response! I'm used to hearing "BAM!" when I ask that question :-P
So it sounds like it's a money-weighted calculation, how are you comparing this to the index? Are you also recording what price the index was trading at that day, and calculating how much money you'd have if each individual purchase was made in the index instead?
(Therefore comparing your money-weighted return to the money-weighted return you would've received in the index)
Or do you have a separate calculation where you're also calculating the time-weighted return of your portfolio, so you can compare it to the published time-weighted return of the index from Morningstar/Vanguard...etc?
I believe if he's properly calculated his return over the holding period (i'm assuming from his description that the holding period is a year) then it sounds to me like he is describing time-weighted returns which would be directly comparable to the published index
http://www.investopedia.com/exam-guide/cfa-level-1/quantitative-methods/discounted-cash-flow-time-weighted-return.asp (http://www.investopedia.com/exam-guide/cfa-level-1/quantitative-methods/discounted-cash-flow-time-weighted-return.asp)
Unless I've missed something here?...
Thanks for thinking I'm doing it properly... I can work out an annual growth rate, but I can also work out the annual growth rate over the time I've held a share. So the current year in the formula below is what can give
multi-year average growth.
100*power(850/600,1/(0.5+current year-2.33))-100
i.e. if the current year is 9 (i.e. 8 years after my first purchase), that formula would really be asking. In year 1.83 (2.33-0.5), if I bought $600 worth of shares, and now in year 9 its worth $850 (including dividends) - what is the average growth rate over those 7.17 years?
When I talked about
(which is calculated, for say 2014, how much were my shares worth at the end of 2013+all dividends up to and including 2013+how much more of the share I bought in 2014. Compared to what were my shares worth at the end of 2014+all dividends up to and including 2014)
that's just working out a year's growth.
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I'm a buy-and-hold value investor who's moderately beaten the markets average growth over 15 years - so I believe its possible to beat the market.
How do you calculate your returns?
I have a multi-page spreadsheet, in one, I record how much in each year I purchased of each company I hold, in another I record how much in dividends I receive each year for each company, I also record their current market price as well as their market price at the end of each year.
From this for each share, I can work out the average year when I bought each company (weighted by the amount of money I spend), for each year. So then, given the final value of a company + the dividends the company has given me, I can work out the average growth rate of the company, or alternatively of my entire portfolio (mainly by keeping totals of all the columns of each sub-spreadsheet).
I have almost 50 shares, and two of them are actually index funds (an entire market, and a high dividend weighted index). So using the same approach, I can work out their average growth rate - which is one way I can do comparisons. Although, I only bought the index funds in 2014 - so I can only do this comparison over the last few years.
I can also work out the average growth of a share/or the portfolio in a year, so then chaining them all together, say something like 100*1.05*0.95*1.20*.... I can work out how $100 would have grown over 15 years, and can then work out the average growth rate over 15 years.
In case you're wondering how I work out average growth rates, say I worked out that $100, 15 years ago, grew into say $300 today, the formula in excel is 100*power(300/100,1/15)-100.
As an example, for a company, say I bought in year 1 $100 of the company, year 2 $200, and year 3 $300, that means on average I bought the company in (1*100+2*200+3*300)/6= 1400/6 = 2.33, say its now worth $800 and its paid $50 in dividends, so then excel would work out
100*power(850/600,1/(current year-2.33))-100.
Well, actually I'd work out
100*power(850/600,1/(0.5+current year-2.33))-100
because I assume I bought the share in the middle of the year.
There's quite a few other subtleties to account for dividend reinvestments, and the few times I've sold shares (mainly when a company of mine is taken over) - but the above is the general gist of what I do. Clear as mud??
Wow! Thanks for the detailed response! I'm used to hearing "BAM!" when I ask that question :-P
So it sounds like it's a money-weighted calculation, how are you comparing this to the index? Are you also recording what price the index was trading at that day, and calculating how much money you'd have if each individual purchase was made in the index instead?
(Therefore comparing your money-weighted return to the money-weighted return you would've received in the index)
Or do you have a separate calculation where you're also calculating the time-weighted return of your portfolio, so you can compare it to the published time-weighted return of the index from Morningstar/Vanguard...etc?
I believe if he's properly calculated his return over the holding period (i'm assuming from his description that the holding period is a year) then it sounds to me like he is describing time-weighted returns which would be directly comparable to the published index
http://www.investopedia.com/exam-guide/cfa-level-1/quantitative-methods/discounted-cash-flow-time-weighted-return.asp (http://www.investopedia.com/exam-guide/cfa-level-1/quantitative-methods/discounted-cash-flow-time-weighted-return.asp)
Unless I've missed something here?...
Thanks for thinking I'm doing it properly... I can work out an annual growth rate, but I can also work out the annual growth rate over the time I've held a share. So the current year in the formula below is what can give
multi-year average growth.
100*power(850/600,1/(0.5+current year-2.33))-100
i.e. if the current year is 9 (i.e. 8 years after my first purchase), that formula would really be asking. In year 1.83 (2.33-0.5), if I bought $600 worth of shares, and now in year 9 its worth $850 (including dividends) - what is the average growth rate over those 7.17 years?
When I talked about
(which is calculated, for say 2014, how much were my shares worth at the end of 2013+all dividends up to and including 2013+how much more of the share I bought in 2014. Compared to what were my shares worth at the end of 2014+all dividends up to and including 2014)
that's just working out a year's growth.
Agreed, great job! Looks like you're in the 10% group. Keep it up!
(http://i.imgur.com/rVFlM1n.png)
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Well, just to recap, how I think I've done it.. buy and hold.. never sell... buy stocks with low PE's, high ROEs, high dividends, high dividend growth. If market PEs ever get really high, lots of companies are doing initial offerings, read the Economist magazine, and if they have articles about bubbles - stop buying and pay off loans instead - until the crash, after the crash, buy as much as you can.
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If you search for "asset weighted returns" you might uncover how well the average investor performs. Often the good years encourage buyers, who then discover reversion to the mean, and exit the fund with far less gains than the annual performance suggests. When you look at asset weighted returns, the average investor does even worse than using the less accurate assumption that all investors get the annual return of all funds in which they invest.
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That's great! Is that a money-weighted return, or a time-weighted return? My understanding is that Quicken isn't a good tool for this, as it doesn't provide returns in a way that can be compared to an index.
You are absolutely right. I didn't think it through. My returns are money-weighted so direct comparison to the index is not valid. I messed around with it some but it's way complicated to try to answer the question: what would my returns have been if I had invested in the index and not in the stocks and funds that I did. I'd like an answer, though. I'll see if I can figure a way. I do have all the data.
EDIT: I see faramund described his method.
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Well, just to recap, how I think I've done it.. buy and hold.. never sell... buy stocks with low PE's, high ROEs, high dividends, high dividend growth. If market PEs ever get really high, lots of companies are doing initial offerings, read the Economist magazine, and if they have articles about bubbles - stop buying and pay off loans instead - until the crash, after the crash, buy as much as you can.
Well put, actionable advice. I hope it continues to work out for you.
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That market has increased 7% in the last 2 weeks. That's close to a 200% annual return.
I did not see a single thread in investor alley predicting that. But I bet there are a few people now thinking about putting some money back in the market based on the increase.
This is why market timing is tough. The instincts are so often wrong. If you think you've got the timing nailed down, ask yourself how you missed (or gave up on) a 200% annual return. And what's going to happen tomorrow?
I don't know. But I take increasing comfort in knowing that I don't, and investing accordingly.
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That market has increased 7% in the last 2 weeks. That's close to a 200% annual return.
Gah! I didn't shovel money in fast enough! However, it's still down-ish, so at least I didn't miss the sale completely!
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That market has increased 7% in the last 2 weeks. That's close to a 200% annual return.
I did not see a single thread in investor alley predicting that. But I bet there are a few people now thinking about putting some money back in the market based on the increase.
I made this same observation back on page 4 of this thread (http://forum.mrmoneymustache.com/investor-alley/why-i-am-reducing-mkt-exposurehave-been-since-2015/msg981546/#msg981546). Notice no one here has taken me up on my offer of fame and fortune for correctly calling the bottom.
Market timers always cry SELL SELL SELL all the way down, but they never seem to get the BUY BUY BUY signal no matter how much the market recovers, and they certainly never call the bottom correctly. Me? I bought all the way down, and I'm buying all the way back up. I bought on the market's lowest day. I bought today. I'm an accumulating indexer, I'm always buying.
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I bought all the way down, and I'm buying all the way back up. I bought on the market's lowest day. I bought today. I'm an accumulating indexer, I'm always buying.
What would it take for you to stop buying?
Extreme example: the next 5 years see a raging bull market with millions of new investors pouring in. It's February 2021 and the S&P500 has a P/E > 80. Are you still buying?
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I bought all the way down, and I'm buying all the way back up. I bought on the market's lowest day. I bought today. I'm an accumulating indexer, I'm always buying.
What would it take for you to stop buying?
I can't speak for Sol, but for me it would be total world economic collapse. At that point money would not have value, so trying to trade some of it for an abstract concept like stock in a company would be useless. Other than that . . . I'll keep buying my indexes and bonds and re-balancing them a couple times a year.
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What would it take for you to stop buying?
Extreme example: the next 5 years see a raging bull market with millions of new investors pouring in. It's February 2021 and the S&P500 has a P/E > 80. Are you still buying?
We'd all be FIRE'd drinking mai tais on a beach at the MMM Tahiti Meet Up. It would be time to sell and live off the proceeds. :)
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I bought all the way down, and I'm buying all the way back up. I bought on the market's lowest day. I bought today. I'm an accumulating indexer, I'm always buying.
What would it take for you to stop buying?
Extreme example: the next 5 years see a raging bull market with millions of new investors pouring in. It's February 2021 and the S&P500 has a P/E > 80. Are you still buying?
I'll admit, there is some point where I'd say "screw the efficient market hypothesis; y'all have clearly all gone completely insane" and quit buying. I don't know exactly what P/E ratio that would be at, but it would be fairly obvious because everyone would be comparing the situation to 1989 Japan and yelling about tulips.
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What would it take for you to stop buying?
Extreme example: the next 5 years see a raging bull market with millions of new investors pouring in. It's February 2021 and the S&P500 has a P/E > 80. Are you still buying?
Yes, I would still be buying. I would have my expectations adjusted way down, up to and including expecting a market meltdown, but I'd be buying right through it anyway and reminding myself that my portfolio was likely to adjust down to more historically average valuations.
I can think of exceptions, I suppose. P/E > 80 would likely mean my entire portfolio had recently quadrupled, giving me more than enough money (in overvalued stock valuations) to fulfill all of my life's desires, and if interest rates were still low for the foreseeable future then I might be tempted to call myself the winner of this game, and take all my chips and go home.
But short of a decision like that to just abandon the global economy, I'd still be buying. I bought through the 2007 highs. I bought through the late 90s highs. I expect to keep buying through every spike, and every dip, for as long as I have income to invest. That's what indexing means. That's how you guarantee yourself average market returns.
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P/E > 80 would likely mean my entire portfolio had recently quadrupled, giving me more than enough money (in overvalued stock valuations) to fulfill all of my life's desires, and if interest rates were still low for the foreseeable future then I might be tempted to call myself the winner of this game, and take all my chips and go home.
Why only if interest rates remain low?
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If the PE was ~80, wouldn't we be rebalancing into the other legs of our investment strategy, like bonds and foreign equities? For some it would also be into real estate, either by paying down mortgage, purchasing rentals, or REITs. So I'd still be buying, but it would probably be less US equities, and more of the others. But if everything appeared absurdly overvalued based on history, I would keep buying everything, and weigh against the assured return of paying down my mortgage.
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This is why market timing is tough. The instincts are so often wrong. If you think you've got the timing nailed down, ask yourself how you missed (or gave up on) a 200% annual return. And what's going to happen tomorrow?
I don't know. But I take increasing comfort in knowing that I don't, and investing accordingly.
There are ways to do "market timing" without relying on instincts or gut feel. These methods are objective, such as valuation or trend following. Currently valuations are high (by historical standards) and the trend points down.
No one missed a "200% annual return". VTI is still down nearly 6% YTD. I wouldn't declare victory just yet.
No one knows what's going to happen tomorrow. If history is any guide we can expect to get a better entry point on something interesting some day.
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Why only if interest rates remain low?
I'm guessing sol is talking about opportunity cost here
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I'm guessing sol is talking about opportunity cost here
Right, but, if anything, the opportunity cost of exiting the stock market into cash is higher when interest rates are low.
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Why only if interest rates remain low?
*inflation
Because I have a federal pension that is not indexed for inflation until I'm 60 and it would be decimated by high inflation between now and then. My particular early retirement plans are more inflation sensitive than most. If the 2020s look like the 1970s then I'm not sitting quite as pretty as I appear to be.
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I'll admit, there is some point where I'd say "screw the efficient market hypothesis; y'all have clearly all gone completely insane" and quit buying. I don't know exactly what P/E ratio that would be at, but it would be fairly obvious because everyone would be comparing the situation to 1989 Japan and yelling about tulips.
It'd be the opposite. In the late 90s, EVERYONE thought they were a stock market genius. There were commercials about quitting and becoming a daytrader; taxi drivers and barbers were handing out stock tips.
In 2006/7, everyone was busy flipping houses and watching shows about flipping houses. People were trading up to larger houses because "a house is a great investment."
Same with metals, recently. There were commercials asking for your gold jewelry and coworkers were cashing out the IRA to buy silver.
When it becomes common knowledge to invest in something, and it's discussed at lunch with coworkers, bad news is around the corner.
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*inflation
Because I have a federal pension that is not indexed for inflation until I'm 60 and it would be decimated by high inflation between now and then.
Ah, gotcha (though in a fantasy scenario where stocks became outrageously overvalued enough to entice you to exit the market completely, presumably your pension would become a less important component of your retirement plan and you could just stick the whole pot in inflation-protected treasuries or the like).
My particular early retirement plans are more inflation sensitive than most.
That would seem to suggest that you more than most should take precautions to guard against inflation (which is already the single greatest danger for the ordinary early retiree), but based on our previous mortgage-retention discussions, you don't seem to be especially concerned about inflation.
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you more than most should take precautions to guard against inflation (which is already the single greatest danger for the ordinary early retiree), but based on our previous mortgage-retention discussions, you don't seem to be especially concerned about inflation.
You're right on both counts, I'm not concerned and I am more susceptible to it. But inflation has been low for years, and looks poised to stay low, so until I see signs of change I'm going to continue to assume it will stay low. I rather like it that my biggest threat appears to be toothless at the moment.
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You're right on both counts, I'm not concerned and I am more susceptible to it. But inflation has been low for years, and looks poised to stay low, so until I see signs of change I'm going to continue to assume it will stay low. I rather like it that my biggest threat appears to be toothless at the moment.
Our friendly neighborhood rebel spy might have something to say about the perils of underestimating inflation risk on the basis of the current low-inflation environment.
But in your particular case, I think on balance you may actually be better-equipped than most to deal with inflation, given that inflation-indexing will kick in relatively early in your retirement (the next two decades will hopefully be eclipsed by the remainder of your retirement) and your federal pension represents an effectively risk-free annuitized income stream.
I'll just note, more generally, that once inflation does rear its head, it will already have become too late to take certain protective measures (such as obtaining/retaining a superlow fixed interest mortgage loan, which is one of the best inflation hedges available).
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I'll just note, more generally, that once inflation does rear its head, it will already have become too late to take certain protective measures (such as obtaining/retaining a superlow fixed interest mortgage loan, which is one of the best inflation hedges available).
I think you're discounting how well of an inflation hedge equities are. Companies typically will raise prices (although with a time lag) to compensate for inflation increases. Superior companies with sticky brands will raise prices in excess of inflation without blinking
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I think you're discounting how well of an inflation hedge equities are. Companies typically will raise prices (although with a time lag) to compensate for inflation increases. Superior companies with sticky brands will raise prices in excess of inflation without blinking
No, I totally agree, and my personal retirement plan is to stick with a 100% equity allocation forever (and retain my low interest mortgage) in no small part for precisely that reason.
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I'll admit, there is some point where I'd say "screw the efficient market hypothesis; y'all have clearly all gone completely insane" and quit buying. I don't know exactly what P/E ratio that would be at, but it would be fairly obvious because everyone would be comparing the situation to 1989 Japan and yelling about tulips.
It'd be the opposite. In the late 90s, EVERYONE thought they were a stock market genius. There were commercials about quitting and becoming a daytrader; taxi drivers and barbers were handing out stock tips.
In 2006/7, everyone was busy flipping houses and watching shows about flipping houses. People were trading up to larger houses because "a house is a great investment."
Same with metals, recently. There were commercials asking for your gold jewelry and coworkers were cashing out the IRA to buy silver.
When it becomes common knowledge to invest in something, and it's discussed at lunch with coworkers, bad news is around the corner.
Not all that relevant to the thread but this is what makes me somewhat queasy about all the press and attention index funds are receiving lately. But maybe my perspective is skewed because I frequent this site and bogleheads but I feel like more and more people are understanding the easy way to money through index fund investing.
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I'll admit, there is some point where I'd say "screw the efficient market hypothesis; y'all have clearly all gone completely insane" and quit buying. I don't know exactly what P/E ratio that would be at, but it would be fairly obvious because everyone would be comparing the situation to 1989 Japan and yelling about tulips.
It'd be the opposite. In the late 90s, EVERYONE thought they were a stock market genius. There were commercials about quitting and becoming a daytrader; taxi drivers and barbers were handing out stock tips.
In 2006/7, everyone was busy flipping houses and watching shows about flipping houses. People were trading up to larger houses because "a house is a great investment."
Same with metals, recently. There were commercials asking for your gold jewelry and coworkers were cashing out the IRA to buy silver.
When it becomes common knowledge to invest in something, and it's discussed at lunch with coworkers, bad news is around the corner.
Not all that relevant to the thread but this is what makes me somewhat queasy about all the press and attention index funds are receiving lately. But maybe my perspective is skewed because I frequent this site and bogleheads but I feel like more and more people are understanding the easy way to money through index fund investing.
I've yet to meet a person in real life who has even heard the term "index fund". Considering the number of posters here and even at Bogleheads, who freak out at the smallest hint of volatility, I doubt anything has changed. They will freak out during the next crash with their index funds, just like the freaked out with their active funds.
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I'll admit, there is some point where I'd say "screw the efficient market hypothesis; y'all have clearly all gone completely insane" and quit buying. I don't know exactly what P/E ratio that would be at, but it would be fairly obvious because everyone would be comparing the situation to 1989 Japan and yelling about tulips.
It'd be the opposite. In the late 90s, EVERYONE thought they were a stock market genius. There were commercials about quitting and becoming a daytrader; taxi drivers and barbers were handing out stock tips.
In 2006/7, everyone was busy flipping houses and watching shows about flipping houses. People were trading up to larger houses because "a house is a great investment."
Same with metals, recently. There were commercials asking for your gold jewelry and coworkers were cashing out the IRA to buy silver.
When it becomes common knowledge to invest in something, and it's discussed at lunch with coworkers, bad news is around the corner.
Not all that relevant to the thread but this is what makes me somewhat queasy about all the press and attention index funds are receiving lately. But maybe my perspective is skewed because I frequent this site and bogleheads but I feel like more and more people are understanding the easy way to money through index fund investing.
I've yet to meet a person in real life who has even heard the term "index fund". Considering the number of posters here and even at Bogleheads, who freak out at the smallest hint of volatility, I doubt anything has changed. They will freak out during the next crash with their index funds, just like the freaked out with their active funds.
I just bought an index fund last week but I used an ETF. I called the brokerage because I needed some help with a password and he said what are you buying. I said the index and he didn't seem interested or knowledgeable about it all well. I had the impression he wanted to talk about what special stock I was buying.
I still think it's a long while until everyone just says stuff it I'll buy the index and ignore everything else. If that happens maybe it'd be a good thing anyway.
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Just food for thought -inflation is bad for stocks because PE ratios tend to contract.
1972-1982 CAGR for a Total USA market was 8.06% vs inflation at 7.6% a very poor real return for 10 years.
A paper was written about it but of course I can never find it when I want to!
Mostly PE consolidation. Check it at multpl.com if you wish.
It's important to remember that the opportunity cost of owning fixed income is significantly greater with higher interest rates.
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I'll admit, there is some point where I'd say "screw the efficient market hypothesis; y'all have clearly all gone completely insane" and quit buying. I don't know exactly what P/E ratio that would be at, but it would be fairly obvious because everyone would be comparing the situation to 1989 Japan and yelling about tulips.
It'd be the opposite. In the late 90s, EVERYONE thought they were a stock market genius. There were commercials about quitting and becoming a daytrader; taxi drivers and barbers were handing out stock tips.
In 2006/7, everyone was busy flipping houses and watching shows about flipping houses. People were trading up to larger houses because "a house is a great investment."
Same with metals, recently. There were commercials asking for your gold jewelry and coworkers were cashing out the IRA to buy silver.
When it becomes common knowledge to invest in something, and it's discussed at lunch with coworkers, bad news is around the corner.
Yes, and your point is...?
Are you trying to claim that my "get out when people start comparing to Japan" plan wouldn't have worked in the tech bubble?
You're, right, it wouldn't. If I had been investing in the late '90s I would have kept buying all the way up the bubble, all the way down the crash, and all the way up the recovery. And I would have done just fine!
(Real estate and gold are different, of course -- the first because it's illiquid and hard to get diversification, and the second because it produces no income so "investing" in it relies entirely upon speculation. The efficient market hypothesis and the topic of this thread both only apply to the stock market, so comparison to other asset classes is irrelevant.)
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There is probably comparing the situation to Japan and yelling about tulips every single day that the market is open.
We should have a forum poll on the first of every month just to see if our collective wisdom is good at predicting crashes. It probably isn't, but that'd be fun regardless.
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@JACK
Just keep in mind if you dollar cost averaged into the Nikkei since 1990 you would still be in terrible shape. Furthermore, there's no unwritten law that stocks HAVE to go up... Only history of that happening. I can give plenty of reasons why that could change for 20+ years...
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@JACK
Just keep in mind if you dollar cost averaged into the Nikkei since 1990 you would still be in terrible shape.
Oh? How terrible? I'm having trouble finding charts going back more than 10 years, especially including dividends.
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https://www.bogleheads.org/forum/viewtopic.php?f=10&t=23036&start=100#p2379273
It was discussed extensively over there
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@JACK
Just keep in mind if you dollar cost averaged into the Nikkei since 1990 you would still be in terrible shape.
Did you do the math on this? This is a huge thing most people miss when looking at charts, you're only seeing how a single deposit would've done from end-to-end during that time period. A real portfolio with DCA (during the accumulation phase) doesn't look anything like that. I just worked it out up to 2013:
(https://i.sli.mg/vJ7lvH.png)
If you DCA'ed ¥1,000 a month into 100% Japanese stocks from 1989-2013, you'd end up with an inflation adjusted ¥360,717
Same calculation for USA stocks, in USD: $544,788
International stocks in USD: $357,746
50/50 USA/International in USD: $448,562
At that rate you'd need to work an extra 3 years compared to the market-weighted world stock market. I wouldn't consider this "terrible shape", but that's my opinion :)
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If you DCA'ed ¥1,000 a month into 100% Japanese stocks from 1989-2013, you'd end up with an inflation adjusted ¥360,717
I agree 'terrible' doesn't apply (you didn't lose money at least) but I wouldn't call it 'good' either. Over those 24 years the DCA contributions alone make up 288k of the 360k. 25% total gain over inflation for a 24 year span is pretty bleak.
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I agree 'terrible' doesn't apply (you didn't lose money at least) but I wouldn't call it 'good' either. Over those 24 years the DCA contributions alone make up 288k of the 360k. 25% total gain over inflation for a 24 year span is pretty bleak.
That's why investing solely in any one market is a bad idea. There is a whole planet out there to invest in to spread the risk out.
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Over those 24 years the DCA contributions alone make up 288k of the 360k. 25% total gain over inflation for a 24 year span is pretty bleak.
That's a measly 1% gain per year, but a 1% gain is still a gain. Most people who cite the Japan crash think being invested there meant financial ruin, but this is like the third or fourth thread on these forums detailing how even making one of the single worst mistakes in the history of stock investing STILL made money over a 25 year span, as long as you just faithfully bought the index.
In the long run, stocks just aren't that risky.
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In the long run, diversified portfolios of stocks just aren't that risky.
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If you're going to take that kind of risk - you should have subsequent gains that are appropriate. I wouldn't personally consider 1% above inflation a favorable risk/reward ratio. Basically your last 25 years of gains could be wiped out in a couple months... Just my opinion
I have a balanced portfolio as a result of this. Nothing WRONG with equities, but I'm looking to FIRE in about 10 years. I'm a professional so once I leave, I can't go back to my profession easily...
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If you're going to take that kind of risk - you should have subsequent gains that are appropriate. I wouldn't personally consider 1% above inflation a favorable risk/reward ratio. Basically your last 25 years of gains could be wiped out in a couple months... Just my opinion
I have a balanced portfolio as a result of this. Nothing WRONG with equities, but I'm looking to FIRE in about 10 years. I'm a professional so once I leave, I can't go back to my profession easily...
Remember, volatility is a good thing during the accumulation phase. Using the same calculations from above:
Total US Bond in USD: $333,170
It's quite telling that even 100% Japanese stocks starting from 1989 beat 100% US bonds.
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I think there are two advantages to Volatility - One is that DCA'ing into a volatile asset will lower your average cost of purchase by weighting your lower cost purchases more heavily than the higher cost ones. The other advantage is that if you utilize a portfolio with more than one asset class, as long as the correlations are not 1, then you are forced to buy low and sell high by the process of rebalancing. IMHO, the process of rebalancing is more valuable than looking to DCA into a single volatile asset class.
Below is a chart of the TSM vs. a portfolio of 50% TSM, 25% Total bond, 25% REIT
Both portfolios are DCA'ed with $100 initial investment and $100 annually added 1972-2014
(http://i67.tinypic.com/s5wupv.png)
My point with this is that by engineering a balanced portfolio, you can perform as well as the total stock market, but with far less risk and less severe drawdowns.
I'm sure many of you understand this, so what could be the advantages of going 100% TSM? The only thing I can think of is tax efficiency.
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I think there are two advantages to Volatility - One is that DCA'ing into a volatile asset will lower your average cost of purchase by weighting your lower cost purchases more heavily than the higher cost ones. The other advantage is that if you utilize a portfolio with more than one asset class, as long as the correlations are not 1, then you are forced to buy low and sell high by the process of rebalancing. IMHO, the process of rebalancing is more valuable than looking to DCA into a single volatile asset class.
Below is a chart of the TSM vs. a portfolio of 50% TSM, 25% Total bond, 25% REIT
Both portfolios are DCA'ed with $100 initial investment and $100 annually added 1972-2014
(http://i67.tinypic.com/s5wupv.png)
My point with this is that by engineering a balanced portfolio, you can perform as well as the total stock market, but with far less risk and less severe drawdowns.
I'm sure many of you understand this, so what could be the advantages of going 100% TSM? The only thing I can think of is tax efficiency.
That's not the rebalancing effect. That's the "let's use hindsight to put 25% of our portfolio in a subset of the stocks in TSM which nearly doubled the world stock market over this time period effect". We don't know which subset of TSM will outperform in our time period, so we don't make bets like that.
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@JACK
Just keep in mind if you dollar cost averaged into the Nikkei since 1990 you would still be in terrible shape.
Oh? How terrible? I'm having trouble finding charts going back more than 10 years, especially including dividends.
Im pretty sure that if one of you tech guys build a site that has charts that overlap monthly investing vs lump sum, and with and without dividends using transparent layers so you can see it all with one glance--- you could make some money. I would do it if if I had the skills. I don't.
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@mrpercentage
I agree. I think that'd be a very useful tool. I'd like to know on a monthly basis as well... My instincts tell me that the DCA would be more effective, but I don't have the data to support that idea
@ interest compound
I don't see REITs as JUST being a part of total TSM. Obviously, the market does include REITs, but they have a ton of characteristics that cause me to think of them as their own asset class - the way they are taxed, their use of leverage, their exclusive utilization of real estate, etc. Many other posters weight their portfolios based on capitalization I.e. Heavy on small cap value and so on... I don't see anything wrong with weighting REITs in the same way
If Overweighting REITs is taboo, the what do you consider an alternative asset class?
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If you want to compare DCA vs Lump Sum, just use this:
DCA: http://www.buyupside.com/calculators/dollarcostave.php
Lump: http://longrundata.com/
Not sure if they have data off Nikkei, but if Yahoo Finance has it, they should have it too, you just need to find the right ticker
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That's very helpful. I appreciate it!
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But I bet there are a few people now thinking about putting some money back in the market based on the increase.
No.
This is why market timing is tough. The instincts are so often wrong. If you think you've got the timing nailed down, ask yourself how you missed (or gave up on) a 200% annual return.
What? Who got, and who gave up, a 200% annual return? If you were in the market during the downturn, you haven't made any of that gain - it just offset your recent losses (and not even completely at this point).
This is rather amusing. A short term dip in the market is something to shrug off, but a short term spike is MISSION ACCOMPLISHED!!! Peoples' crowing in here betrays their alleged investment philosophy.
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What would it take for you to stop buying?
Extreme example: the next 5 years see a raging bull market with millions of new investors pouring in. It's February 2021 and the S&P500 has a P/E > 80. Are you still buying?
We'd all be FIRE'd drinking mai tais on a beach at the MMM Tahiti Meet Up. It would be time to sell and live off the proceeds. :)
You and everyone else would be selling. And that's the problem. To sell, there has to be a buyer. If there aren't buyers...
I'll admit, there is some point where I'd say "screw the efficient market hypothesis; y'all have clearly all gone completely insane" and quit buying. I don't know exactly what P/E ratio that would be at, but it would be fairly obvious because everyone would be comparing the situation to 1989 Japan and yelling about tulips.
So, calling bottoms is impossible, but calling tops is "fairly obvious"...
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But I bet there are a few people now thinking about putting some money back in the market based on the increase.
No.
This is why market timing is tough. The instincts are so often wrong. If you think you've got the timing nailed down, ask yourself how you missed (or gave up on) a 200% annual return.
What? Who got, and who gave up, a 200% annual return? If you were in the market during the downturn, you haven't made any of that gain - it just offset your recent losses (and not even completely at this point).
This is rather amusing. A short term dip in the market is something to shrug off, but a short term spike is MISSION ACCOMPLISHED!!! Peoples' crowing in here betrays their alleged investment philosophy.
This response missed the point.
If a person can time the market, then time the market. Catching a 7% gain in a 2-week period is a no-brainer. When you predict that move has run its course, then short the market, or move into the next sector that's going to surge. That's exactly what market timing is. Maximize the return you can make with each successful market timing move, and make as many moves as you can that you can successfully predict.
The reason most people don't do that is because they can't. So the softer version of market timing that is prevalent here is to say that the market seems expensive and look how smart I am not investing now. But unless you can predict the bottom and buy in at the right time, predicting a downturn in the market at some time in the future is not successfully calling the market; it's avoiding investing so you can feel smart if the market later goes down.
The problem is that study after study shows people don't time the market correctly. So the winners are the people who just keep investing. Because over the long term, the market makes money. And the people who invest in the market consistently--even when it seems pricey--do better over the long term than those trying to time it, or those not investing at all.
So the point was not that a 7% growth in my portfolio was exciting or meaningful. It's that the failure of the market timers to capture that growth highlights the fallacy of the (unfortunately) persistent that people can consistently time and beat the market.
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Time in the market >>> Timing the market.
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So the point was not that a 7% growth in my portfolio was exciting or meaningful. It's that the failure of the market timers to capture that growth highlights the fallacy of the (unfortunately) persistent that people can consistently time and beat the market.
You are wrong. I did it right here.
http://forum.mrmoneymustache.com/investor-alley/a-serious-investment-decision/
That said, I would not recommend this approach (always using large lump sums) as a main investment plan. I used the coin to help choose between two investments. I picked one investment because I wanted it to be potent and didn't want to water it down between two.
I got over 30% in six months depending on what final reference point you want to use.
So I did it successfully and have several times but woud not recommend it in general because you can get burned and if you don't have the conviction you will take the loss.
I did it again right here--- thats 2 for 2
http://forum.mrmoneymustache.com/investor-alley/kinder-morgan/
I did both with big money for me. Keeping it potent Sir.
Safe is diversification. I wasn't playing safe. You can get burned doing this.
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If a person can time the market, then time the market. Catching a 7% gain in a 2-week period is a no-brainer. When you predict that move has run its course, then short the market, or move into the next sector that's going to surge. That's exactly what market timing is. Maximize the return you can make with each successful market timing move, and make as many moves as you can that you can successfully predict.
I should clarify because I know there's 8 long pages here. I'm not talking about market timing in the sense of week to week, although maybe others in the thread were.
So the softer version of market timing that is prevalent here is to say that the market seems expensive and look how smart I am not investing now. But unless you can predict the bottom and buy in at the right time, predicting a downturn in the market at some time in the future is not successfully calling the market; it's avoiding investing so you can feel smart if the market later goes down.
Well that's close, but it has nothing to do with trying to look or feel smart. I just don't feel like putting my life savings into an investment that has been artificially inflated for seven years running. I don't have to predict the bottom. If I call any bottom that's lower than when I got out (to a degree that makes up for lost dividends etc), it's a win. If I call a bottom of S&P 1400, and it goes down further to 1200, it's still better than buying at 1900.
The problem is that study after study shows people don't time the market correctly. So the winners are the people who just keep investing. Because over the long term, the market makes money. And the people who invest in the market consistently--even when it seems pricey--do better over the long term than those trying to time it, or those not investing at all.
Perhaps it's always been true. But it's a different world. What happened in the markets in 1910 or 1950 has no bearing on today. It's not so much that I'm not bullish on the market. It's that I'm not bullish on the world. Not by a long shot.
Time in the market >>> Timing the market.
It's political season, so I guess it's the time for slogans. But to answer you, perhaps I don't have as much time as you have.
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So the point was not that a 7% growth in my portfolio was exciting or meaningful. It's that the failure of the market timers to capture that growth highlights the fallacy of the (unfortunately) persistent that people can consistently time and beat the market.
You are wrong. I did it right here.
http://forum.mrmoneymustache.com/investor-alley/a-serious-investment-decision/
That said, I would not recommend this approach (always using large lump sums) as a main investment plan. I used the coin to help choose between two investments. I picked one investment because I wanted it to be potent and didn't want to water it down between two.
I got over 30% in six months depending on what final reference point you want to use.
So I did it successfully and have several times but woud not recommend it in general because you can get burned and if you don't have the conviction you will take the loss.
I did it again right here--- thats 2 for 2
http://forum.mrmoneymustache.com/investor-alley/kinder-morgan/
I did both with big money for me. Keeping it potent Sir.
Safe is diversification. I wasn't playing safe. You can get burned doing this.
You're 2 for 2 with your last 2 calls. That's great! What about your last 10? 20? 100?
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If a person can time the market, then time the market. Catching a 7% gain in a 2-week period is a no-brainer. When you predict that move has run its course, then short the market, or move into the next sector that's going to surge. That's exactly what market timing is. Maximize the return you can make with each successful market timing move, and make as many moves as you can that you can successfully predict.
I should clarify because I know there's 8 long pages here. I'm not talking about market timing in the sense of week to week, although maybe others in the thread were.
So the softer version of market timing that is prevalent here is to say that the market seems expensive and look how smart I am not investing now. But unless you can predict the bottom and buy in at the right time, predicting a downturn in the market at some time in the future is not successfully calling the market; it's avoiding investing so you can feel smart if the market later goes down.
Well that's close, but it has nothing to do with trying to look or feel smart. I just don't feel like putting my life savings into an investment that has been artificially inflated for seven years running. I don't have to predict the bottom. If I call any bottom that's lower than when I got out (to a degree that makes up for lost dividends etc), it's a win. If I call a bottom of S&P 1400, and it goes down further to 1200, it's still better than buying at 1900.
The problem is that study after study shows people don't time the market correctly. So the winners are the people who just keep investing. Because over the long term, the market makes money. And the people who invest in the market consistently--even when it seems pricey--do better over the long term than those trying to time it, or those not investing at all.
Perhaps it's always been true. But it's a different world. What happened in the markets in 1910 or 1950 has no bearing on today. It's not so much that I'm not bullish on the market. It's that I'm not bullish on the world. Not by a long shot.
Time in the market >>> Timing the market.
It's political season, so I guess it's the time for slogans. But to answer you, perhaps I don't have as much time as you have.
What you don't seem to understand, is that the vast majority of the time you end up getting back in higher than you got out. The real problem here is your portfolio has more risk than you're willing to take. Nothing wrong with that, especially if you don't have a long time horizon.. You'd be much better off simply moving to something like 20/80 stocks/bonds and leaving it alone.
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I'll admit, there is some point where I'd say "screw the efficient market hypothesis; y'all have clearly all gone completely insane" and quit buying. I don't know exactly what P/E ratio that would be at, but it would be fairly obvious because everyone would be comparing the situation to 1989 Japan and yelling about tulips.
So, calling bottoms is impossible, but calling tops is "fairly obvious"...
Who said anything about calling the top? I am 99.9999999999% certain in that situation that I'd miss it by a wide margin, and the other 0.0000000001% would be due to pure dumb luck. That's why I'd only even consider attempting it in the most extreme of circumstances.
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A pretty good indicator of bottoms seems to be when threads like this start gaining popularity... say Feb 6th-12th. I may start a side-fund which invests an extra $1k each time a new thread appears with a title such as:
"talk me off the ledge"
"I've been saving for one whole year & I'm LOSING MONEY"
"F@#$%^@#@#%$ the stock market"
"I've been in cash all along because I'm so smart"
"WE'RE ALL DOOMED!!!"
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For anyone that decided to *increase* their market exposure during the first 6 weeks of the year (when everyone else was running for the hills) you should be happy that you did so.
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For anyone that decided to *increase* their market exposure during the first 6 weeks of the year (when everyone else was running for the hills) you should be happy that you did so.
Why would you do that!? You can't time the market! Don't even bother to buy in dips - just DCA into indexes, and you'll be free to retire in 30 years like everyone else.
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This thread is still alive? lol.
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For anyone that decided to *increase* their market exposure during the first 6 weeks of the year (when everyone else was running for the hills) you should be happy that you did so.
I rebalanced all my (and my wife's) funds the first week of January, and am happy that I did so.
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A pretty good indicator of bottoms seems to be when threads like this start gaining popularity... say Feb 6th-12th. I may start a side-fund which invests an extra $1k each time a new thread appears with a title such as:
"talk me off the ledge"
"I've been saving for one whole year & I'm LOSING MONEY"
"F@#$%^@#@#%$ the stock market"
"I've been in cash all along because I'm so smart"
"WE'RE ALL DOOMED!!!"
I do this. I see the threads and say to DH, "Wanna get some more Vanguard?"
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I'm firmly on the side of "time in the market > timing the market", but it is worth noting at this point that the "don't time the market" guys who are celebrating buying dips are doing exactly that, timing the market.
Sol is the most consistent on this front: adamantly buying all the time, all the way down, all the way up - with a big ole indifference.
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I'm firmly on the side of "time in the market > timing the market", but it is worth noting at this point that the "don't time the market" guys who are celebrating buying dips are doing exactly that, timing the market.
Sol is the most consistent on this front: adamantly buying all the time, all the way down, all the way up - with a big ole indifference.
I buy all all the time - down and up. But I also rebalance whenever my target allocation shifts by 4% in either direction. Which had me move ~$30K from bonds to stocks in the last 6 weeks. I don't consider it market timing, but it does allow me to buy the dips and celebrate all the same.
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So the point was not that a 7% growth in my portfolio was exciting or meaningful. It's that the failure of the market timers to capture that growth highlights the fallacy of the (unfortunately) persistent that people can consistently time and beat the market.
You are wrong. I did it right here.
http://forum.mrmoneymustache.com/investor-alley/a-serious-investment-decision/
That said, I would not recommend this approach (always using large lump sums) as a main investment plan. I used the coin to help choose between two investments. I picked one investment because I wanted it to be potent and didn't want to water it down between two.
I got over 30% in six months depending on what final reference point you want to use.
So I did it successfully and have several times but woud not recommend it in general because you can get burned and if you don't have the conviction you will take the loss.
I did it again right here--- thats 2 for 2
http://forum.mrmoneymustache.com/investor-alley/kinder-morgan/
I did both with big money for me. Keeping it potent Sir.
Safe is diversification. I wasn't playing safe. You can get burned doing this.
Here are some of your stock picks in this forum the last 6 months, when you mentioned them, and how they've done since:
Ford (Oct. 2015) -13%
Apple (Oct. 2015) -13%
Disney (Oct. 2015) -14%
Exxon (Sept. 2015) 0%
Conoco (Sept. 2015) -15%
2 for 2? I'm not trying to pick on you. But these kinds of examples of "successful stock picking" can be misleading.
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So the point was not that a 7% growth in my portfolio was exciting or meaningful. It's that the failure of the market timers to capture that growth highlights the fallacy of the (unfortunately) persistent that people can consistently time and beat the market.
You are wrong. I did it right here.
http://forum.mrmoneymustache.com/investor-alley/a-serious-investment-decision/
That said, I would not recommend this approach (always using large lump sums) as a main investment plan. I used the coin to help choose between two investments. I picked one investment because I wanted it to be potent and didn't want to water it down between two.
I got over 30% in six months depending on what final reference point you want to use.
So I did it successfully and have several times but woud not recommend it in general because you can get burned and if you don't have the conviction you will take the loss.
I did it again right here--- thats 2 for 2
http://forum.mrmoneymustache.com/investor-alley/kinder-morgan/
I did both with big money for me. Keeping it potent Sir.
Safe is diversification. I wasn't playing safe. You can get burned doing this.
Here are some of your stock picks in this forum the last 6 months, when you mentioned them, and how they've done since:
Ford (Oct. 2015) -13%
Apple (Oct. 2015) -13%
Disney (Oct. 2015) -14%
Exxon (Sept. 2015) 0%
Conoco (Sept. 2015) -15%
2 for 2? I'm not trying to pick on you. But these kinds of examples of "successful stock picking" can be misleading.
And to put it in context, see attached.
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So the point was not that a 7% growth in my portfolio was exciting or meaningful. It's that the failure of the market timers to capture that growth highlights the fallacy of the (unfortunately) persistent that people can consistently time and beat the market.
You are wrong. I did it right here.
http://forum.mrmoneymustache.com/investor-alley/a-serious-investment-decision/
That said, I would not recommend this approach (always using large lump sums) as a main investment plan. I used the coin to help choose between two investments. I picked one investment because I wanted it to be potent and didn't want to water it down between two.
I got over 30% in six months depending on what final reference point you want to use.
So I did it successfully and have several times but woud not recommend it in general because you can get burned and if you don't have the conviction you will take the loss.
I did it again right here--- thats 2 for 2
http://forum.mrmoneymustache.com/investor-alley/kinder-morgan/
I did both with big money for me. Keeping it potent Sir.
Safe is diversification. I wasn't playing safe. You can get burned doing this.
Here are some of your stock picks in this forum the last 6 months, when you mentioned them, and how they've done since:
Ford (Oct. 2015) -13%
Apple (Oct. 2015) -13%
Disney (Oct. 2015) -14%
Exxon (Sept. 2015) 0%
Conoco (Sept. 2015) -15%
2 for 2? I'm not trying to pick on you. But these kinds of examples of "successful stock picking" can be misleading.
And to put it in context, see attached.
Ford-- sold
Apple--sold
Disney-- purchased at 92
Exxon-- I am up and still buying with a 3.8% yield
Conoco-- still down a little but it just exploded to my average purchase price today
Throw it at me-- Im up 33% in NM today-- thats profit-- all of it. Want see the Robinhood pic?
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This is a very small holding. All of my Robihoods is because it is my speculation account. That said BOOM!!!!
(http://i820.photobucket.com/albums/zz124/azwolf25/Mobile%20Uploads/CBC5D521-FC13-4F72-BFA7-6C8ACF482785.png) (http://s820.photobucket.com/user/azwolf25/media/Mobile%20Uploads/CBC5D521-FC13-4F72-BFA7-6C8ACF482785.png.html)
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So the point was not that a 7% growth in my portfolio was exciting or meaningful. It's that the failure of the market timers to capture that growth highlights the fallacy of the (unfortunately) persistent that people can consistently time and beat the market.
You are wrong. I did it right here.
http://forum.mrmoneymustache.com/investor-alley/a-serious-investment-decision/
That said, I would not recommend this approach (always using large lump sums) as a main investment plan. I used the coin to help choose between two investments. I picked one investment because I wanted it to be potent and didn't want to water it down between two.
I got over 30% in six months depending on what final reference point you want to use.
So I did it successfully and have several times but woud not recommend it in general because you can get burned and if you don't have the conviction you will take the loss.
I did it again right here--- thats 2 for 2
http://forum.mrmoneymustache.com/investor-alley/kinder-morgan/
I did both with big money for me. Keeping it potent Sir.
Safe is diversification. I wasn't playing safe. You can get burned doing this.
Here are some of your stock picks in this forum the last 6 months, when you mentioned them, and how they've done since:
Ford (Oct. 2015) -13%
Apple (Oct. 2015) -13%
Disney (Oct. 2015) -14%
Exxon (Sept. 2015) 0%
Conoco (Sept. 2015) -15%
2 for 2? I'm not trying to pick on you. But these kinds of examples of "successful stock picking" can be misleading.
And to put it in context, see attached.
Ford-- sold
Apple--sold
Disney-- purchased at 92
Exxon-- I am up and still buying with a 3.8% yield
Conoco-- still down a little but it just exploded to my average purchase price today
Throw it at me-- Im up 33% in NM today-- thats profit-- all of it. Want see the Robinhood pic?
Nice! Have you considered starting your own thread so you can live-post your trades?
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I'm actually leaning to the Buffett approach. I traded more last year. Will trade hundreds this year but the thousands will remain in long to life holds. I'm not an advocate for trading but a firm believer in timing
And just for the record-- I still believe in Ford and Apple. Wall Street is still trying to get used to Apples transition to stalwart from growth and too many managers got burned with autos in the financial crisis. With the geopolitics their love is delayed but it will come. Thats my final thought on the matter.
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Ford-- sold
Apple--sold
Come on, man. You can see why people feel like you're all over the place, right? What do you mean you sold Apple and Ford?
Here are some of your comments in the last year on Apple and Ford:
Apple
Apple-- they are an unstoppable force. For the next 5 years at least. Apple watch is sold out-- proving the doubters wrong once again.
Im sticking with Apple and always will.
Ford
Ford because despite popular opinion they have watched everyone else die and they are still here.
Dividend purchasing well, Im buying Ford.. its got a 3.7% yield. It just did a recall. It's price isn't over inflated because Warren Buffet is sitting in it (GM). It has been around for over a hundred years. Im sure it will do just fine. Shit Im driving one. They must be doing something right.
Navios Maritime Holdings (NM)
This is the one you cite as the counterpoint? Seriously? You're posting about a $60 (unrealized) profit as proof of stock picking prowess? And by the way, you've mentioned NM a number of times, including claiming that you owned it back in May 2015. It's down 67% since then!
Analysis
The issue (for the rest of us) is not your jumping into and out of these stocks. It's that it highlights the behavioral inconsistencies, and how hard it is to see them when you're the one doing it. You post repeatedly about how some of these are buy and hold, never sell, long-term investments, mention them again in the last 4 months in threads recommending specific stocks, and then sell them?
Then cite a $60 (unrealized) profit in a different stock that's down 67% since you first claimed to own it as evidence of stock picking prowess?
Your actions aren't unique. You're like me and pretty much everyone else--the decisions you make based on gut and instinct are ones that--statistically--tend to lead to lower returns. How can a buy and hold forever stock suddenly become an oh yeah I sold that after a couple months because of my next great buy and hold forever stock? Because we don't make rational decisions when investing on gut feel.
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Everyone knows when and why I sold Ford and I did it the same time I sold Apple.
As far as NM. Traders usually troll specific stocks. It's what they do. I am no exemption to this as you have to know what you are dealing with. Some do gold While I do stocks highly effected by commodities.
I have been open about everything I have done. It's not my fault you all think I am a total nut. I can point to posts that say I was throwing in half my emergency fund or 20% of everything I have and its stamped and right there.
What is that up 30% and 20%?
I suppose you would be more impressed if I threw $10,000 into NM. I could but then you would rant about how stupid that was. And you would be right because I do not want to own it for 20 years and 20 years is my safety net.
End of line
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This thread keeps on giving LOLs at an astounding rate.
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Nice! Have you considered starting your own thread so you can live-post your trades?
^^ this is a great idea. :)
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The real problem here is your portfolio has more risk than you're willing to take.
Right.
Nothing wrong with that, especially if you don't have a long time horizon..
Right.
You'd be much better off simply moving to something like 20/80 stocks/bonds and leaving it alone.
Exactly.
So, what's the problem? Even though I "don't seem to understand", we agree on a lot!
A pretty good indicator of bottoms seems to be when threads like this start gaining popularity... say Feb 6th-12th. I may start a side-fund which invests an extra $1k each time a new thread appears"
You mean, market timing?
For anyone that decided to *increase* their market exposure during the first 6 weeks of the year (when everyone else was running for the hills) you should be happy that you did so.
You mean, market timing?
I rebalanced all my (and my wife's) funds the first week of January, and am happy that I did so.
You mean, market timing?
I do this. I see the threads and say to DH, "Wanna get some more Vanguard?"
You mean, market timing?
I don't consider it market timing, but it does allow me to buy the dips and celebrate all the same.
You mean, market timing?
This thread is still alive? lol.
Partly thanks to you!
This thread keeps on giving LOLs at an astounding rate.
Isn't that the truth!
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This thread keeps on giving LOLs at an astounding rate.
Isn't that the truth!
Absolutely.
The only thing that surpasses the extremism of the most intransigent anti-timers is the craziness of some market timers.
I don't understand why there cannot be a middle ground where at the very extremes of valuation one can tilt slightly AA.
I'm getting boring with the same example all the time, but it would seem smart to me, In a scenario like today where
- Us market is objectively high (doesn't mean it cannot go higher)
- US dollar is at an all time high
To buy a little more international than usual.
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Reality is we're splitting hairs here, assuming everybody here buys and never sells (which I assume most of us do) it's only going to be between good and great.
I mean we will still fare better than 90% of the rest of investors.
When I do my semi-timing (i.e. buying more euro now) if I never sell I might do slightly better or slightly worse than those who stick ALL. THE. TIME. to the same AA, but should still do ok at least.
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- US dollar is at an all time high
The US dollar is not at an all-time high. Not against the EUR anyway:
(https://i.sli.mg/C6M1XP.png)
Or the Canadian Dollar:
(https://i.sli.mg/BKtWRS.png)
Looking at the US Dollar Index, where it plots the US Dollar against all world currencies, it's nowhere close to being at an all-time high:
(https://i.sli.mg/3yWjis.png)
Maybe one reason why people shouldn't market-time, is because they never know what they're talking about. In this thread alone we've already seen many examples of this.
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My bad I meant against the euro. I live in Europe so I tend to be euro centric in my reasonings.
Where are you getting your numbers? The euro did not exist in the nineties.
"Highest in thirteen years" seems pretty high anyways, especially combined with the difference in valuation (eur/us).
Or are you negating this?
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Your actions aren't unique. You're like me and pretty much everyone else--the decisions you make based on gut and instinct are ones that--statistically--tend to lead to lower returns. How can a buy and hold forever stock suddenly become an oh yeah I sold that after a couple months because of my next great buy and hold forever stock? Because we don't make rational decisions when investing on gut feel.
I was about to make a post reiterating my prior post back on page 1, about the debates not being worth it:
http://forum.mrmoneymustache.com/investor-alley/why-i-am-reducing-mkt-exposurehave-been-since-2015/msg967924/#msg967924
But you know what? It IS worth it. I'm sure our debates here have helped many a newbie steer clear of mrpercentage, and maybe (just MAYBE) helped them avoid his massive mistakes. And if not? It sure helps reinforce our OWN convictions! When I'm old and beginning to lose my mental capacities, I'll think back and say to myself:
(https://i.sli.mg/PVAcaL.png)
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Im flattered.
What huge mistakes? ---- selling Apple and Ford to put $7,000 down on a new car?
Yeah you should keep more dry powder so you don't have to do that. I will throw Apple in your face when it hits $150. You better believe I will.
I will headline that shit---- Ka-BOOM!
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Im flattered.
What huge mistakes? ---- selling Apple and Ford to put $7,000 down on a new car?
Yeah you should keep more dry powder so you don't have to do that. I will throw Apple in your face when it hits $150. You better believe I will.
I will headline that shit---- Ka-BOOM!
I don't get these comments. Do you understand what indexing means. We get a little bit of the gains and the losses of individual stocks. Overall though we get average returns. Average returns will on the whole beat active investors.
So the odds over our entire portfolio vs active traders like yourself are in our favour. You can't throw anything in anyone's faces because over the long term we should come out ahead. If you get some big wins great. I hope you do. It shouldn't though impact my position at all.
It's like comparing asset allocations. Yes 100% stock positions will beat other positions at times but at other times they won't. It's not something that you need to compare.
Apart from all of that if I save more than you or you more than me it will probably have a much bigger impact of getting to our financial goals including FIRE. Even that isn't really comparable because you may choose for instance to have 10 kids and live in an 11 bedroom house. Actually I'll qualify this a little - I think you have a greater risk of losing money so maybe you need to save more or amend your investing approach.
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Seppia, no worries. I'm just having fun here. We agree on this:
- Us market is objectively high (doesn't mean it cannot go higher)
My reaction to the over-valued market is more extreme than others, obviously. But there are some contradictions in some of the anti-marketing-timing chiding in here, including in the Buffett thread, where Buffett was lauded for both saying market timers are silly, and for increasing his cash holdings at times while waiting for better investment opportunities.
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My reaction to the over-valued market is more extreme than others, obviously. But there are some contradictions in some of the anti-marketing-timing chiding in here, including in the Buffett thread, where Buffett was lauded for both saying market timers are silly, and for increasing his cash holdings at times while waiting for better investment opportunities.
Hmm, not a great example. Buffett looks at the value of individual companies. Buying one company definitely isn't timing "the market" because one company isn't the market. And often the companies he buys or invests in aren't even publicly traded. Not even being part of the market pretty much by definition means he can't be timing the market.
In 2015, when the market timers told us to stay away, Buffett bought a whole bunch of stuff. PCP notably which was his largest acquisition to date, Duracell, a chain of car dealerships, just to name a few, and the BRK subsidiaries made 29 bolt-on acquisitions on top of that. If he's timing the market, he's doing it exactly wrong.
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I disagree
Buffett said over and over again "be greedy when others are fearful, and fearful when others are greedy", which is, uh, market timing.
He buys single companies, saying he tries to do so when they are cheap or at a fair price. He repeatedly stated he wouldn't buy an overvalued asset, no matter how great the underlying business is.
He is Warren Fucking Buffett though (I would suggest he makes "Fucking" an actual part of his name for added badassery), so even if some geniuses discount what he achieved as "lucky", I would not use him as a reference.
The USA economy is a fantastic asset, the most beautiful of all in my opinion.
It's just sold very expensive today, especially if you're buying in euros.
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Hmm, not a great example. Buffett looks at the value of individual companies. Buying one company definitely isn't timing "the market" because one company isn't the market. And often the companies he buys or invests in aren't even publicly traded. Not even being part of the market pretty much by definition means he can't be timing the market.
In 2015, when the market timers told us to stay away, Buffett bought a whole bunch of stuff. PCP notably which was his largest acquisition to date, Duracell, a chain of car dealerships, just to name a few, and the BRK subsidiaries made 29 bolt-on acquisitions on top of that. If he's timing the market, he's doing it exactly wrong.
Seppia beat me to it, but yeah, you're adding valid nuance here but the bold above goes with the "buy when others are fearful and sell". Buffett certainly doesn't subscribe to "just buy buy buy with every dollar because everything always goes up". Granted I believe he said he doesn't ever sell the market. But to also be fair, you and I don't have access to (and influence with) Congress like he does.
But anyway, the argument doesn't really get us anywhere. I was just having fun pointing out the silliness of "you dumb market timers! Every time you sell I buy even more!"
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A pretty good indicator of bottoms seems to be when threads like this start gaining popularity... say Feb 6th-12th. I may start a side-fund which invests an extra $1k each time a new thread appears"
You mean, market timing?
Yeah. Pretty foolish, wouldn't you agree?
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I rebalanced all my (and my wife's) funds the first week of January, and am happy that I did so.
You mean, market timing?
Not really, no.
In addition to regular monthly contributions, I've rebalanced my portfolio every January and June for years now. It doesn't mean that I can't be happy to be buying stocks when they're low.
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If a person can time the market, then time the market. Catching a 7% gain in a 2-week period is a no-brainer. When you predict that move has run its course, then short the market, or move into the next sector that's going to surge. That's exactly what market timing is. Maximize the return you can make with each successful market timing move, and make as many moves as you can that you can successfully predict.
The reason most people don't do that is because they can't. So the softer version of market timing that is prevalent here is to say that the market seems expensive and look how smart I am not investing now. But unless you can predict the bottom and buy in at the right time, predicting a downturn in the market at some time in the future is not successfully calling the market; it's avoiding investing so you can feel smart if the market later goes down.
The problem is that study after study shows people don't time the market correctly. So the winners are the people who just keep investing. Because over the long term, the market makes money. And the people who invest in the market consistently--even when it seems pricey--do better over the long term than those trying to time it, or those not investing at all.
Spot on. I read a lot of stuff on investing and once in a while I find a super insightful post--this is one of them.
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In addition to regular monthly contributions, I've rebalanced my portfolio every January and June for years now. It doesn't mean that I can't be happy to be buying stocks when they're low.
Can I be happy that I sold when stocks are high?
Isn't that the whole point?
Isn't that what you do when you rebalance after stocks have gone up?
Yeah. Pretty foolish, wouldn't you agree?
The wording of your comment, and this entire thread, reminds me of this classic movie exchange:
DUKE: "So you're aware of all your behavior, yet you continue to do things that aren't good for you. Sounds sort of foolish, doesn't it, Jack?"
JACK: "No. Stealing 15 million dollars from Jimmy Serrano sounds foolish."
DUKE: "I didn't think I'd get caught."
JACK: "Now that's living in denial."
DUKE: "I'm aware of that."
JACK: "Oh, so, you're aware of all your behavior, yet you continue to do things that aren't good for you. Sounds foolish to me, doesn't it Jon?"
Ah, Midnight Run...
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Sorry, duplicate post...
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BlankCheck - just one question for you.....
Why aren't you popular with the Chicago Police Department?
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Why don't we have emoticons on here??? Thank you MrDelane, that was very nicely played. It's been quite a while since I literally LOL'd at the computer!
Regarding my investment strategy of sitting on the sidelines, I guess I can summarize it this way:
THESE THINGS GO DOWN! THESE THINGS GO DOWN!!!!
IT'S.... IT'S TOO BIG!!!
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In addition to regular monthly contributions, I've rebalanced my portfolio every January and June for years now. It doesn't mean that I can't be happy to be buying stocks when they're low.
Can I be happy that I sold when stocks are high?
Isn't that the whole point?
Isn't that what you do when you rebalance after stocks have gone up?
Absolutely. Every time I rebalance I'm happy, because I'm either buying stocks on discount or I'm banking some profit into bonds.
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(http://i820.photobucket.com/albums/zz124/azwolf25/Mobile%20Uploads/4F13F216-6D50-472B-A213-6965753DD414.png) (http://s820.photobucket.com/user/azwolf25/media/Mobile%20Uploads/4F13F216-6D50-472B-A213-6965753DD414.png.html)
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Oh it's realized now. Booyah CNBC! Booyah turtles!
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Oh it's realized now. Booyah CNBC! Booyah turtles!
Congratulations. You should post this in a Journal thread.
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I'll give you a personal example, not stock related. My family has been in real estate for almost 40 years. We have a small real estate brokerage. Around 2005 and 2006, my father, with 30 years of real estate experience, told me that housing was going to crash. He knew that prices were unsustainable and that mortgages were being given out like candy. I was 22 or 23 back then and wanted to buy a house badly. He told me over and over again to wait for the right time. This was painful for me as I watched housing prices keep rising for the next several years. Well, we obviously know what happened to the housing market. In 2009 I bought a 3-unit for myself (for 122k) and 4 other single family houses that I flipped and sold for good profits shortly after. That 3-unit is now worth 250k and I plan on holding it forever. I also bought 2 condos to rent out in the past year that I plan on holding forever because while the housing market isn't cheap, its fair in my opinion. I don't mind buying during fair or cheap periods. So yeah, if I would have bought it for 300k in 2008, its rough value around then, I wouldn't have lost much money by now and I could have collected rent the entire time. But, because I waited for the right buying period, my returns are much, much greater. I hope this provides some perspective.
My whole point is don't buy or sell when it is obvious that the market is expensive. Expensive markets can get even more expensive for very, very long periods of time so stay in with what you already have in the market. Just don't add until it's fairly priced again. And I'll say it once again, this current market is very, very obviously expensive. When even John Bogle thinks the market is going to give poor returns for the near future, it's hard to argue with. http://www.marketwatch.com/story/john-bogle-says-you-wont-make-much-money-from-stocks-2015-11-05
This makes a lot of sense but I wonder if it's applicable to stock investing. Real estate investment is more similar to starting your own niche business because it's so dependent on geographic dependent trends. So someone with expertise in that geographic location can evaluate whether something is overvalued or undervalued. The stock market is different--it's far more difficult to tell if the market is overvalued or undervalued. You can convince yourself that it's expensive based on ratios or statements from authoritative sources, but I don't think it's that clear cut.
Now that the market has recovered a bit, I'm curious if the overvalued crowd (e.g. Cougar, Keith123, and others) still feel the same way they did in early February. FYI-my point wasn't necessarily that it was a good idea to buy at that time--just that it's very hard to tell when the stock market is overvalued or undervalued.
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It's actually easy to tell if it's overvalued or undervalued, especially in extreme periods, there's broad data on this.
What's hard to tell is what it will do in the short term.
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Not that the answer is anything other than stay the course and never sell btw.
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Not that the answer is anything other than stay the course and never sell btw.
Even though I don't agree that it's easy to tell if the market's overvalued/undervalued, I definitely, absolutely agree with you on this.
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When ALL the main indicators (Shiller PE, Warren Buffett's "stock to GDP ratio", etc) scream "overvalued", probably it's fair to think the market is at least high.
It could go even higher but history suggest there's a fairly strong correlation between these indicators and future 10-20 years returns (hint: they should be on the low side).
Also, to be fair I am personally inclined to so some very minor tampering with the AA in extreme cases such as for example right now.
I am in Europe and make money in euros, plus the pretty strong disparity in valuation between European and US markets have led me to pause new purchases of USA indexes.
I'm not selling what I have, I'm just not adding more.
I increased euro and emerging contributions obviously, I'm still investing the same total amount as I do not believe in keeping cash over a certain quantity (I'm very conservative so 2 years expenses for me. Keep in mind I have zero bonds and spend very little money).
I do believe there's a difference between trying to constantly time the market and just avoiding what clearly looks like a very subpar investment when you have much better alternatives.
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I do believe there's a difference between trying to constantly time the market and just avoiding what clearly looks like a very subpar investment when you have much better alternatives.
What's the difference? All these indicators are unhelpful in predicting future returns, which could be good, bad or indifferent. The world is a very different place now to it was in the past, at least from a financial point of view (e.g. global money printing and currency devaluation) so who knows what the best indicator would have been when we look back in 10 to 20 years time.
One indicator I like it public and media sentiment. When it is bad, I feel more confident and when it is very good, then I worry.
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What's the difference? All these indicators are unhelpful in predicting future returns, which could be good, bad or indifferent.
Uh? No they are not. Shiller PE, for example , has a demonstrably strong correlation with future returns on a 10-20 year period
The world is a very different place now to it was in the past,
This is exactly what all market timers say all the time.
Point is: no.
Like bogle says: regression to the mean
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This depends heavily on what time period the "mean" is based on. If the mean is based largely on the 20th century, regression to the mean might involve something like another two world wars causing massive capital destruction in the developed world. The two world wars were mostly unprecedented, so if one wants to argue that we should expect something similar, is that actually an argument for a "new normal" of massive capital destruction every so often? Because of the technology and overall resources available to modern nations, we could either expect relative peace to continue for for the foreseeable future due to deterrence, or we could expect that major wars will inevitably break out and perhaps cause even more horrific destruction than World War 2.
In terms of a "new normal" that hasn't necessarily started yet, I suspect the rise of AI and automation will have extremely unpredictable effects on society and the markets, such that our 20th century indicators might become even less reliable.
All I'm doing is investing in a globally diversified portfolio and hoping for the best.
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The markets are valued high based on certain charts and key indicators that have, in the past, been semi-accurate.
Though, nothing stops the next 150 years of the market from averaging 15% returns, or likewise, averaging 0%
I find the discussion interesting but ultimately pointless.
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Though, nothing stops the next 150 years of the market from averaging 15% returns, or likewise, averaging 0%.
I think basic math does indeed prevent them from having that type of returns
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All this theory crafting and yet I'm looking at a basket of 5 stocks that produced a return between 11 - 18% since August 2015 precisely because I did the opposite of reducing my market exposure. August - Sep and Jan - Feb were fabulous times if you had cash waiting around ready to deploy.
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I have only read the first page, but found the convo very interesting. Reminds me of an ex who persuaded me to invest 38k in gold and silver between 2008-11 :/
I am actually trying to time the market to get it sold for close to what I bought it for, so I can either pay off my house at 5.9% or put it in the market. I am leaning towards mortgage free/
Not sure what to do? I will carry on reading the thread and hope for enlightenment, 70 % VTSAX at my 403b after listening and reading a bunch of Bogle, and hanging out here for a couple of months, reading the Stock series, I am convinced it is the right way ahead to just let it be and ride out all the nonsense. However I do like to hear opposing views so I can make an informed decision, or rather it shores up my current thinking.
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I have only read the first page, but found the convo very interesting. Reminds me of an ex who persuaded me to invest 38k in gold and silver between 2008-11 :/
I am actually trying to time the market to get it sold for close to what I bought it for, so I can either pay off my house at 5.9% or put it in the market. I am leaning towards mortgage free/
Not sure what to do?
Are you serious?
I mean I don't want to offend you but you have THIRTY EIGHT THOUSAND DOLLARS in gold and you are asking yourself if you should or should not sell it to cut down a mortgage at almost 6%?
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http://goldprice.org/gold-price-history.html
Gold peaked in 2011. Could be that $38K investment (speculation) is now quite a bit less. But...the trend is up...?
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That could take a while...
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LOL
Wish i could add an embarrassed face here, where are the emoticons-
Just wondering whether to wait a week, or month, it has gone up a wee bit as I have been watching. Maybe sell it in stages?
I have only read the first page, but found the convo very interesting. Reminds me of an ex who persuaded me to invest 38k in gold and silver between 2008-11 :/
I am actually trying to time the market to get it sold for close to what I bought it for, so I can either pay off my house at 5.9% or put it in the market. I am leaning towards mortgage free/
Not sure what to do?
Are you serious?
I mean I don't want to offend you but you have THIRTY EIGHT THOUSAND DOLLARS in gold and you are asking yourself if you should or should not sell it to cut down a mortgage at almost 6%?
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LOL
Wish i could add an embarrassed face here, where are the emoticons-
Just wondering whether to wait a week, or month, it has gone up a wee bit as I have been watching. Maybe sell it in stages?
I have only read the first page, but found the convo very interesting. Reminds me of an ex who persuaded me to invest 38k in gold and silver between 2008-11 :/
I am actually trying to time the market to get it sold for close to what I bought it for, so I can either pay off my house at 5.9% or put it in the market. I am leaning towards mortgage free/
Not sure what to do?
Are you serious?
I mean I don't want to offend you but you have THIRTY EIGHT THOUSAND DOLLARS in gold and you are asking yourself if you should or should not sell it to cut down a mortgage at almost 6%?
You've got a pretty bad sunk cost fallacy here. You're focusing on how much unrealized losses you have. But how much you bought it at is irrelevant. That's in the past and can't change. What you can do now is either sell it or hold onto it.
Suppose your gold is worth 30k now.
You keep asking yourself should you lock in a 8k loss to pay down the mortgage. That's the wrong question. You should be asking yourself if you had 30k lying around, would you invest it in gold or pay down your mortgage? (You can always sell your gold and then just buy it right back, so this is an equivalent situation)
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Thanks Johnny, I know you are right, it is just my feelings. Doesn't help that our condo did the same thing, bought it at 140k now zillow says 80k. I am so done with speculations. Live and learn.
I have calculated what I spent total including shipping etc, and seems the loss will only be 4k maybe.
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Just sell the gold (all of it ASAP) and pay down the 6% mortgage.
The best way to deal with bad decisions (we all have our fair share) is act now.
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I'll give you a personal example, not stock related. My family has been in real estate for almost 40 years. We have a small real estate brokerage. Around 2005 and 2006, my father, with 30 years of real estate experience, told me that housing was going to crash. He knew that prices were unsustainable and that mortgages were being given out like candy. I was 22 or 23 back then and wanted to buy a house badly. He told me over and over again to wait for the right time. This was painful for me as I watched housing prices keep rising for the next several years. Well, we obviously know what happened to the housing market. In 2009 I bought a 3-unit for myself (for 122k) and 4 other single family houses that I flipped and sold for good profits shortly after. That 3-unit is now worth 250k and I plan on holding it forever. I also bought 2 condos to rent out in the past year that I plan on holding forever because while the housing market isn't cheap, its fair in my opinion. I don't mind buying during fair or cheap periods. So yeah, if I would have bought it for 300k in 2008, its rough value around then, I wouldn't have lost much money by now and I could have collected rent the entire time. But, because I waited for the right buying period, my returns are much, much greater. I hope this provides some perspective.
My whole point is don't buy or sell when it is obvious that the market is expensive. Expensive markets can get even more expensive for very, very long periods of time so stay in with what you already have in the market. Just don't add until it's fairly priced again. And I'll say it once again, this current market is very, very obviously expensive. When even John Bogle thinks the market is going to give poor returns for the near future, it's hard to argue with. http://www.marketwatch.com/story/john-bogle-says-you-wont-make-much-money-from-stocks-2015-11-05
This makes a lot of sense but I wonder if it's applicable to stock investing. Real estate investment is more similar to starting your own niche business because it's so dependent on geographic dependent trends. So someone with expertise in that geographic location can evaluate whether something is overvalued or undervalued. The stock market is different--it's far more difficult to tell if the market is overvalued or undervalued. You can convince yourself that it's expensive based on ratios or statements from authoritative sources, but I don't think it's that clear cut.
Now that the market has recovered a bit, I'm curious if the overvalued crowd (e.g. Cougar, Keith123, and others) still feel the same way they did in early February. FYI-my point wasn't necessarily that it was a good idea to buy at that time--just that it's very hard to tell when the stock market is overvalued or undervalued.
Happy Easter. I definitely still think the market is over-valued, at least based on current fundamentals and my expectations of the short to medium term future prospects for companies and the economy. If you've been following the markets lately, it looks like corporate profit margins are finally starting to contract - http://finance.yahoo.com/news/corporate-profits-decline-recession-long-term-stock-market-warning-174833869.html. This is a negative for the market. Aggregate US debt is through the roof, another negative. Interest rates being so low is the only thing keeping things afloat. There simply is nowhere else to park the money. I can really only see 3 paths out of this.
1. Interest rates stay low for a veeery long time and the QE just keeps going on endlessly. Very much like how Japan dropped rates in the mid nineties and never got them back up to normal again. I can see that happening here. Shit, negative interest rates might even happen in the US if things don't start picking up. They just did it in Japan. Maybe "helicopter" money drops, rapid inflation to ease the debt burden. All that will do is kick the can down the road for even longer though. I would expect the stock market will stay stable or keep rising in this scenario.
2. The Fed grows some balls and raises interest rates until they are at a reasonable level. This should push the market down as rates rise. As the risk-free rate rises, investors will expect higher returns for riskier asset classes like stocks, devaluing them.
3. Worldwide recession resulting in a massive crash of 30% to 50%. I actually would love this. It would allow for a repricing of assets and a reset of credit. After that, we could get back credit expansion which should fuel growth again.
I think #1 is the most likely. If I may give my personal opinion on good investments, I think residential rental property looks pretty appealing at the moment. Prices are certainly not very low in my area but it's a great inflation play with leverage. You get to borrow at a very low fixed rate with usually 5 times leverage. So in a scenario with rapid inflation, your debt burden gets even easier but the asset price and rents follow the rise in inflation. Just gotta make sure the cash flows cover the total cost of ownership.
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Happy Easter. I definitely still think the market is over-valued
+1
I laughed reading this. It was reading these two statements back to back. Struck me as funny.
I think the stock season will end a little early this year giving you a 5-10% drop.
Corporations have been stock piling cash. What they should be doing is giving their lower-to-mid middle class employees a raise. The one they havent been given the last 10-15 years. Then they should cover that raise by having the balls to raise their prices just enough to cover the raise. CA is talking about $15 minimum wage now with the odds high of getting it. You cant have all they employees making minimum wage, and minimum wage has been creeping up to the lower middle class from $5 back in the early 2000's to $15 now. Why hasn't the middle classes salary tripled? The Fed and QE and bailouts.
Its simple-- pay your employees more-- they will be happy and stay-- they will be more productive-- they will be more loyal-- you will attract more talent--they are the source to the entire nations earnings. Yes this will cause inflation, and then your rates can normalize. You have to pay the worker bees well if you want the biggest hive with the most honey.
Will it happen? Who knows. I am certain its what needs to happen.
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Its simple-- pay your employees more-- they will be happy and stay-- they will be more productive-- they will be more loyal-- you will attract more talent--they are the source to the entire nations earnings. Yes this will cause inflation, and then your rates can normalize. You have to pay the worker bees well if you want the biggest hive with the most honey.
I think you over estimate how much pay affects happiness and productivity of employees. It's rarely even in the top five of happiness, and raises have not been shown to have long-term positive effects on productivity. I think whatever studies you are using to make this claim are outdated, or poorly constructed.
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I think you over estimate how much pay affects happiness and productivity of employees.
I think doesn't affect happiness very much, as long as it is adequate. How happy would you be if your pay was cut 3% per year for the next five years, like clockwork, regardless of your performance? Suddenly it might rise to a higher position on that top 5 list.
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Its simple-- pay your employees more-- they will be happy and stay-- they will be more productive-- they will be more loyal-- you will attract more talent--they are the source to the entire nations earnings. Yes this will cause inflation, and then your rates can normalize. You have to pay the worker bees well if you want the biggest hive with the most honey.
I think you over estimate how much pay affects happiness and productivity of employees. It's rarely even in the top five of happiness, and raises have not been shown to have long-term positive effects on productivity. I think whatever studies you are using to make this claim are outdated, or poorly constructed.
I think I remember the documentary "Happiness" on Netflix showing that pay will increase Happiness until you reach about $70,000. Then it no longer benefits you. So again pay the LOWER and MID middle class more. They have in fact been screwed by the last 15 years. You want to talk redistribution of wealth? How about all my gold, silver, guns, and diamonds gone due to unemployment in 2009. You know I was paid far less than its actual value because the sharks know we need money. You know who benefited from me (and countless others) giving away my wealth to survive in 2009? The top 1% that we bailed out-- thats who. If they do not give us a raise in the next couple of years this country will go 100% socialist. I want to vote them all out RIGHT NOW! Give me the Bern!!
At least we will get healthcare, better education, and subsidized internet because the queen hasn't given a single crap about her worker bees. She will be stung to death soon. I see it coming. Oh its coming
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I was referring specifically to your claim that more pay automatically makes happier, more productive employees. This has been shown to not be the case. This is irrespective of wage scale. While regular pay increases are nice, they are not the primary driver of happiness for the vast majority of employees, according to research. Again, specifically in the context of "What at work makes you happy."
General happiness/life satisfaction may indeed be tied to income, with diminishing returns above $70k-$75K, as you pointed out. Not really an employer's prerogative to ensure that every one of their employees is fully happy in all aspects of their life, though the Gravity Payments experiment did have some mixed results, last I'd heard...
Personally, I'm FIREd, so I do not worry about my pay dropping 3% per year. It would have zero impact upon my life. Yippie ki yeh...
Mr. Percentage; I don't know what you've been drinking tonight, but please pour me a glass? :D No one else brought up wealth re-distribution. I also would doubt that a "1%er" purchased your guns and gold. More likely the middle-class owner of a pawnshop buying low to sell high. May we all be so lucky with our portfolios!
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I was referring specifically to your claim that more pay automatically makes happier, more productive employees. This has been shown to not be the case. This is irrespective of wage scale. While regular pay increases are nice, they are not the primary driver of happiness for the vast majority of employees, according to research. Again, specifically in the context of "What at work makes you happy."
General happiness/life satisfaction may indeed be tied to income, with diminishing returns above $70k-$75K, as you pointed out. Not really an employer's prerogative to ensure that every one of their employees is fully happy in all aspects of their life, though the Gravity Payments experiment did have some mixed results, last I'd heard...
Personally, I'm FIREd, so I do not worry about my pay dropping 3% per year. It would have zero impact upon my life. Yippie ki yeh...
General happiness is tied to contentment is tied to production. Your lack of empathy with workers wages is what can lead to a 50% drop in the stock market when changes come out to address that lack of empathy. Im pretty sure that will effect your life.
What the middle class has gotten a lot of is too bad, so sad, try hard, you were just stupid get educated, in fact take on more debt you cant get out of to do it-- doesnt concern me Im good. That leads to every revolution in history. Doesn't turn out very well for those on top either. Their heads are usually rolling around on the floor.
Wealth distribution is mentioned in every news program you don't watch-- obviously. It is central to "why are the people voting for these outsiders?".
The truth is the wealth has been moved from the middle to the top-- not the other way around. We have been voting to change that and its gotten worse. Obama care specifically has led to the loss of millions of full time jobs to part time jobs. Honeywell just started hiring more full time employees because they were out of compliance-- Dillards and Macy's have almost all part time employees. Don't believe me go in one and ask a clerk how many hours they work. Universal healthcare will fix that but I guarantee the stock market will take a massive hit for it.
You see a companies earnings come from people. The majority are not being paid as much. That means earnings are going down. That means your stocks will go down. That will make even more people mad leading to all kinds of people getting voted out-- going to socialism and then there goes all the 400% gains of the healthcare sector because of Obama Care-- another forced redistribution of wealth from young people that dont need medical insurance to Valeant.
But we don't need to go there. You could just get rid of Obama Care and start paying us more and return our full time jobs that have health insurance.
Me Im voting all these corrupt people out. Every single one of them. From every legislator up. Thats me. I figure all I can do is vote.
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But we don't need to go there. You could just get rid of Obama Care and start paying us more and return our full time jobs that have health insurance.
And those of us who are FIRE or aspire to be FIRE, where do we get our health insurance?
The "open market"? You have to be kidding.
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Just wanted to go on record. I am still bearish, and I now have a put option on the S&P 500 that expires in September. If I'm wrong, you can all let me have it!
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The truth is the wealth has been moved from the middle to the top-- not the other way around.
You mean it trickled UP, not DOWN? Shocking I tell you, shocking!
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Just wanted to go on record. I am still bearish, and I now have a put option on the S&P 500 that expires in September. If I'm wrong, you can all let me have it!
Good luck! I hope that works out well for you.
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But we don't need to go there. You could just get rid of Obama Care and start paying us more and return our full time jobs that have health insurance.
And those of us who are FIRE or aspire to be FIRE, where do we get our health insurance?
The "open market"? You have to be kidding.
And small businesses. The "open market" for small companies is a sham.
Why are you against entrepreneurial ventures?
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Just wanted to go on record. I am still bearish, and I now have a put option on the S&P 500 that expires in September. If I'm wrong, you can all let me have it!
Do you mind sharing the strike/premium for the option(s)? I'm curious on how you chose to do it and what the payout range is (i.e. high strike, better chance of it hitting but had to pay a large premium, or low strike to protect against catostrophic drop only but lower premium).
Good luck, I hope it works out for you. I normally don't short the market, but do sell puts during times when the market has dropped.
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Just wanted to go on record. I am still bearish, and I now have a put option on the S&P 500 that expires in September. If I'm wrong, you can all let me have it!
Do you mind sharing the strike/premium for the option(s)? I'm curious on how you chose to do it and what the payout range is (i.e. high strike, better chance of it hitting but had to pay a large premium, or low strike to protect against catostrophic drop only but lower premium).
Good luck, I hope it works out for you. I normally don't short the market, but do sell puts during times when the market has dropped.
The strike price is 2000 on the S&P, at a 6.39 premium (actually SPY is the underlying asset, at 209 right now; the strike is actually 200). So, not at all cheap, but it lasts until September. I don't need a catastrophe, but I definitely need a significant dip.
We'll see. I've never shorted the market before. But I don't want to diminish my holdings any more than I already have. So I'm hedging instead.
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It is always very dangerous to tell which stock or fund it is going to give the best return. I am always very skeptical about it. I try to find myself some bargains in the market and put my own money. When I put all my saving into something i am very careful at all times what the news and the price is. Check it every day a couple of times... it is the only way to avoid high volatility, selling fast when you see weird moves
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It is always very dangerous impossible to tell which stock or fund it is going to give the best return.
Fixed that. Unless you have a time machine or crystal ball there is no way to know.
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It is always very dangerous impossible to tell which stock or fund it is going to give the best return.
Fixed that. Unless you have a time machine or crystal ball there is no way to know.
The best? Impossible
Adequate on a risk adjusted basis? More than possible
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Just wanted to go on record. I am still bearish, and I now have a put option on the S&P 500 that expires in September. If I'm wrong, you can all let me have it!
I wouldn't see any reason to "let you have it" any more if you were wrong than if you were right. You are speculating on a market move. Whether you make money or lose money doesn't change the nature of what you are doing and shouldn't change opinion of the action, it would be a single example that proves nothing either way.
Good luck!
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Just wanted to go on record. I am still bearish, and I now have a put option on the S&P 500 that expires in September. If I'm wrong, you can all let me have it!
I wouldn't see any reason to "let you have it" any more if you were wrong than if you were right. You are speculating on a market move. Whether you make money or lose money doesn't change the nature of what you are doing and shouldn't change opinion of the action, it would be a single example that proves nothing either way.
Good luck!
It would prove timing the market is possible, even doable by an 'average' person. Or even outside of timing the market, it could show that beating the market returns is doable - this would have huge implications for a FIRE timeline.
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Just wanted to go on record. I am still bearish, and I now have a put option on the S&P 500 that expires in September. If I'm wrong, you can all let me have it!
I wouldn't see any reason to "let you have it" any more if you were wrong than if you were right. You are speculating on a market move. Whether you make money or lose money doesn't change the nature of what you are doing and shouldn't change opinion of the action, it would be a single example that proves nothing either way.
Good luck!
It would prove timing the market is possible, even doable by an 'average' person. Or even outside of timing the market, it could show that beating the market returns is doable - this would have huge implications for a FIRE timeline.
no, it wouldn't prove that timing the market is possible.
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Just wanted to go on record. I am still bearish, and I now have a put option on the S&P 500 that expires in September. If I'm wrong, you can all let me have it!
I wouldn't see any reason to "let you have it" any more if you were wrong than if you were right. You are speculating on a market move. Whether you make money or lose money doesn't change the nature of what you are doing and shouldn't change opinion of the action, it would be a single example that proves nothing either way.
Good luck!
It would prove timing the market is possible, even doable by an 'average' person. Or even outside of timing the market, it could show that beating the market returns is doable - this would have huge implications for a FIRE timeline.
no, it wouldn't prove that timing the market is possible.
Timing the market is absolutely possible. Problem is no one can do it consistently and even the pros have poor records over medium (3+ year) terms. That was the point of the vanguard study.
If you want to be a more sophisticated investor, IMO one has to do the work to understand a specific value(s) in the market and place your bets accordingly. Of course, you need time to research and can still be wrong. For the vast majority of us it's better to do "big and dumb" index funds, take the average, and focus on the skills and interests that lead us to higher income and happiness.
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It would prove timing the market is possible, even doable by an 'average' person. Or even outside of timing the market, it could show that beating the market returns is doable - this would have huge implications for a FIRE timeline.
No - it would prove that one guy made a correct call one time (and good for him). It proves nothing about the ability/probability of doing it successfully for multiple market cycles/conditions over a long time period, nor does a one time event have any significant impacts to a FIRE timeline.
The misnomer that timing proponents seem to have is that nobody disputes that it's reasonably possible to make a correct call on market direction ONE time. If one of us guessed the market will be higher in September and one guessed lower - someone would be right. There's just vast empirical evidence to suggest that it's increasingly difficult/impossible to get the correct call on the second, third, fifth, tenth, twentieth time. In short, if I guessed it was going to rain next Tuesday and it does - it doesn't mean I can now predict the weather.
I should also note that the specific way he is timing the market, his theory can be right but he can still be very 'wrong' in terms of reaping any benefit. If the S&P does in fact go down as predicted but 'only' by 7% he would be right about the direction and still lose money. It gets exponentially harder the more variables you are trying to predict, in this case it's up to 3: the market direction, within a specific timeframe, to at least a specific magnitude.
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But we don't need to go there. You could just get rid of Obama Care and start paying us more and return our full time jobs that have health insurance.
And those of us who are FIRE or aspire to be FIRE, where do we get our health insurance?
The "open market"? You have to be kidding.
And small businesses. The "open market" for small companies is a sham.
Why are you against entrepreneurial ventures?
Huh?
Obamacare is, I hope, a step on the way to single-payer health care. Medicare for all. That's how we support small-business - take them out of the health insurance providing business altogether.
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I think my net worth is up about $100k since this thread started through savings and market returns. Surely the mental energy is not worth the unlikely achievement of perhaps, maybe, doing a little better than market.
Save more, buy index funds, repeat, get rich. Not really that hard.
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Just wanted to go on record. I am still bearish, and I now have a put option on the S&P 500 that expires in September. If I'm wrong, you can all let me have it!
I wouldn't see any reason to "let you have it" any more if you were wrong than if you were right. You are speculating on a market move. Whether you make money or lose money doesn't change the nature of what you are doing and shouldn't change opinion of the action, it would be a single example that proves nothing either way.
Good luck!
Agreed, and thanks for the good luck wishes. I'll need it!
It would prove timing the market is possible, even doable by an 'average' person. Or even outside of timing the market, it could show that beating the market returns is doable - this would have huge implications for a FIRE timeline.
No - it would prove that one guy made a correct call one time (and good for him). It proves nothing about the ability/probability of doing it successfully for multiple market cycles/conditions over a long time period, nor does a one time event have any significant impacts to a FIRE timeline.
The misnomer that timing proponents seem to have is that nobody disputes that it's reasonably possible to make a correct call on market direction ONE time. If one of us guessed the market will be higher in September and one guessed lower - someone would be right. There's just vast empirical evidence to suggest that it's increasingly difficult/impossible to get the correct call on the second, third, fifth, tenth, twentieth time. In short, if I guessed it was going to rain next Tuesday and it does - it doesn't mean I can now predict the weather.
I should also note that the specific way he is timing the market, his theory can be right but he can still be very 'wrong' in terms of reaping any benefit. If the S&P does in fact go down as predicted but 'only' by 7% he would be right about the direction and still lose money. It gets exponentially harder the more variables you are trying to predict, in this case it's up to 3: the market direction, within a specific timeframe, to at least a specific magnitude.
Yep, agreed.
To be sure, I'm not trying to prove any market timing theories here. Rather, I know this thread will be resurrected later if the market goes down, and I want to have a bit of credibility if I mention later that I went short in April. But yes, while a down market would prove this particular bet "right", in no way does it prove any larger point, nor does it make my bet anything other than speculative.
And yeah Terrestrial, if the market goes down 7% and nothing more, that's a big pile of suck for me. Unless I have the foresight to sell the option at some point, or leverage it. But of course I'll have no way of knowing that 7% is the bottom, and actually I'll likely be expecting a further drop. So yeah, this is a gamble. But I just don't trust these market levels right now, and don't know what else to do.
My other motivation for posting this is in case someone has any better advice, beyond the obvious suggestion that this is pure speculation, as I already admit.
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I think my net worth is up about $100k since this thread started through savings and market returns. Surely the mental energy is not worth the unlikely achievement of perhaps, maybe, doing a little better than market.
Save more, buy index funds, repeat, get rich. Not really that hard.
It's not just that it's not hard. It's really simple. Plus it works.
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It would prove timing the market is possible, even doable by an 'average' person. Or even outside of timing the market, it could show that beating the market returns is doable - this would have huge implications for a FIRE timeline.
No - it would prove that one guy made a correct call one time (and good for him). It proves nothing about the ability/probability of doing it successfully for multiple market cycles/conditions over a long time period, nor does a one time event have any significant impacts to a FIRE timeline.
The misnomer that timing proponents seem to have is that nobody disputes that it's reasonably possible to make a correct call on market direction ONE time. If one of us guessed the market will be higher in September and one guessed lower - someone would be right. There's just vast empirical evidence to suggest that it's increasingly difficult/impossible to get the correct call on the second, third, fifth, tenth, twentieth time. In short, if I guessed it was going to rain next Tuesday and it does - it doesn't mean I can now predict the weather.
I should also note that the specific way he is timing the market, his theory can be right but he can still be very 'wrong' in terms of reaping any benefit. If the S&P does in fact go down as predicted but 'only' by 7% he would be right about the direction and still lose money. It gets exponentially harder the more variables you are trying to predict, in this case it's up to 3: the market direction, within a specific timeframe, to at least a specific magnitude.
No one ever said anything about repeatability. If it's possible to predict the market one time, then it would be possible to predict it again. The events would be completely independent of each other; getting it right this time, or five times in a row, doesn't have any effect on the next time. You're not using statistics correctly to make your point. I clearly never suggested it as a long term strategy, or endorsed any specific means of timing the market, just stated that if this event occurs, it proves it would be possible.
Beating the market returns over time, by whatever program one chooses to use, would absolutely have a huge impact on a FIRE timeline. These were two separate statements that were also independent of each other.
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No one ever said anything about repeatability. If it's possible to predict the market one time, then it would be possible to predict it again. The events would be completely independent of each other; getting it right this time, or five times in a row, doesn't have any effect on the next time. You're not using statistics correctly to make your point. I clearly never suggested it as a long term strategy, or endorsed any specific means of timing the market, just stated that if this event occurs, it proves it would be possible.
Beating the market returns over time, by whatever program one chooses to use, would absolutely have a huge impact on a FIRE timeline. These were two separate statements that were also independent of each other.
It's possible to predict a coin-toss correctly, that doesn't mean that it's not random.
It actually seems to be you who doesn't understand statistics. One guy making one prediction and one trade on one internet forum doesn't prove anything about anything. The reasons for his prediction don't matter, and the outcome doesn't matter, it's a sample size of one.
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No one ever said anything about repeatability. If it's possible to predict the market one time, then it would be possible to predict it again. The events would be completely independent of each other; getting it right this time, or five times in a row, doesn't have any effect on the next time. You're not using statistics correctly to make your point. I clearly never suggested it as a long term strategy, or endorsed any specific means of timing the market, just stated that if this event occurs, it proves it would be possible.
Beating the market returns over time, by whatever program one chooses to use, would absolutely have a huge impact on a FIRE timeline. These were two separate statements that were also independent of each other.
It's possible to predict a coin-toss correctly, that doesn't mean that it's not random.
It actually seems to be you who doesn't understand statistics. One guy making one prediction and one trade on one internet forum doesn't prove anything about anything. The reasons for his prediction don't matter, and the outcome doesn't matter, it's a sample size of one.
Of course it's possible to predict coin tosses. That's my whole point. I can understand why many people would be afraid to make a bet on a coin toss or the market direction (which is not random) but I can't understand why people would say it's not possible...
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Of course it's possible to predict coin tosses. That's my whole point. I can understand why many people would be afraid to make a bet on a coin toss or the market direction (which is not random) but I can't understand why people would say it's not possible...
Because you're not actually predicting them. It's random. You're guessing.
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Of course it's possible to predict coin tosses. That's my whole point. I can understand why many people would be afraid to make a bet on a coin toss or the market direction (which is not random) but I can't understand why people would say it's not possible...
Because you're not actually predicting them. It's random. You're guessing.
Ok. I'm sorry for the misunderstanding. I was using this definition of predict:
pre·dict.
[prəˈdikt]
VERB
1.say or estimate that (a specified thing) will happen in the future or will be a consequence of something.
So if you were using a different definition, then I can understand the confusion and disagreement.
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Metric mouse sorry but your reasoning doesn't make any sense.
Of course since an event CAN happen then it can be "predicted" (guessed).
But I mean I do you really need to flip a coin to go "see? I told you it could come out as heads!"
We already know a drop CAN happen (and for sure WILL happen someday).
Duh
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Metric mouse sorry but your reasoning doesn't make any sense.
Of course since an event CAN happen then it can be "predicted" (guessed).
But I mean I do you really need to flip a coin to go "see? I told you it could come out as heads!"
We already know a drop CAN happen (and for sure WILL happen someday).
Duh
Wait...so you're agreeing with me...?
The point you are trying to make is not the point that you're making. If you have an issue with predicting the market, then debate that point. Don't say that no one can do it, admit that people can do, and then say that anyone who says it can be done is wrong. Accuracy is important in productive debate.
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You're being extremely sophistic in defending your position.
Can you please explain what use is a "prediction" that has no difference whatsoever with a guess?
If you are stating that you can make "predictions" that are as good as the simple random probabilities then what type of information are you giving us?
What are you bringing to the table?
You are stating the obvious:
It can happen that someone says "event X is going to happen" and then it happens.
Wow thanks for the info
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The strike price is 2000 on the S&P, at a 6.39 premium (actually SPY is the underlying asset, at 209 right now; the strike is actually 200). So, not at all cheap, but it lasts until September. I don't need a catastrophe, but I definitely need a significant dip.
We'll see. I've never shorted the market before. But I don't want to diminish my holdings any more than I already have. So I'm hedging instead.
BC could you explain a little more as I know you did but it went over my head. Maybe use terms for dummies. lol Just not familiar with doing this. Are you using options? When you say strike price I assume SPY has to reach 200. If it reaches that by Sep. 1st then what do you get? What does the 6.39 premium do? Is that the amount you lose if it doesn't reach the strike point per share?
Also what is your thinking that it will go back down to 200? I could see if the Feds try to raise rates in June you'll probably get it but at this point that seams risky as they don't seem like they know what they are doing anyway. Thanks for any more clarification. Just trying to learn but not interested in doing it myself. As others said good luck I hope it works out!
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You're being extremely sophistic in defending your position.
Can you please explain what use is a "prediction" that has no difference whatsoever with a guess?
If you are stating that you can make "predictions" that are as good as the simple random probabilities then what type of information are you giving us?
What are you bringing to the table?
You are stating the obvious:
It can happen that someone says "event X is going to happen" and then it happens.
Wow thanks for the info
Well, then.... you're welcome? The point was that the market could be 'guessed' (since you prefer that word). Those that state that it can not be guessed are incorrect. That was the entirety of my point. I did not advocate, endorse, suggest or describe any particular avenue of guessing the market. This thread is a big discussion over something everyone has agreed on, with the exception of a small number of persons who stated that the market direction could not be guessed...
Yep, agreed.
To be sure, I'm not trying to prove any market timing theories here. Rather, I know this thread will be resurrected later if the market goes down, and I want to have a bit of credibility if I mention later that I went short in April. But yes, while a down market would prove this particular bet "right", in no way does it prove any larger point, nor does it make my bet anything other than speculative.
And yeah Terrestrial, if the market goes down 7% and nothing more, that's a big pile of suck for me. Unless I have the foresight to sell the option at some point, or leverage it. But of course I'll have no way of knowing that 7% is the bottom, and actually I'll likely be expecting a further drop. So yeah, this is a gamble. But I just don't trust these market levels right now, and don't know what else to do.
My other motivation for posting this is in case someone has any better advice, beyond the obvious suggestion that this is pure speculation, as I already admit.
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In the same way that you can "predict" if the roulette will fall on red or black.
Yes it can happen, I could predict that.
If that's the point then I would rather go to the casino, same probability of success (actually higher, since markets go up more often than they go down), plus there's free booze
:)
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One perspective is that if enough people believed the market would crash later this year, they would be selling stocks and causing prices to slowly go down.
But apparently not a large percentage of people involved in huge funds actually believe this yet.
I don't know how true this is, but it sure seems reasonable to me - people who spend all day every day researching this stuff effectively set stock prices, and they are currently at their current value. This does reflect some speculation, so if people really thought everything was going to crash, the current prices would slowly move to reflect this.
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In the same way that you can "predict" if the roulette will fall on red or black.
Yes it can happen, I could predict that.
If that's the point then I would rather go to the casino, same probability of success (actually higher, since markets go up more often than they go down), plus there's free booze
:)
As long as that falls in line with your personal investment strategy, I think you should go for it. I hope you beat the pants off the market! Good luck!
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It doesn't, but I'll tag along in case somebody is willing to give it a try (for the free booze obviously)
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The strike price is 2000 on the S&P, at a 6.39 premium (actually SPY is the underlying asset, at 209 right now; the strike is actually 200). So, not at all cheap, but it lasts until September. I don't need a catastrophe, but I definitely need a significant dip.
We'll see. I've never shorted the market before. But I don't want to diminish my holdings any more than I already have. So I'm hedging instead.
BC could you explain a little more as I know you did but it went over my head. Maybe use terms for dummies. lol Just not familiar with doing this. Are you using options? When you say strike price I assume SPY has to reach 200. If it reaches that by Sep. 1st then what do you get? What does the 6.39 premium do? Is that the amount you lose if it doesn't reach the strike point per share?
I am not sure how many contracts he bought, but let's assume it is just one. He paid someone $639 to control 1 put contract that equates to 100 shares of SPY. His strike price is 200, which means for him to break even, SPY will have to be at 193.41 ($200-$6.39) by Sept expiration date for him to break even. If it is lower than that, he will make $100 for ever additional dollar it is lower. Otherwise, he loses his premium he just paid.
EDIT:
If SPY at expiration is 193.41, he can sell his option back at $639, and be even
If SPY at expiration is 192.41, he can sell his option back at $739, and make $100
If SPY at expiration is 194.41, he can sell his option back at $539, and lose $100
If SPY at expiration is >200, he will lose his entire premium.
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If SPY ends up at $188.41 at expiration where did the $500 come from that he gets? From other losers I guess that didn't meat the strike point?
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If SPY ends up at $188.41 at expiration where did the $500 come from that he gets? From other losers I guess that didn't meat the strike point?
Just to be clear, if it is at $188.41, he will get $1159 -- $520 of it profit, and $639 is his premium he paid coming back to him(sorry my math was wrong below his breakeven is $193.61).
Where does it come from? For every buyer of a contract, someone has to sell it. In your scenario, the person that sold that contract (who got paid the $639) will HAVE to buy it back for $1159 -- thus them losing $520.
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If SPY ends up at $188.41 at expiration where did the $500 come from that he gets? From other losers I guess that didn't meat the strike point?
Just to be clear, if it is at $188.41, he will get $1159 -- $520 of it profit, and $639 is his premium he paid coming back to him(sorry my math was wrong below his breakeven is $193.61).
Where does it come from? For every buyer of a contract, someone has to sell it. In your scenario, the person that sold that contract (who got paid the $639) will HAVE to buy it back for $1159 -- thus them losing $520.
Correct - I take the 'seller' side of the contract quite often and there's two ways that can happen. When selling a put you can either directly close it out for the difference (the $520 noted above, a loss to the seller) or you can take assignment (brokerage will take $20k out of your account and give you 100 shares SPY @ 200, your cost basis in those shares is roughly 193.61 (200 - 6.39 premium per share).
I sell puts for 2 primary reasons: to get paid to wait for getting into a position I want to take assignment on at the price I want (you can often yield 1%/monthly while waiting and when you do take assignment you also keep the received premium to apply against your basis), or just to generate income against cash for options I deem likely to expire worthless (speculative cash generation), in which case I will close them out if it's at a loss and not take assignment. Approx 60-90% of options expire worthless (depends on study/source).
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You've got a pretty bad sunk cost fallacy here. You're focusing on how much unrealized losses you have. But how much you bought it at is irrelevant. That's in the past and can't change. What you can do now is either sell it or hold onto it.
Suppose your gold is worth 30k now.
You keep asking yourself should you lock in a 8k loss to pay down the mortgage. That's the wrong question. You should be asking yourself if you had 30k lying around, would you invest it in gold or pay down your mortgage? (You can always sell your gold and then just buy it right back, so this is an equivalent situation)
Can't wait to unload the three gold coins I picked up in mid-2011. I've been holding based on the fallacy you mentioned here, in part. Now to work out how to get a half-day off of work so I can take them into a local dealer.
Excellent advice there. Thanks!
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I can't believe I just read this whole thread!
To Cougar, Keith, etc. Here is the problem, the headwind, that your strategy faces:
Missing A Few Good Days Will Destroy Your Long-Term Returns
When volatility picks up, it's tempting to trade in and out of the market with the hope you'll protect your wealth. Unfortunately, this increases the risk you'll miss some of the best days in the market. And that can be very costly.
JPMorgan Asset Management illustrated how much an investor's returns collapsed when they missed a few of the best days in the market. They found that if an investor stayed fully invested in the S&P 500 from 1993 to 2013, they would've had a 9.2% annualized return.
However, if trading resulted in missing just the ten best days during that same period, then those annualized returns would collapse to 5.4%.
http://www.businessinsider.com/investors-miss-stock-market-rallies-charts-2014-10 (http://www.businessinsider.com/investors-miss-stock-market-rallies-charts-2014-10)
Even if you are insanely lucky and manage to miss all of the big down days, you'll also miss those up days. Add in fees and dividends, and you're left with mediocre returns at best. Staying in avoids all that.
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My other motivation for posting this is in case someone has any better advice, beyond the obvious suggestion that this is pure speculation, as I already admit.
If you're truly motivated to take a valuation approach, then take an actual valuation approach. Study businesses and securities and come up with intrinsic estimates on value. Then buy when they reach your range.
Derivatives and options are truly zero sum games, and there's too many variables governing index prices (as I've said much earlier in the thread, the Shiller P/E is possibly overstating the expensiveness of the "market" due to the low interest rates from govvies, is a 2% premium over govvies unreasonable? Especially compared to the 2000 bubble when Shiller Yield was UNDER govvies?). Buying securities, on the other hand, is not zero sum at all. Companies can grow and make everyone richer. Betting on price movements means there's a winner and a loser.
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You've got a pretty bad sunk cost fallacy here. You're focusing on how much unrealized losses you have. But how much you bought it at is irrelevant. That's in the past and can't change. What you can do now is either sell it or hold onto it.
Suppose your gold is worth 30k now.
You keep asking yourself should you lock in a 8k loss to pay down the mortgage. That's the wrong question. You should be asking yourself if you had 30k lying around, would you invest it in gold or pay down your mortgage? (You can always sell your gold and then just buy it right back, so this is an equivalent situation)
Can't wait to unload the three gold coins I picked up in mid-2011. I've been holding based on the fallacy you mentioned here, in part. Now to work out how to get a half-day off of work so I can take them into a local dealer.
Excellent advice there. Thanks!
I think this was in reply to me. I sold some of it, but i havent sold the stuff that cost me more yet. one thing that stops me is- if people say not to sell stocks when you panic and they are doing really badly- to stay the course- why is selling gold low a good idea? i dont get that part.. so i am waiting until it goes back up so i can sell it for a little bit more than what i bought it for.
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You've got a pretty bad sunk cost fallacy here. You're focusing on how much unrealized losses you have. But how much you bought it at is irrelevant. That's in the past and can't change. What you can do now is either sell it or hold onto it.
Suppose your gold is worth 30k now.
You keep asking yourself should you lock in a 8k loss to pay down the mortgage. That's the wrong question. You should be asking yourself if you had 30k lying around, would you invest it in gold or pay down your mortgage? (You can always sell your gold and then just buy it right back, so this is an equivalent situation)
Can't wait to unload the three gold coins I picked up in mid-2011. I've been holding based on the fallacy you mentioned here, in part. Now to work out how to get a half-day off of work so I can take them into a local dealer.
Excellent advice there. Thanks!
I think this was in reply to me. I sold some of it, but i havent sold the stuff that cost me more yet. one thing that stops me is- if people say not to sell stocks when you panic and they are doing really badly- to stay the course- why is selling gold low a good idea? i dont get that part.. so i am waiting until it goes back up so i can sell it for a little bit more than what i bought it for.
You're missing the point here.
That advice to not sell stocks when you panic is a statement to avoid market timing - to avoid making decisions based on market conditions. Selling stocks when they're falling, because you're panicking about the fact that they're losing value, is by definition market timing. Oftentimes people believe that they can somehow avoid the big drops and then buy back in at a low point to avoid large losses (and while of course a few people can get lucky and do this, the vast majority of people can not do this reliably).
However, you've decided that gold itself is a bad investment, not based on it's current price, but the fact that it's got no internal rate of return, and it's value is merely based on speculation (correct me if my assessment of your opinion of gold is incorrect). Selling now is not a decision to try to beat the market, it's actually a decision to try to get market returns (by buying a market index fund instead).
Or if you don't like that argument, we can try a different way:
You don't know how long it will take until the gold you bought comes back up to your original buy price. Suppose it takes 3 years, and in that time the gold gained 10% (I don't know what your original buy price is so I made something up). In the meantime, stocks have gone up 30%. Are you really better off waiting until your gold rises to it's original buy price?
Conversely, it could take 1 year, and in that time stocks have dropped 5% (while gold has still gained 10%). In this case, you were better off holding onto your gold.
The problem here is that you simply do not know how gold will perform relative to stocks. What you do know is that gold is a bad investment (again, if my assessment of your opinion on gold is wrong, correct me). Hence, you should sell your gold, regardless of your buy price.
Or if you don't like that argument either, I can try to rephrase my original argument.
Whatever price you bought gold for makes no damn difference. That money is lost. The money you have now is whatever your gold is worth now. You could sell it right now. If you did, would you rather buy back your gold, or buy stocks instead?
Or if you don't like that argument either....
You said you sold the gold that rendered you a profit. But that's nonsense. Gold is gold. It's all fungible. My bar of gold is worth just as much as your bar of gold (assuming they weigh the same). The same way that the $1 bill in my pocket is worth the same as a $1 in your pocket. So for you to say that you only sold the gold that netted you a profit is fallacious. You simply took a profit/loss distributed across all the gold you bought.
That was long winded. Oops.
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I have been reading a lot on the Golden butterfly threads- both here and on Bogleheads forum.. and if I dont sell, i basically have that portfolio. I also read the whole thread on the 3-fund portfolio- 30 odd pages! on the Bogleheads forum- so weighing these 2 portfolios (which seem to click with me most) I feel the 3 fund portfolio probably suits me better and that is what i have on my 403b- makes it easy to adjust between the 3 categories esp when re-balancing- physical gold is no use for re-balancing my 403b. I guess the problem is I don't know if it is a bad investment- does anyone? There are so many different opinions on its use in the Golden butterfly thread.. so instead of making any rash decisions i am just reading more and seeing if gold goes up a bit more. It wont take much for it to pass the point for me to be pleased with a sale- i think it is fairly close.
I did at the time of buying really have 'buy in' to it being a good investment, I read a lot and watch a lot of videos- though in retrospect a lot of what they were saying came out of fear- (2008) maybe if Trump gets elected (shudder) that fear will come back - not that i wish that as gold doing well, usually means something pretty bad going on elsewhere.
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Thanks for explaining that, Squeak. Saved me a lot of typing. Hope that helps you, weinerdog.
If SPY ends up at $188.41 at expiration where did the $500 come from that he gets? From other losers I guess that didn't meat the strike point?
Just to be clear, if it is at $188.41, he will get $1159 -- $520 of it profit, and $639 is his premium he paid coming back to him(sorry my math was wrong below his breakeven is $193.61).
Where does it come from? For every buyer of a contract, someone has to sell it. In your scenario, the person that sold that contract (who got paid the $639) will HAVE to buy it back for $1159 -- thus them losing $520.
Correct - I take the 'seller' side of the contract quite often and there's two ways that can happen. When selling a put you can either directly close it out for the difference (the $520 noted above, a loss to the seller) or you can take assignment (brokerage will take $20k out of your account and give you 100 shares SPY @ 200, your cost basis in those shares is roughly 193.61 (200 - 6.39 premium per share).
I sell puts for 2 primary reasons: to get paid to wait for getting into a position I want to take assignment on at the price I want (you can often yield 1%/monthly while waiting and when you do take assignment you also keep the received premium to apply against your basis), or just to generate income against cash for options I deem likely to expire worthless (speculative cash generation), in which case I will close them out if it's at a loss and not take assignment. Approx 60-90% of options expire worthless (depends on study/source).
Terrestrial, this might sound counter-intuitive, but I actually strongly considered selling puts before I decided to buy them. The reason is, I do ultimately want to replenish my equity holdings. Your strategy would be a nice way to do that at a lower price, and make a small profit in the meantime. But in the end, I decided to just bet directly on my forecast.
Yes, the majority of options expire worthless, so I'd love it if I can sell this thing for a relatively small gain or loss at some point (and possibly roll that money into another put to extend my duration). To actually exercise the option, it seems like the market would have to really be tanking. Assuming that doesn't happen, I will have to flip the option at some point. Hell, it's up 10% today - maybe I should flip it now!
I guess I'm basically saying, I don't know that the market will tank, but I think the odds of that happening are more likely than people believe. So I'm betting more on the market inefficiency rather than betting on a tank (which would be akin to picking a number on the roulette wheel).
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If one of us guessed the market will be higher in September and one guessed lower - someone would be right. There's just vast empirical evidence to suggest that it's increasingly difficult/impossible to get the correct call on the second, third, fifth, tenth, twentieth time.
just to nitpick, the vast empirical evidence actually suggests the market will in fact be higher at any given future date. that's the simplest model and whole basis of buy and hold.
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If one of us guessed the market will be higher in September and one guessed lower - someone would be right. There's just vast empirical evidence to suggest that it's increasingly difficult/impossible to get the correct call on the second, third, fifth, tenth, twentieth time.
just to nitpick, the vast empirical evidence actually suggests the market will in fact be higher at any given future date. that's the simplest model and whole basis of buy and hold.
This isn't nitpicking. That's the entire point. If the market goes up over time, and unpredictably so, statistically the market is likely to go up on any given day. Thus, as you said, the market is statistically likely to be up at any future date compared to today's price.
That's why the statistically correct move is to lump sum money in. Of course, because it is unpredictable, people often feel more comfortable dollar cost averaging into the market so that if it happens to go down right after, they don't feel as bad. But a perfectly rational person should lump sum in for exactly the reason you just said.
Of course, a perfectly rational person probably wouldn't be spending time reading this thread!
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If one of us guessed the market will be higher in September and one guessed lower - someone would be right. There's just vast empirical evidence to suggest that it's increasingly difficult/impossible to get the correct call on the second, third, fifth, tenth, twentieth time.
just to nitpick, the vast empirical evidence actually suggests the market will in fact be higher at any given future date. that's the simplest model and whole basis of buy and hold.
I absolutely agree with you, especially the longer the timeframe. My point in the broader context of the post was that it's much harder to predict consistently over many shorter time periods than few longer ones.
If people had to guess which direction the market will close the next day for 20 days in a row I doubt anybody would get them all right (this is a 'future date' but I doubt someone guessing higher will be right all the time...on a very short term basis he might only be right closer to 1/2 or 2/3 of the time). If people had to guess if the market will be higher or lower every 5 year increment, there is a much much higher probability they will be right (if the guess 'higher', as you note).
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I have been reading a lot on the Golden butterfly threads- both here and on Bogleheads forum.. and if I dont sell, i basically have that portfolio. I also read the whole thread on the 3-fund portfolio- 30 odd pages! on the Bogleheads forum- so weighing these 2 portfolios (which seem to click with me most) I feel the 3 fund portfolio probably suits me better and that is what i have on my 403b- makes it easy to adjust between the 3 categories esp when re-balancing- physical gold is no use for re-balancing my 403b. I guess the problem is I don't know if it is a bad investment- does anyone? There are so many different opinions on its use in the Golden butterfly thread.. so instead of making any rash decisions i am just reading more and seeing if gold goes up a bit more. It wont take much for it to pass the point for me to be pleased with a sale- i think it is fairly close.
I did at the time of buying really have 'buy in' to it being a good investment, I read a lot and watch a lot of videos- though in retrospect a lot of what they were saying came out of fear- (2008) maybe if Trump gets elected (shudder) that fear will come back - not that i wish that as gold doing well, usually means something pretty bad going on elsewhere.
Before we can move forward with this discussion you need to decide if you actually want gold as a part of your portfolio or not.
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I think this was in reply to me. I sold some of it, but i havent sold the stuff that cost me more yet. one thing that stops me is- if people say not to sell stocks when you panic and they are doing really badly- to stay the course- why is selling gold low a good idea? i dont get that part.. so i am waiting until it goes back up so i can sell it for a little bit more than what i bought it for.
But I'm not panicking. I've had it for five years. If I were to panic, it would have been during the sharp drops in 2013. I *wish* I had sold then! :(
Since I am unsure if gold will *ever* rise back to the $1500-1600 level, and since I will never invest in gold again, I'm going with the advice above. If I wouldn't buy it now, why hold what I have? I hope to have the wife sell our coins today.
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On a note related to 'timing' - I really like the '3% Signal' method that Jason Kelly cooked up. It's sort of a mechanical timing signal. Instead of looking at charts or any other forward-guessing, it simply looks back at the previous quarter. If you made less than 3%, you move some money from bonds to stocks to move your equity balance up to the 3% line. If you made *more* than 3%, you sell some stocks and move the money to your bonds. You guarantee yourself a 3% gain each quarter, 12%/year. There are special rules for extended bull or bear runs, and yes - you might end up with no cash left over in certain scenarios. So then you just wait until things shift.
It seems like it would work best during a bigger accumulation phase, an alternative to DCA. It gives you a sense of control over when to put money in, theoretically beating straight DCA although I'm not sure what the backtest results are. Also, it's a good balance between pure buy-and-hold and someone who constantly futzes with things. Gives you something to do without constantly moving in/out of the market.
I just happened to get back into the market in mid-February so my balances are all up, but we've got 8 weeks until the end of the quarter.
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On a note related to 'timing' - I really like the '3% Signal' method that Jason Kelly cooked up. It's sort of a mechanical timing signal. Instead of looking at charts or any other forward-guessing, it simply looks back at the previous quarter. If you made less than 3%, you move some money from bonds to stocks to move your equity balance up to the 3% line. If you made *more* than 3%, you sell some stocks and move the money to your bonds. You guarantee yourself a 3% gain each quarter, 12%/year. There are special rules for extended bull or bear runs, and yes - you might end up with no cash left over in certain scenarios. So then you just wait until things shift.
Wait I'm not sure I understand
Let's say beginning of Q1 you had $1000 in stocks
End of Q1 options:
1- if you have say $1050 you move $20 to bonds
2- if you have say $980 you move $50 from bonds to stocks
Is that correct?
If that's the rule, how are you "guaranteeing yourself 3% per quarter"?
It wouldn't make any sense
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On a note related to 'timing' - I really like the '3% Signal' method that Jason Kelly cooked up. It's sort of a mechanical timing signal. Instead of looking at charts or any other forward-guessing, it simply looks back at the previous quarter. If you made less than 3%, you move some money from bonds to stocks to move your equity balance up to the 3% line. If you made *more* than 3%, you sell some stocks and move the money to your bonds. You guarantee yourself a 3% gain each quarter, 12%/year. There are special rules for extended bull or bear runs, and yes - you might end up with no cash left over in certain scenarios. So then you just wait until things shift.
Wait I'm not sure I understand
Let's say beginning of Q1 you had $1000 in stocks
End of Q1 options:
1- if you have say $1050 you move $20 to bonds
2- if you have say $980 you move $50 from bonds to stocks
Is that correct?
If that's the rule, how are you "guaranteeing yourself 3% per quarter"?
It wouldn't make any sense
Makes perfect sense. $1050 would be a 5% gain, so you sell some shares to reduce that to a 3% gain. $20 in this case. But you don't move it to cash, you move it to bonds.
In one sense it is a quarterly rebalancing of asset allocation, using 3% as a 'signal' as to when and how much to rebalance. I'm set up with an 80% stocks/20% bonds AA at this time, but any AA will do. The motivation for this, as stated by Kelly:
This action, using the unperturbed clarity of prices alone, automates the investment masterstroke of buying low and selling high
http://jasonkelly.com/resources/strategies/ (http://jasonkelly.com/resources/strategies/) (first section)
So in a sense, it's a tool to help prevent 'fiddlers' from buying and selling willy-nilly and giving them some guidelines. I'm experimenting with it, but if it turns out to be unhelpful I will gladly revert to one big pile of Total Index at Vanguard...
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Yes ok but you're rebalancing, that's it.
Plus longer term, since a 12% growth rate is clearly unsustainable, you will get stuck unless you underinvest your monthly savings to keep the stash of cash/bonds full.
I don't know it seems like complicating a very simple thing in my opinion.
1- choose your AA
2- rebalance once per year
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Yes ok but you're rebalancing, that's it.
Plus longer term, since a 12% growth rate is clearly unsustainable, you will get stuck unless you underinvest your monthly savings to keep the stash of cash/bonds full.
If you are still accumulating, you have to put money somewhere until the quarterly adjustment. Generally that will be the bond side, but you can do a 20/80 split with the new funds as well. Accounting for all that might be difficult...
12% was selected as it is a couple of points above the historical market average. So you are guaranteeing yourself to beat the average. As I mentioned, there are special rules for extended bear/bull periods to avoid getting 'stuck' - but you could still drain the bond side down to 0 and have nothing left to put into stocks.
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So in a sense, it's a tool to help prevent 'fiddlers' from buying and selling willy-nilly and giving them some guidelines. I'm experimenting with it, but if it turns out to be unhelpful I will gladly revert to one big pile of Total Index at Vanguard...
I predict it will wind up being unhelpful. The backtest only goes back to 2002 or so. Since then, the stock market has more than doubled, and bond prices steadily increased. It would be easy to find a 15 year period when that was not the case. Late 1960s early 1970s for example. Stocks were mostly flat and bonds tanked.
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Took a glance at my Vanguard account and see that my rate of return for the last year is 12.7%, including 13.9% in the taxable account that I've been dumping money into since August 2015. All index funds. The taxable account benefitted from steady contributions, including when the market dropped last September and again in January/February.
Of course, that could all change drastically Monday and the market could plummet, but I was surprised to see the rates of returns given that even though we've just hit an all-time high, my first thought was that the markets haven't really done that much since last August (before the drop).
Food for thought.
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Thank you for bumping this thread Cycling Stache! I love it when we can point out public examples like this to all the newbies in the forum.
Here's a graph of US Stocks and International Stocks since Feb 6th, when this thread was created, to date:
(https://i.imgur.com/pPRPBlzh.png)
And a quote from the original post:
As you should know, the financial markets has started off the year terribly and that’s going to continue.
[..]
I could go on and on with this list that it’s a bad time to be investing in the market.
[..]
If you wish to go off on me and tell the board how wrong I am and me trying to time the market here is a fool’s errand, go ahead. [..] I have given the board my opinion on what would be best for them this year and a solid free reference to follow.
We don't need to tell you it's a fool's errand, the data is there for all to see.
To the newbies of the forum, you'll get used to this. Every-time there's a slight jump down in the market, you'll find threads like this everywhere. "I've been getting out of the market for the past year now! See I'm right! Everyone else hurry and jump out too before it's too late! Doomsday for all!"
Only for them to mysteriously disappear when their predictions don't come true. Here's a quote from the last post Cougar has made anywhere on this forum:
I have tried to stay out of this thread even though I started it because it's not really my responsibility to try and save anyone from losing money in 2016, that decision is up to you
[...]
Again, my question is if you could save money this year by reducing exposure over losing it and having to wait additional years before you could retire because you now have to wait to get back the gains you lost; would you ?
And here's the another graph, how the stock market has moved since that post:
(http://i.imgur.com/PU4hmkYh.png)
Cougar's last post was quite-literally the bottom. And we haven't seen him/her since. Cougar simply disappeared from the forum. Again, this is not unusual in a financial forum. You'll get used to it. And if he/she comes back next year, or the year after, with more doomsday advice, we will all have forgotten about his/her failed predictions in this thread. More likely, they'll come back with a new username so the previous failure can't be attributed to them.
Just remember this thread the next time you find yourself nodding along to another article/news show/forum post, forecasting doom for the markets. If you don't remember the thread, maybe you'll remember this 30 second clip:
(https://i.sli.mg/XATNwW.png)
John Bogle: all you need to know about investing in three words (https://www.youtube.com/watch?v=A0gQiz0pCyI)
So Cougar, if you're still out there...we have a counter question for you:
How many additional years before you can retire, while you wait to get back the gains you've lost?
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How many additional years before you can retire, while you wait to get back the gains you've lost?
This is the real question isn't it. You are betting one way or the other. If you choose to decrease your stock allocation you are betting the market is going down and if it doesn't you lose out on the gains that do occur.
The point is it's hard to pick what the market is going to do.
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How many additional years before you can retire, while you wait to get back the gains you've lost?
This is the real question isn't it. You are betting one way or the other. If you choose to decrease your stock allocation you are betting the market is going down and if it doesn't you lose out on the gains that do occur.
The point is it's hard to pick what the market is going to do.
Exactly, and over the short term (and by short term I mean less than 20 years), "Nobody Knows Nothing".
(https://i.sli.mg/GjSMcN.png)
(https://i.sli.mg/yTjOc3.png)
(https://i.sli.mg/vw9ZMC.png)
(https://i.sli.mg/7lBurv.png)
Source: https://github.com/zonination/investing/blob/master/README.md
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I thought of this thread too yesterday. My vanguard account went from being down 9% at a point last year to now being up 7.2%. Missing out on those 1000s would've been so painful during my accumulation phase.
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If you wish to go off on me and tell the board how wrong I am and me trying to time the market here is a fool’s errand, go ahead. Everyone is entitled to their opinion and I’m not a professional money manager. I have given the board my opinion on what would be best for them this year and a solid free reference to follow; best of luck to you all.
The nearly constant stream of doom and gloom epic-market-crash-is-about-to-happen and 4%-WR-is-going-to-fail-this-time-is-different posts get old, but at least they are fairly entertaining.
We are six months in from this post and still....nothing, but more dividends and capital appreciation in my portfolio.
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Thank you for bumping this thread Cycling Stache! I love it when we can point out public examples like this to all the newbies in the forum.
So Cougar, if you're still out there...we have a counter question for you:
How many additional years before you can retire, while you wait to get back the gains you've lost?
I just checked this today.
I don't come to mmm very often anymore not because I am hiding but because I read thru many threads on all forums and have concluded that:
1. there is really nothing new for me here.
2. the mmm group is really not committed enough to an early retirement as a whole. if you guys were really committed, you'd be living more like Jacob at ERE.
but since it looks like I am being called out currently; i'll answer.
you guys can brutalize the facts as much as you want; the truth still stands and that is committing a lot of more here into equities and for the past several months is more likely to be lost than gained.
the charts up here were put up to make the posters argument look good; but it's not reality.
unless you started investing march 1st of 2016, you haven't gone much of anywhere. in the past year S+P market is up less than 2.5%.
and most likely would not be up 2.5% if it weren't for central banks liquidity as you can clearly see here:
And you might notice the chart says central bank liquidity is now the highest since 2013.
(https://realinvestmentadvice.com/wp-content/uploads/2016/07/Central_bank-liquidity.jpg)
Now, I did not preach gloom and doom; I merely posted the facts out there and also the charts and thoughts of a local, Houston; professional money manager: https://realinvestmentadvice.com/ (https://realinvestmentadvice.com/). This guy only saw the 2008 recession coming in December of 2007 and had people getting out early in 2008 and did not advice people to get back in until March 2009; so yeah; I'm going to listen to what he says over anyone here and not sweat whatever I'm being called.
And now to answer your question:
How many additional years before you can retire, while you wait to get back the gains you've lost?
[/quote]
I will retire before most of you because I am not a market timer, I'm moving average investor; which got me out on December 2015 and back in during march. so while most everyone else here had their accounts decline nearly 10% during that time; mine did not. yeah, I missed a little upside this year but only had to endure about 2% of that correction that started in December(and no, I will not tell you the indicators I use, especially for free).
I'm not waiting to get back any gains, I just avoid most of the losses; and this is the key to investing in equities because over time the market is most of the time(like nearly 90%) gaining back loses and less than 10% making new highs which is clearly evidenced that even with this great rally from March this year; the S+P is not up 3% from a year ago.
All of you that were in the market from December 2015 to March this year are the ones just finally making money this year.
I am sure that I will be lambasted shortly, so be it. August and September are historically the worst months for the mkt and if my indicators say to get out again; i'll post it and when they say to get back in; you guys keep dollar cost averaging.
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Dude, a simple "I was wrong" would have sufficed and saved you wasting time with the essay above.
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I will retire before most of you because I am not a market timer, I'm moving average investor; which got me out on December 2015 and back in during march. so while most everyone else here had their accounts decline nearly 10% during that time; mine did not. yeah, I missed a little upside this year but only had to endure about 2% of that correction that started in December(and no, I will not tell you the indicators I use, especially for free).
Honestly I don't care what indicator you use and I find it pretty funny that you think that indicator is worth money. There are 1000's of indicators out there.
Onto the key point though. I understand that you are trying to state that your approach here actually saved you money but there are lots of issues with this approach:-
1. Will your indicator continue to work this well in the future ?
2. Were there any tax implications of selling and buying stocks ?
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I will retire before most of you because I am not a market timer, I'm moving average investor; which got me out on December 2015 and back in during march.
I didn't see you post that you felt the market was ripe for reinvesting back in March. Did I miss it?
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I will retire before most of you because I am not a market timer, I'm moving average investor; which got me out on December 2015 and back in during march.
I didn't see you post that you felt the market was ripe for reinvesting back in March. Did I miss it?
"No no you see, you're missing it! I don't TIME the market, I jump in and out based on an indicator!"
We've seen this so many times, it's like they're all following the same script!
Step 1: Wait for something to happen in the market.
Step 2: After it happens, tell everyone that not only did you see it coming, but you personally profited from it, and offer a prediction for the future.
Step 3: If your prediction was wrong, repeat from Step 2, even if it directly contradicts your earlier prediction.
...I think we've just been MrPercentaged.
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This is all quite entertaining.
if someone is doing their homework they might make more than Dca into index funds - it's possible. Maybe Cougar is doing that via his market timing but I get the sense by his comment on Jacob that his way is really to be extremely frugal, which is of course a proven path to FI.
End of the day, no single indicator is right all of the time. unless that indicator is Biff's investing almanac from 2050, odds are not on your side.
The beauty of Dca and indexing is its ability to give you time back. find a formula between stocks/bonds/reit whatever and stick to it. For me, while I still follow the macro stuff I can ignore all the bullshit that gets you into trouble when you invest, like focusing on a single indicator. Instead I focus on the financial stuff that is important - making more money at my job. So yeah I could have done more research to grind out that extra few percent if I'm lucky, or I could make 20% more at my job. Easy decision.
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...I think we've just been MrPercentaged.
It's possible, but there wasn't as much drinking as I would have expected.
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Haha, I thought cougars were supposed to be intelligent mammals?
OP can say whatever OP wants to make OP feel better about OP's lackluster decisions.
I don't know about you guys, but I'm up 9.8% YTD.
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Maybe cougar will prove us wrong and actually post just next trades for us on the day he/she does them but I doubt it.
More likely we will get another victory post several months after any significant move, or if the move doesn't happen, no further posts.
When you've been doing this a while you will meet 100s of Cougars who all song from the same book.
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What happened to the other investing legend Keith, is he still around.
At least mrpercentage has the spirit to stick around.
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Why do people like cougar get all butthurt when they turn out to be wrong? There's no shame in making a mistake - just own up to it, learn from it, and move on.
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Why do people like cougar get all butthurt when they turn out to be wrong? There's no shame in making a mistake - just own up to it, learn from it, and move on.
There's a difference between being wrong about something you don't care about and having an experience that challenges a core, fundamental worldview you hold. The latter is much harder to digest, so much so that people will go to great lengths to avoid it or deny it ever happened.
I can't speak for cougar -- I don't know him or her -- but people can get very invested in their beliefs, especially if they feel they've seen them work before. Any corroboration is taken as evidence that the belief is true, and any evidence to the contrary is seen as a fluke or aberration, or something to be explained away as insignificant or irrelevant.
It's just human nature.
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Eh.. I'm sticking to my guns. Here is the song for September https://youtu.be/ZarmRLa2p9Q
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Eh.. I'm sticking to my guns. Here is the song for September https://youtu.be/ZarmRLa2p9Q
Here is mine: https://www.youtube.com/watch?v=5akEgsZSfhg
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following, with interest
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Having read this most of the thread, I just feel a bit for the person that bought that option to short the S&P in March/April - not looking like a good decision... Needed to go down to 193, and is at 218. Should've bought the ETF instead, and had both the appreciation and dividends.
Being in my mid 40s, I have done all the trading in and out of single stocks (oh, the good'ol days of 2000 when I made like 40% on CMGI and RedHat in a matter of days... didn't end well, though), options, chasing moving averages, trading in oil ETFs, etc
A few years ago came to my senses and now just give me my index funds stocks/bonds/REITs with steady contributions and dividends and watch it go up. Timing is nowhere near as important as working hard and continuing to save and contribute without changing course. And never watching CNBC or reading and financial blog helps too - well if only for entertainment and not advice, anyway
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Having read this most of the thread, I just feel a bit for the person that bought that option to short the S&P in March/April - not looking like a good decision... Needed to go down to 193, and is at 218. Should've bought the ETF instead, and had both the appreciation and dividends.
Being in my mid 40s, I have done all the trading in and out of single stocks (oh, the good'ol days of 2000 when I made like 40% on CMGI and RedHat in a matter of days... didn't end well, though), options, chasing moving averages, trading in oil ETFs, etc
A few years ago came to my senses and now just give me my index funds stocks/bonds/REITs with steady contributions and dividends and watch it go up. Timing is nowhere near as important as working hard and continuing to save and contribute without changing course. And never watching CNBC or reading and financial blog helps too - well if only for entertainment and not advice, anyway
I agree with most of what you say. Time in market/saving rate/staying your course/ect. But why CNBC? I am kinda going against their grain. Quite a few of their contributors have rose glasses on right now. Tom Lee for example. Must admit that I like the guy. Fast money and Mad Money have been off since the start of the Olympics. Not sure why Im coming out for CNBC right now. I have been favoring the Bloomberg Radio App at work lately. Free listening and all.
I just think you all shouldn't be surprised when the shot-callers drag their butts back from the Olympics and wonder why the interns have been buying hand over fist. I expect profit taking to a significant degree but not crash.
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Eh.. I'm sticking to my guns. Here is the song for September https://youtu.be/ZarmRLa2p9Q
Here is mine: https://www.youtube.com/watch?v=5akEgsZSfhg
+1
I hope so. I just don't think so. In other news, my lump sum looks like it just went hot and ready to trade. Looking for that expected dip this next 60 days. There are plenty of reasons for one. Its not like Brexit/Sep interest rates/and by everyones account high end historical evaluations "multiple expansion" (pfft WTF is that) isn't real. Donald/Dilldory-- its going down man.
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Eh.. I'm sticking to my guns. Here is the song for September https://youtu.be/ZarmRLa2p9Q
Here is mine: https://www.youtube.com/watch?v=5akEgsZSfhg
+1
I hope so. I just don't think so. In other news, my lump sum looks like it just went hot and ready to trade. Looking for that expected dip this next 60 days. There are plenty of reasons for one. Its not like Brexit/Sep interest rates/and by everyones account high end historical evaluations "multiple expansion" (pfft WTF is that) isn't real. Donald/Dilldory-- its going down man.
Its climbing a wall of fear. + 15% by christmas. (Don't really care just wanted to join in)
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I hope so. I just don't think so. In other news, my lump sum looks like it just went hot and ready to trade. Looking for that expected dip this next 60 days.
So a dip between now and 14 Sept?
You were expecting a crash in May where the Dow low was like 17,435, but that wasn't enough to get you invested and we are now at 18,576. You didn't invest your cash during the Brexit drop which got down to 17,140 so is it safe to assume you are waiting for a drop below 17,000 to make your "move"?
How low does the Dow have to go before you will fire your "dry powder"?
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I too hope it goes down - way down - that way my next few automatic contributions and company match into my 401k can get in at a nice price like back in 2008/2009. Oh, right and I won't even think about it at all because its automatic and I'm investing for 15-20 years from now when I will have reaped the gains and reinvested dividends by just staying the course and not having anything sitting on the sidelines earning 0.01% in a money market. I'll be having a beer by the pool rather rather reading financial blogs as I agonize over the market valuations and if/when/how/why the market does what it does.
One of my favorite articles about this
http://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/
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I hope so. I just don't think so. In other news, my lump sum looks like it just went hot and ready to trade. Looking for that expected dip this next 60 days.
So a dip between now and 14 Sept?
You were expecting a crash in May where the Dow low was like 17,435, but that wasn't enough to get you invested and we are now at 18,576. You didn't invest your cash during the Brexit drop which got down to 17,140 so is it safe to assume you are waiting for a drop below 17,000 to make your "move"?
How low does the Dow have to go before you will fire your "dry powder"?
+1
Mr. P, a lot of people have made a lot of money since you've been calling for downturns (while also talking up forever stocks that you turned out to have sold).
I want to add another point as well. It does not sound like you're investing a lot of money. There's nothing wrong with that. BUT let's say the market drops 10-20%. What is your downside on this investment (or any that you make)? A few grand? $10K? That sounds like a lot, but really it isn't for anyone looking at ultimate early retirement totals of several hundred thousand to over a million bucks. I look back at my Vanguard holdings the last 10 years, and there's an option to see gains or losses per month. I have several months that are well over $20k moves. I sort of freak out at those moves now, but they turned out not to be a big deal.
I'll also tell you about the time that I too was sure that I knew where the market was going. In January 2013, I planned to buy a house and wanted to make a significant down payment. At that point, the S&P 500 was at 1,500. My thought process was--it's up 150% in 4 years. Say that again--150% increase in 4 years. If that's not a bubble, what is? And at the time the market seemed to be operating backwards in terms of going up whenever there was bad economic news (because people believed the fed would therefore keep the interest rates low).
So I thought I would be smart and time the market. I sold $400,000 in stocks and turned it into a down payment. Not a terrible idea. It's not like I blew the money.
But that money would have made me another $150,000 in the market since. And once I realized that, I stopped trying to second guess the market for good.
Mr. P, I doubt any of your investment decisions have cost you $150,000. Consider the advice you get here, the pushback, and consider the possibility that you're not going to outsmart the market, and you don't need to. Put it in, forget about it, and when you go to sell 20-30 years from now, you're not going to care that you may have been in a mini peak at the time.
Because the final lesson is this: that $400,000 I sold included $100,000 in capital gains from steady, consistent investing in the S&P 500 since about 2003--all achieved without stock picking or market timing.
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So I thought I would be smart and time the market. I sold $400,000 in stocks and turned it into a down payment. Not a terrible idea. It's not like I blew the money.
That's one heck of a down payment.
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Why do people like cougar get all butthurt when they turn out to be wrong? There's no shame in making a mistake - just own up to it, learn from it, and move on.
Cognitive Dissonance (https://en.wikipedia.org/wiki/Cognitive_dissonance) is probably the best overall explanation: Dissonance is felt when people are confronted with information that is inconsistent with their beliefs. If the dissonance is not reduced by changing one's belief, the dissonance can result in restoring consonance through misperception, rejection or refutation of the information, seeking support from others who share the beliefs, and attempting to persuade others.
Perhaps related, our brains are not nearly as reliable or rational as we like to believe. We are prone to many types of memory biases (https://en.wikipedia.org/wiki/List_of_memory_biases), including things such as Confirmation Bias (https://en.wikipedia.org/wiki/Confirmation_bias) that lead us believe we are better at understanding the world around us than we really are. For all we know cougar et al. genuinely believe they are right!
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A large part of the problem arrises from most people's innate desire to attribute order/patterns to everything. The markets have no discernible short-term pattern that can be reliably predicted. They're more Fractal/Brownian in nature than Gaussian.
If the next major market crash/correction could be reliably predicted by the masses (or Cougar) then the fact that it could be predicted would prevent it from happening. There is no formula, crystal ball, or genie that can reliably tell you what the market will do in the short term. Period.
There are countless ways to become wealthy in the stock market. The easiest/laziest path to making money investing (and keeping your stress levels lower) is simple. Consistently invest your money in a diversified set of low cost index funds and ignore what the talking/forum heads say. Do this long enough and you'll do well over the long term (any period > 10 - 12 years).
The "Why" as far as what the market is doing, simply does not matter. Knowing "Why?" gets you nothing other stroking your ego.
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A large part of the problem arrises from most people's innate desire to attribute order/patterns to everything. The markets have no discernible short-term pattern that can be reliably predicted. They're more Fractal/Brownian in nature than Gaussian.
If the next major market crash/correction could be reliably predicted by the masses then the fact that it could be predicted would prevent it from happening. There is no formula, crystal ball, or genie that can reliably tell you what the market will do in the short term. Period.
It's entirely possible that with enough data you could predict this.
But yes, practically speaking this is true.
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It's entirely possible that with enough data you could predict this.
But yes, practically speaking this is true.
If one person can do this, so can anyone else. Very soon enough people can predict future prices that all predictive value is lost because the market prices in this data before it is possible to profit from it.
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It's entirely possible that with enough data you could predict this.
But yes, practically speaking this is true.
If one person can do this, so can anyone else. Very soon enough people can predict future prices that all predictive value is lost because the market prices in this data before it is possible to profit from it.
This actually isn't quite true. Think of gambling. What is priced in ahead of a game is the expectation of each team's chance of winning. But then the game happens, and one side wins and the other loses. While you can't make money consistently gambling because your ability to price odds over time is no better than the market's, you do in fact win or lose for a particular game.
The markets are similar. What is priced into Apple's stock is some prediction of how successful they will continue to be with iPhones, whether they will invent the next disruptive device, etc. They don't have a 100% chance of doing that, so what is priced in is the percentage chance that it will happen. If it does, the price jumps, if not, it goes down.
A stock's price--and the market as a whole--actually represents a series of predictions of how likely certain things are to happen. But all probabilities eventually go to zero or one, so the market moves when those actual events occur. Thus, the reason stock prices move is because events occur, or the predicted likelihood of future events change.
The reason you don't make money trying to outsmart the market is because there's no reason to believe you have an information advantage (short of insider trading) or an analytical superiority that allows you to consistently value the odds better than the market as a whole. You in fact will win or lose with individual picks, but over the long-term as you get a sufficient data set, you won't consistently outperform the market.
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Thus, the reason stock prices move is because events occur, or the predicted likelihood of future events change.
Unless you mean "events" in the most general sense (including someone bought or sold shares) which would be tautological, I disagree. The market moves all the time without any new material information. And as soon as new information becomes available it's priced into the market - hence the old adage "buy the rumor, sell the news" though even that saying is funny because even the rumors are priced in before most people can profit.
The reason you don't make money trying to outsmart the market is because there's no reason to believe you have an information advantage (short of insider trading) or an analytical superiority that allows you to consistently value the odds better than the market as a whole. You in fact will win or lose with individual picks, but over the long-term as you get a sufficient data set, you won't consistently outperform the market.
In other words, if you have information that you think is predictive, so does everyone else (unless it is insider info, in which case it is illegal to trade upon). Even if you have some superior analytical superiority, other traders will eventually catch on and discover your strategy thereby eliminating its value. Also, what often appears initially as superior analytical ability often ends up being a statistical fluke. It's fascinating that Nobel prize winners and other extremely intelligent people have failed miserably to outsmart the market (https://en.wikipedia.org/wiki/Long-Term_Capital_Management as one example), yet average investors continue to believe they can do better.
I think we are in violent agreement that people are generally better off with a simple long-term buy and hold of broad indexes.
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I hope so. I just don't think so. In other news, my lump sum looks like it just went hot and ready to trade. Looking for that expected dip this next 60 days.
So a dip between now and 14 Sept?
You were expecting a crash in May where the Dow low was like 17,435, but that wasn't enough to get you invested and we are now at 18,576. You didn't invest your cash during the Brexit drop which got down to 17,140 so is it safe to assume you are waiting for a drop below 17,000 to make your "move"?
How low does the Dow have to go before you will fire your "dry powder"?
+1
Mr. P, a lot of people have made a lot of money since you've been calling for downturns (while also talking up forever stocks that you turned out to have sold).
I want to add another point as well. It does not sound like you're investing a lot of money. There's nothing wrong with that. BUT let's say the market drops 10-20%. What is your downside on this investment (or any that you make)? A few grand? $10K? That sounds like a lot, but really it isn't for anyone looking at ultimate early retirement totals of several hundred thousand to over a million bucks. I look back at my Vanguard holdings the last 10 years, and there's an option to see gains or losses per month. I have several months that are well over $20k moves. I sort of freak out at those moves now, but they turned out not to be a big deal.
I'll also tell you about the time that I too was sure that I knew where the market was going. In January 2013, I planned to buy a house and wanted to make a significant down payment. At that point, the S&P 500 was at 1,500. My thought process was--it's up 150% in 4 years. Say that again--150% increase in 4 years. If that's not a bubble, what is? And at the time the market seemed to be operating backwards in terms of going up whenever there was bad economic news (because people believed the fed would therefore keep the interest rates low).
So I thought I would be smart and time the market. I sold $400,000 in stocks and turned it into a down payment. Not a terrible idea. It's not like I blew the money.
But that money would have made me another $150,000 in the market since. And once I realized that, I stopped trying to second guess the market for good.
Mr. P, I doubt any of your investment decisions have cost you $150,000. Consider the advice you get here, the pushback, and consider the possibility that you're not going to outsmart the market, and you don't need to. Put it in, forget about it, and when you go to sell 20-30 years from now, you're not going to care that you may have been in a mini peak at the time.
Because the final lesson is this: that $400,000 I sold included $100,000 in capital gains from steady, consistent investing in the S&P 500 since about 2003--all achieved without stock picking or market timing.
If I told you I have a 10" dick would you be impressed? It's always how much with you guys. You pulled out enough to pay off the house I have been trapped in for ten years twice over. Congratulations but your gains were never guaranteed. You didnt lose anything by pulling money out my favorite Monday morning quarterback.
And the lump sum is a full years pay. Look at your salary, consider a full year-- the same.
I have 10k in a taxable-- whoopty-do. It's al lot to me but it won't pay off my house. Technically it's not a retirement account so cashing out to buy a motorcycle wouldn't exactly be a crime. Raiding my retirement would be a crime. I'm lower middle class and have two kids. Part I was born in and part was choice. I don't gamble at all. I don't go out much if ever and I work hard (actually physical) and in poor conditions at times. I find your nonchalant carefree attitude to that amount of cash well within the borders of disgusting.
But I digress. I waste my time because I always receive the same answers here: That I am too stupid to do it myself. That my accomplishments are nothing. That I am a liar. That one day I will see. That I should go back into debt for more school because my 144 credits and 3.8 are not enough. That any purchase that is not a need but a want is wasteful, selfish, and should be in the market because I will live to be 80. Meanwhile my mother died at 63, favorite Uncle 52, Great Uncle 53. My grandmother 62. My grandfather made it to 76. There isn't a damn thing guaranteed. Not life; not gains. Excuse me for wanting to be sure my sacrifice is actually worth it because I grew up with $400 CD players and now I could get a 62" TV for that but don't because I am doing what I can to better my families position.
So I am done discussing what I do in the market, my concerns, or why.. There is nothing for me here that I have not already read countless times. Best of luck with FIRE for you.
On a lighter note, I did get to hold $534,000 in solid gold last week. I remember being disappointed that I could pick it up, that it was so small, and wondered how it was worth so much more than my house.
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Houses are everywhere and can be built on demand. Gold not so much. So you are dumping your lump sum in gold?
http://www.numbersleuth.org/worlds-gold/
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The real annual return for s&p 500 will be close to zero for the next 12 years so I am in cash right now.
http://www.hussmanfunds.com/wmc/wmc160815.htm
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The real annual return for s&p 500 will be close to zero for the next 12 years so I am in cash right now.
http://www.hussmanfunds.com/wmc/wmc160815.htm
If you don't think stocks are going up obviously don't invest. How anybody knows what is going to happen for the next 10 years is beyond me.
I take it that Hussman are outperforming the market with their superior knowledge?
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The real annual return for s&p 500 will be close to zero for the next 12 years so I am in cash right now.
http://www.hussmanfunds.com/wmc/wmc160815.htm
Hussman’s Returns, Like His Forecasts, Are Dismal: Analysis
http://www.thinkadvisor.com/2014/12/01/hussmans-returns-like-his-forecasts-are-dismal-ana
"... even a portfolio of high quality short-term bonds outperformed the Hussman Strategic Growth fund over the past 14 years."
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The real annual return for s&p 500 will be close to zero for the next 12 years so I am in cash right now.
http://www.hussmanfunds.com/wmc/wmc160815.htm
Hussman’s Returns, Like His Forecasts, Are Dismal: Analysis
http://www.thinkadvisor.com/2014/12/01/hussmans-returns-like-his-forecasts-are-dismal-ana
"... even a portfolio of high quality short-term bonds outperformed the Hussman Strategic Growth fund over the past 14 years."
^^ What in the actual fuck? In 2014 he admits he was completely wrong and learned a "hard-won lesson". In 2016 he's making and backing (basically) the exact same opinion that was wrong before. ...I don't think he understands what the word "lesson" means. (It's supposed to involve learning from past mistakes, right?) :(
Just wow, is all I can say--look at them returns!!
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The real annual return for s&p 500 will be close to zero for the next 12 years so I am in cash right now.
http://www.hussmanfunds.com/wmc/wmc160815.htm
Hussman’s Returns, Like His Forecasts, Are Dismal: Analysis
http://www.thinkadvisor.com/2014/12/01/hussmans-returns-like-his-forecasts-are-dismal-ana
"... even a portfolio of high quality short-term bonds outperformed the Hussman Strategic Growth fund over the past 14 years."
It's probably a good idea to lower people's expectations if you are going to provide low returns.
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Wow, that's the flounce of the year!
Mr. P, in your position, picking stocks makes EVEN LESS SENSE. If you're playing with extra money at the end of the month for fun, go for it. If you've got $10k total in taxable? F'ing forget it.
-W
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I find your nonchalant carefree attitude to that amount of cash well within the borders of disgusting.
Mr. P, this response is disappointing. First, the numbers we're talking about are the numbers of early retirement. This entire forum--the entire blog--is premised on the idea of building up investible assets to the point that one can retire based on that. Those numbers are always in range of hundreds of thousands of dollars, if not more.
Second, people are trying to provide helpful advice. It appears from an outside perspective that you're costing yourself money in an effort to prove yourself right with the occasional win on a stock pick or concern about losing 10-20% of an investment account whose eventual gains should dwarf that over the long term. Statistical evidence supports this, and you've demonstrated your own inability to pick well based on your own predictions here.
Nobody is trying to tear you apart. This isn't a personal attack. People are trying to point out that there's nothing to demonstrate that you have the incredibly rare ability to outthink and out-analyze the market. You suggest that means we're calling you stupid. To the contrary, I consider myself an intelligent individual, but I index because I understand the limitations of what I can know versus the market and what the likelihood of consistently outperforming the market is.
You latch on to the amounts as somehow an attack on you, when they were intended to show that concern about losses should not distract you from smart, rational investments in the market. You have a lump sum equal to your salary? I get it. I just moved double my salary to international in the last month. Was that a nonchalant, carefree approach to money? No. It was the exact opposite. I researched the issue on the web, posted a thread here, got input, and after some particularly helpful data from users like Interest Compound, I realized that it made sense to move the money. But it still caused me some grief. Why? Because the S&P 500 has dusted international over the last 10 years, and people like Buffett and Bogle are making comments about how it's really not necessary. So, yeah, I think about risk with large amounts of money. As does the majority here, because again, many are building their investment accounts into the hundreds of thousands of dollars aiming towards early retirement. Your sum of money is large for you--but the point of this thread and the forum is to give people good investing advice that applies to any amount of money.
Finally, you claim that you have nothing to learn here, so what's the point. Fine. Nobody else's life is going to be materially better or worse (other than your family's, of course) based on what you do. But here's the thing. You post a lot in response to people asking for investment advice. You trumpet your market forecasts, your stock picks, etc. But if you're not interested in learning or advancing the discussion, don't do that. Or at least understand why people are going to respond when you do so. Because many of us believe that your investment approach is wrong, and it would be risky for others to follow. That's not personal. It's part of helping to ensure that this forum continues to be a collection of sound, well-reasoned financial advice for people interested in learning more.
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People are trying to point out that there's nothing to demonstrate that you have the incredibly rare ability to outthink and out-analyze the market.
My opinion is that no one has the ability to beat the market. It's not an intelligence thing. It's a predicting the future thing. No one does it well consistently.
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The real annual return for s&p 500 will be close to zero for the next 12 years so I am in cash right now.
http://www.hussmanfunds.com/wmc/wmc160815.htm
Hussman’s Returns, Like His Forecasts, Are Dismal: Analysis
http://www.thinkadvisor.com/2014/12/01/hussmans-returns-like-his-forecasts-are-dismal-ana
"... even a portfolio of high quality short-term bonds outperformed the Hussman Strategic Growth fund over the past 14 years."
It's probably a good idea to lower people's expectations if you are going to provide low returns.
LOL! Excellent point.
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The real annual return for s&p 500 will be close to zero for the next 12 years so I am in cash right now.
http://www.hussmanfunds.com/wmc/wmc160815.htm
Looks like you went to cash in March. What is your plan to buy back in? What will you do if equities rise another 5-10% from here and never drop lower? I think your problem was that you have low risk tolerance and too many equities. Maybe go for a 40:60 split?
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This thread was a fascinating read.
It would have been a horrible shame if Cougar, Keith123, etc. happened to be right about their predictions for 2016. It very well could have happened, after all. If they had been right I'm sure at least a handful of people would have been convinced that they really did know what they were doing, and that their valuations were on-point. Eventually, one of these financial prophets with their convincing charts and powerful ethos is going to time it right (i.e. get lucky) and make a bold prediction that turns out to be true.
There is a really good article by jlcollinsnh (which I'm not able to find at the moment...) that highlights a kind of scam that this reminds me of. It goes something like this: send 1024 letters saying sector X will go up and sector Y will go down, and another 1024 of the opposite. Then mail a similar batch with different predictions only to the 1024 recipients of the previous mailing that happened to be correct. After repeating this a few times, even the skeptical among us still receiving the mailings without knowledge of the big picture could be reasonably convinced they were really onto something. It's the same reason why many of the mutual funds available for purchase today by investment firms have good track records, some of them exceptionally so. Most of the losers were just discontinued.
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^^ What in the actual fuck? In 2014 he admits he was completely wrong and learned a "hard-won lesson". In 2016 he's making and backing (basically) the exact same opinion that was wrong before. ...I don't think he understands what the word "lesson" means. (It's supposed to involve learning from past mistakes, right?) :(
Just wow, is all I can say--look at them returns!!
Nearly 8% negative in the last 5 years? I feel like I'd have to try really hard to have had returns that poor. How is that even possible? Any idea of what he's invested in?
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It would be even more fun if there was a crash in the next 4 months before 2016 is over.
"Haha, see, we told you so!"
"Nah, you didn't really predict anything, just dumb luck. Besides, my dividends are still here."
*cut to commercial*
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Thank you for bumping this thread Cycling Stache! I love it when we can point out public examples like this to all the newbies in the forum.
So Cougar, if you're still out there...we have a counter question for you:
How many additional years before you can retire, while you wait to get back the gains you've lost?
I just checked this today.
I don't come to mmm very often anymore not because I am hiding but because I read thru many threads on all forums and have concluded that:
1. there is really nothing new for me here.
2. the mmm group is really not committed enough to an early retirement as a whole. if you guys were really committed, you'd be living more like Jacob at ERE.
but since it looks like I am being called out currently; i'll answer.
you guys can brutalize the facts as much as you want; the truth still stands and that is committing a lot of more here into equities and for the past several months is more likely to be lost than gained.
the charts up here were put up to make the posters argument look good; but it's not reality.
unless you started investing march 1st of 2016, you haven't gone much of anywhere. in the past year S+P market is up less than 2.5%.
and most likely would not be up 2.5% if it weren't for central banks liquidity as you can clearly see here:
And you might notice the chart says central bank liquidity is now the highest since 2013.
(https://realinvestmentadvice.com/wp-content/uploads/2016/07/Central_bank-liquidity.jpg)
Now, I did not preach gloom and doom; I merely posted the facts out there and also the charts and thoughts of a local, Houston; professional money manager: https://realinvestmentadvice.com/ (https://realinvestmentadvice.com/). This guy only saw the 2008 recession coming in December of 2007 and had people getting out early in 2008 and did not advice people to get back in until March 2009; so yeah; I'm going to listen to what he says over anyone here and not sweat whatever I'm being called.
And now to answer your question:
How many additional years before you can retire, while you wait to get back the gains you've lost?
I will retire before most of you because I am not a market timer, I'm moving average investor; which got me out on December 2015 and back in during march. so while most everyone else here had their accounts decline nearly 10% during that time; mine did not. yeah, I missed a little upside this year but only had to endure about 2% of that correction that started in December(and no, I will not tell you the indicators I use, especially for free).
I'm not waiting to get back any gains, I just avoid most of the losses; and this is the key to investing in equities because over time the market is most of the time(like nearly 90%) gaining back loses and less than 10% making new highs which is clearly evidenced that even with this great rally from March this year; the S+P is not up 3% from a year ago.
All of you that were in the market from December 2015 to March this year are the ones just finally making money this year.
I am sure that I will be lambasted shortly, so be it. August and September are historically the worst months for the mkt and if my indicators say to get out again; i'll post it and when they say to get back in; you guys keep dollar cost averaging.
[/quote]
Starts a thread in February saying "OMG THE MARKET IS GOING TO CRASH EVERYBODY TAKE YOUR MONEY OUT". Then claims he put money in the market three weeks later (1st March). But he's not timing the market guys! Proceeds to make up pseudo-science BS reasons why every move and call he's made so far is part of an orchestrated rational plan (spoiler - it's not - he's just another fool speculating on market movements that cannot be predicted).
Cougar, what exactly is your point of saying " HAHA! if you had your money in the market for a year, you only would of made 2.5%!"?
Well Cougar, HAHA - If you held your money in for 5 years, you would of made 84.53%. 6 months? 12.89%. Do you want me to continue arbitrarily choosing time periods and giving a return that isn't low? I could go all day.
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Yeah, no lambasting - but you notice how every thread has a market/moving average/momentum investor or two who's all excited? And then how a few years later you don't hear from them anymore but there's a couple new ones?
Funny how that works.
It's random, folks, for all practical purposes. But it mostly goes up. Invest accordingly.
-W
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It's random, folks, for all practical purposes. But it mostly goes up. Invest accordingly.
^^^This should really end the thread...but sadly I know it won't
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unless you started investing march 1st of 2016, you haven't gone much of anywhere. in the past year S+P market is up less than 2.5%.
I'm not sure where you get your info from, but the S&P 500 has gone up 4.93% in the past year, as of today. Granted, the market was relatively flat through 2015 and the first part of this year, but I don't see your claim of 2.5% substantiated in the data.
http://finance.yahoo.com/chart/%5EGSPC#eyJtdWx0aUNvbG9yTGluZSI6ZmFsc2UsImJvbGxpbmdlclVwcGVyQ29sb3IiOiIjZTIwMDgxIiwiYm9sbGluZ2VyTG93ZXJDb2xvciI6IiM5NTUyZmYiLCJtZmlMaW5lQ29sb3IiOiIjNDVlM2ZmIiwibWFjZERpdmVyZ2VuY2VDb2xvciI6IiNmZjdiMTIiLCJtYWNkTWFjZENvbG9yIjoiIzc4N2Q4MiIsIm1hY2RTaWduYWxDb2xvciI6IiMwMDAwMDAiLCJyc2lMaW5lQ29sb3IiOiIjZmZiNzAwIiwic3RvY2hLTGluZUNvbG9yIjoiI2ZmYjcwMCIsInN0b2NoRExpbmVDb2xvciI6IiM0NWUzZmYiLCJyYW5nZSI6IjF5In0%3D
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All of you that were in the market from December 2015 to March this year are the ones just finally making money this year.
S&P 500 index is up almost 4% since Dec. 1st. 2015
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Apparently this is now just a general market analysis thread, so I'd like to get on Mr Bones wild ride
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This thread has been entertaining to read. The market is up about 25% not including dividends since it was posted. Glad I don't try to time the market.
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What ever happened to Cougar? Seems like he should be here, gloating, no? Or not? Yeah, probably not.
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I expect this and every other red Dow thread to reactivate whenever the next market crash finally comes.
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What ever happened to Cougar? Seems like he should be here, gloating, no? Or not? Yeah, probably not.
He's reaping the results of reducing mkt exposure since 2015.
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What ever happened to Cougar? Seems like he should be here, gloating, no? Or not? Yeah, probably not.
He's reaping the results of reducing mkt exposure since 2015.
AKA "Can't afford internet."
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Giving this thread a bump for all the people enjoying the "Top Is In" thread and to show new forum members that people have been predicting a correction on this forum for a long time. They may be right at some point, but just because strangers on the internet are predicting things shouldn't influence your investment decisions.
This thread started in February 2016. The S&P500 is up approximately 40% (including dividends) since then.
(I also wanted to bump the Red Dow thread, but ARS locked it!)
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Giving this thread a bump for all the people enjoying the "Top Is In" thread and to show new forum members that people have been predicting a correction on this forum for a long time. They may be right at some point, but just because strangers on the internet are predicting things shouldn't influence your investment decisions.
This thread started in February 2016. The S&P500 is up approximately 40% (including dividends) since then.
(I also wanted to bump the Red Dow thread, but ARS locked it!)
Top has been in since 2015! Or... not.
"Reducing market exposure" = "trying to time the market" = losing.
Lets do some quick math. Lets say Cougar has $200,000 and pulled the $$ out at the end of 2015 and beginning of 2016. As Cycling Stache notes, there's been a 40% market gain since then. So....
$200,000 x 1.4 = $280,000
Had Cougar left his money alone and not tried to time the market, he'd be $80,000 richer. Obviously Cougar felt that the evidence for a flat market, or even a market drop was compelling. Compelling enough to take his money out of the market. But he was wrong. So, so, so wrong. So, boys and girls, what's the lesson here? Don't try to time the market. Buy and hold. Buy when things are going up. Buy when things are going down. Keep doing that till FIRE.
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I will retire before most of you because I am not a market timer, I'm moving average investor; which got me out on December 2015 and back in during march. so while most everyone else here had their accounts decline nearly 10% during that time; mine did not. yeah, I missed a little upside this year but only had to endure about 2% of that correction that started in December(and no, I will not tell you the indicators I use, especially for free).
Cougar got out and then back in without mentioning it for months so there was no confirmation that actually happened.
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I will retire before most of you because I am not a market timer, I'm moving average investor; which got me out on December 2015 and back in during march. so while most everyone else here had their accounts decline nearly 10% during that time; mine did not. yeah, I missed a little upside this year but only had to endure about 2% of that correction that started in December(and no, I will not tell you the indicators I use, especially for free).
Cougar got out and then back in without mentioning it for months so there was no confirmation that actually happened.
Ah, I missed that. It would still be interesting to see how he's done over the past 10 years or so vs a plain dumb buy & hold indexer....Hopefully he comes back and sees this & lets us know.
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Hopefully he comes back and sees this & lets us know.
I'm sure Cougar will report having crushed the B&Her. I don't have any confidence that this report would be accurate.
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Hopefully he comes back and sees this & lets us know.
I'm sure Cougar will report having crushed the B&Her. I don't have any confidence that this report would be accurate.
I just checked his "Last Active" time in his profile - December 2016.
You know, this happens a lot - someone comes in here, posts about how they beat indexing, then disappear, never to be heard from again. You'd think that if they were doing so awesome, that they'd stick around and rub it in a bit.
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I just checked his "Last Active" time in his profile - December 2016.
You know, this happens a lot - someone comes in here, posts about how they beat indexing, then disappear, never to be heard from again. You'd think that if they were doing so awesome, that they'd stick around and rub it in a bit.
The only way I'll believe market timing claims is if the poster in question provides real time updates on their moves. Otherwise everyone is a superstar.
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List of MMM Stockmarket Guru's gone but nor forgotten:
- MrPercentage
- Cougar
- Thorstash
I do wonder if they will come back for a visit one day if there is a market correction below where they made their calls.
Especially MrP, I miss that guy!
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List of MMM Stockmarket Guru's gone but nor forgotten:
- MrPercentage
- Cougar
- Thorstash
Let's not forget milesdividend, who spent several months and something like twenty pages of the dual momentum thread trying to defend market timing, only to finally admit he was losing money compared to the index.
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I have a trading account in which I currently own a few single stocks as well as a NASDAQ 100 covered call etf. If I started a journal posting real time trading activity, would you guys be interested?
Trading account is only about 4% of everything I have invested, so it might not be high stakes enough to attract interest.
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I think to really get people interested you have to be witty, outspoken, and completely and utterly devoted (or at least claim to be) to market timing/stock picking/triple secret momentum, etc. MrPercentage set the bar pretty high. If you're just messing around with a few stocks with play money, meh.
-W
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Agreed - play money doesn’t count because the stakes aren’t high enough.
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Agreed - play money doesn’t count because the stakes aren’t high enough.
We only enjoy voyeurism if the person is genuinely ruining their life.
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Agreed - play money doesn’t count because the stakes aren’t high enough.
We only enjoy voyeurism if the person is genuinely ruining their life.
Thus, the porn industry.
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Agreed - play money doesn’t count because the stakes aren’t high enough.
We only enjoy voyeurism if the person is genuinely ruining their life.
True! But mainly I meant that when it's only play money, people are less likely to do something panicky and stupid. It's a whole different ball game when your entire future is riding on being right, vs just having a loss in your play money area.
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Agreed - play money doesn’t count because the stakes aren’t high enough.
We only enjoy voyeurism if the person is genuinely ruining their life.
I laughed, but luckily market timing is not going to ruin anyone's life. It just makes you work more.
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Agreed - play money doesn’t count because the stakes aren’t high enough.
We only enjoy voyeurism if the person is genuinely ruining their life.
True! But mainly I meant that when it's only play money, people are less likely to do something panicky and stupid. It's a whole different ball game when your entire future is riding on being right, vs just having a loss in your play money area.
I could be misremembering, but one point I thought Mr Percentage confessed that his port basically was play money, and he was doing all this risky stuff in order to catch up.
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Agreed - play money doesn’t count because the stakes aren’t high enough.
We only enjoy voyeurism if the person is genuinely ruining their life.
True! But mainly I meant that when it's only play money, people are less likely to do something panicky and stupid. It's a whole different ball game when your entire future is riding on being right, vs just having a loss in your play money area.
I could be misremembering, but one point I thought Mr Percentage confessed that his port basically was play money, and he was doing all this risky stuff in order to catch up.
Mr. Percentage confessed nothing! Mr. Percentage did not make mistakes!
(Occasionally--okay, very often--Mr. Percentage secretly did the exact opposite of what he was recommending at exactly the right time to come out on top and only told us about it later.)
I actually liked Mr. P. His posts were a little out of control at times, but it was interesting to see someone trying to come to grips with not being the expert market predictor he believed himself to be, and how to deal with what seemed to be a blow to a part of his self-created identity. This happens a lot in life and on this forum, but his posts gave a track record in which you could see his struggle to reconcile his self-image and reality.
If we're honest, most of us struggle with this regularly.
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I was considering devoting all of my play money account tothe Bitcoin Investment Trust ($GBTC).
If my wife discovers me doing this, it may lead to the life-ruining voyeurism it sounds like people are seeking. Unless I make money. Mrs. Tall Texan doesn't mind bearing extraordinary risk as long as you're in the green.
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Thank you for bumping this thread Cycling Stache! I love it when we can point out public examples like this to all the newbies in the forum.
Here's a graph of US Stocks and International Stocks since Feb 6th, when this thread was created, to date:
(https://i.imgur.com/pPRPBlz.png)
And a quote from the original post:
As you should know, the financial markets has started off the year terribly and that’s going to continue.
[..]
I could go on and on with this list that it’s a bad time to be investing in the market.
[..]
If you wish to go off on me and tell the board how wrong I am and me trying to time the market here is a fool’s errand, go ahead. [..] I have given the board my opinion on what would be best for them this year and a solid free reference to follow.
We don't need to tell you it's a fool's errand, the data is there for all to see.
To the newbies of the forum, you'll get used to this. Every-time there's a slight jump down in the market, you'll find threads like this everywhere. "I've been getting out of the market for the past year now! See I'm right! Everyone else hurry and jump out too before it's too late! Doomsday for all!"
Only for them to mysteriously disappear when their predictions don't come true. Here's a quote from the last post Cougar has made anywhere on this forum:
I have tried to stay out of this thread even though I started it because it's not really my responsibility to try and save anyone from losing money in 2016, that decision is up to you
[...]
Again, my question is if you could save money this year by reducing exposure over losing it and having to wait additional years before you could retire because you now have to wait to get back the gains you lost; would you ?
And here's the another graph, how the stock market has moved since that post:
(http://i.imgur.com/PU4hmkY.png)
Cougar's last post was quite-literally the bottom. And we haven't seen him/her since. Cougar simply disappeared from the forum. Again, this is not unusual in a financial forum. You'll get used to it. And if he/she comes back next year, or the year after, with more doomsday advice, we will all have forgotten about his/her failed predictions in this thread. More likely, they'll come back with a new username so the previous failure can't be attributed to them.
Just remember this thread the next time you find yourself nodding along to another article/news show/forum post, forecasting doom for the markets. If you don't remember the thread, maybe you'll remember this 30 second clip:
(https://i.sli.mg/XATNwW.png)
John Bogle: all you need to know about investing in three words (https://www.youtube.com/watch?v=A0gQiz0pCyI)
So Cougar, if you're still out there...we have a counter question for you:
How many additional years before you can retire, while you wait to get back the gains you've lost?
Update:
Here's a graph of US Stocks and International Stocks since Feb 6th, when this thread was created, to date:
(https://i.imgur.com/7pvmepq.png)
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This post will cover three things, the financial markets, the world markets and economy over the rest of this year. As you should know, the financial markets has started off the year terribly and that’s going to continue. Now, the initial downturn was because of the Chinese markets that no one could have forseen but the damage has been done and without serious intervention by the FED; the markets are going to continue to decline, the average bear market decline is 28%, so we would have another 15% minimum to go.
So, I will lay out some facts:
1. 85% of all stocks follow the market, meaning if we are in bear market; you will probably not avoid it.
2. Sales by hedge funds were the largest last week in two years.
3. The baltic dry index, used to measure movement of shipping, is at a record low.
4. Texas general business activity, the state that created 40% of all jobs since 2009; is at a 6 year low.
5. There have been 8 month over month declines in industrial production in the past 12 months, this has never happened before without a recession.
6. 42 north american oil companies filed for bankruptcy.
I could go on and on with this list that it’s a bad time to be investing in the market. Now, I am not trying to scare anyone here that the wheels are about to fall off; but there is no denial the global economy is slowing and much more likely to be in a recession within the next two years than continue to grow.
I am sharing this information with the MMM crowd to help you preserve capital as I would think would be an MMM priority
The reason I am suggesting this is not the time to be buying the dip, the bull rally from 2009 has finally failed and it’s likely to be headed lower and at an increasing rate.
The reason I believe this is because even though November thru April are typically the strongest months of the market, every target for the market to rally to this year has failed to hit(meaning the market is weaker).
Cast me aside here if you wish, but my goal of this post is to help the mmm’ers preserve capital. If you lost money in 2008, you also lost the time you had to spend gaining back that lost money. The market lost nearly 50%, so you had to gain 100% just to get back to even and that took 6 years and that was on the back of QE which by all accounts grew the market faster than normal.
I would suggest reading: realinvestmentadvice.com, his daily blog post "Technically Speaking: February Stats & Taking Action" and current weekly report "Whew! BOJ Saved The Rally…For Now 01-30-16". I also suggest following his portfolio recommendations in his newsletter if you do not have an idea of how to allocate yours in an economic decline(I currently have less market exposure than he is recommending).
If you wish to go off on me and tell the board how wrong I am and me trying to time the market here is a fool’s errand, go ahead. Everyone is entitled to their opinion and I’m not a professional money manager. I have given the board my opinion on what would be best for them this year and a solid free reference to follow; best of luck to you all.
Original post. Quoting for comedy.
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I'd forgotten that Texas was creating that large a share of the jobs. The state has been HURTIN' since that post.
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I’ve been losing to the market for years and I haven’t disappeared yet!
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This post will cover three things, the financial markets, the world markets and economy over the rest of this year. As you should know, the financial markets has started off the year terribly and that’s going to continue. Now, the initial downturn was because of the Chinese markets that no one could have forseen but the damage has been done and without serious intervention by the FED; the markets are going to continue to decline, the average bear market decline is 28%, so we would have another 15% minimum to go.
So, I will lay out some facts:
1. 85% of all stocks follow the market, meaning if we are in bear market; you will probably not avoid it.
2. Sales by hedge funds were the largest last week in two years.
3. The baltic dry index, used to measure movement of shipping, is at a record low.
4. Texas general business activity, the state that created 40% of all jobs since 2009; is at a 6 year low.
5. There have been 8 month over month declines in industrial production in the past 12 months, this has never happened before without a recession.
6. 42 north american oil companies filed for bankruptcy.
I could go on and on with this list that it’s a bad time to be investing in the market. Now, I am not trying to scare anyone here that the wheels are about to fall off; but there is no denial the global economy is slowing and much more likely to be in a recession within the next two years than continue to grow.
I am sharing this information with the MMM crowd to help you preserve capital as I would think would be an MMM priority
The reason I am suggesting this is not the time to be buying the dip, the bull rally from 2009 has finally failed and it’s likely to be headed lower and at an increasing rate.
The reason I believe this is because even though November thru April are typically the strongest months of the market, every target for the market to rally to this year has failed to hit(meaning the market is weaker).
Cast me aside here if you wish, but my goal of this post is to help the mmm’ers preserve capital. If you lost money in 2008, you also lost the time you had to spend gaining back that lost money. The market lost nearly 50%, so you had to gain 100% just to get back to even and that took 6 years and that was on the back of QE which by all accounts grew the market faster than normal.
I would suggest reading: realinvestmentadvice.com, his daily blog post "Technically Speaking: February Stats & Taking Action" and current weekly report "Whew! BOJ Saved The Rally…For Now 01-30-16". I also suggest following his portfolio recommendations in his newsletter if you do not have an idea of how to allocate yours in an economic decline(I currently have less market exposure than he is recommending).
If you wish to go off on me and tell the board how wrong I am and me trying to time the market here is a fool’s errand, go ahead. Everyone is entitled to their opinion and I’m not a professional money manager. I have given the board my opinion on what would be best for them this year and a solid free reference to follow; best of luck to you all.
LOL. Wish the OP was still around. "2015" is vague, but at the beginning and end of 2015, the S&P500 was ~2,045. Closed at 2,553 yesterday. So it's up ~25% since 2015. Even worse, I believe there are posts where the OP says he (or she) was shorting the market, which worked temporarily for parts of 2015. Supposing they only shorted at 1x (and did not leverage like SDS or SPXU) they'd be down 28+% since 2015 if they never sold along the way.
NASDAQ is up some 40% since 2015.
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lol how did I not see this thread. We also made timing moves during dec-feb (15-16) too as I mentioned in another thread, where I bragged about beating the market in 2016. I must admit that while the sell indicators were very clear, the buy indicators were much more fuzzy, I probably got lucky there.
There are people who had constantly been right on their major top/bottom calls, so far at least. To the general public it is hard to separate them from the so called pundits, arm-chair experts, etc. The funny thing is, these guys are usually quite "low-key" and attribute this achievement to mostly luck, which makes sense, since what they have/know is worth beyond measure. Barry Ritholtz, for example, is one such man.
https://www.bloomberg.com/view/articles/2017-09-06/the-fickle-fortunes-of-market-timing
http://ritholtz.com/major-market-calls/
The thing is though..... luck or randomness is hard to quantify. Buffet himself alluded to it being something more when he wryly mentioned a group of investors in Omaha being able to beat the index year after year. Indeed, pockets of inefficiencies exist in the market, waiting to be exploited. The idea that public, known info is always "priced in" is ludicrous. People are not rational, that's how we make money. No mercy for the wicked, for they are weak.
Which is why for most people buy and hold an index is prob the best strategy. For the others, let the games begin.
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Which is why for most people buy and hold an index is prob the best strategy. For the others, let the games begin.
You can lead a horse to water . . . .
I appreciate people like this. It is how we continue to make money holding index funds.
Your analysis is mistaken because you do not understand how many people bet on the market. Statistically, some are going to be right, not because they're smarter than others, but because they got lucky.
Examples include lottery winners . . . where odds are 1 in 100 million or whatever, is the winner just "smarter" about picking numbers?
For the 50 million people who submit NCAA brackets to ESPN and 12 manage to pick the first two rounds correctly with 7 different upsets, do you really believe that those 12 people are truly "smarter" about picking the brackets than the other 49,999,988 people, or maybe when 50 million brackets are submitted, statistically, a few are going to get all the picks right? Have you ever checked to see if it's the same 12 each year?
You cite a guy (don't know who he is, don't care) presumably because he made some calls correctly? First, if so, why is he not on the Forbes list of richest people? Second, how many other people picked and got it wrong, and why do you conclude he (or you or whomever) is smarter at picking stocks? Why aren't they just the 12 of 50 million that happened to get it right for whatever the number of picks are?
Statistics are hard for people because they involve large numbers with which we're not familiar so we typically process them poorly. The fact that people continue to process those numbers poorly (along with a few other behavioral economics errors) is the primary reason why holding index funds remains a profitable enterprise beyond the standard risk-free returns available elsewhere.
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The other thing I see with these "smart money" types is that they usually execute multiple strategies at once. Often, one of the strategies will work out, while the others don't. Guess which ones you hear about? The one that went up 40%. Not the ones that stayed flat or had losses.
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Which is why for most people buy and hold an index is prob the best strategy. For the others, let the games begin.
You can lead a horse to water . . . .
I appreciate people like this. It is how we continue to make money holding index funds.
Your analysis is mistaken because you do not understand how many people bet on the market. Statistically, some are going to be right, not because they're smarter than others, but because they got lucky.
Examples include lottery winners . . . where odds are 1 in 100 million or whatever, is the winner just "smarter" about picking numbers?
For the 50 million people who submit NCAA brackets to ESPN and 12 manage to pick the first two rounds correctly with 7 different upsets, do you really believe that those 12 people are truly "smarter" about picking the brackets than the other 49,999,988 people, or maybe when 50 million brackets are submitted, statistically, a few are going to get all the picks right? Have you ever checked to see if it's the same 12 each year?
You cite a guy (don't know who he is, don't care) presumably because he made some calls correctly? First, if so, why is he not on the Forbes list of richest people? Second, how many other people picked and got it wrong, and why do you conclude he (or you or whomever) is smarter at picking stocks? Why aren't they just the 12 of 50 million that happened to get it right for whatever the number of picks are?
Statistics are hard for people because they involve large numbers with which we're not familiar so we typically process them poorly. The fact that people continue to process those numbers poorly (along with a few other behavioral economics errors) is the primary reason why holding index funds remains a profitable enterprise beyond the standard risk-free returns available elsewhere.
I urge you to read the buffett's speech. He talked about what you mentioned: statistics and more, such as intellectual origin. It is quite dated, but the principles still stand. After all, value still outperforms as far as we can tell. Market inefficiency is real and can be found nearly everywhere.
https://www8.gsb.columbia.edu/articles/columbia-business/superinvestors
Ritholtz was mentioned for his timing calls, not picking stocks. It is important to distinguish these two. As to why he is not on the Forbes list I have no answer, but by you logic, everyone on Forbes list ought to be great stock pickers. The thing with broad market timing is that at best, you will be able to double your rate your return compared to the b&h approach, all other things being equal (ie, no extra leveraging); so really, your potential wealth derived from purely timing the market is quite limited.
I am not here to promote myself or argue with you that timing is a loser's game in general. In fact, I highly doubt I would be able to do so consistently. I merely showed there are people out there who can and have done so successfully over long periods of time. You are more than welcome to dismiss it as luck. In case you do not read his speech in the link I provided, I will quote Buffett for you.
"One sidelight here: it is extraordinary to me that the idea of buying dollar bills for 40 cents takes immediately to people or it doesn’t take at all. It’s like an inoculation. If it doesn’t grab a person right away, I find that you can talk to him for years and show him records, and it doesn’t make any difference. They just don’t seem able to grasp the concept, simple as it is. A fellow like Rick Guerin, who had no formal education in business, understands immediately the value approach to investing and he’s applying it five minutes later. I’ve never seen anyone who became a gradual convert over a ten-year period to this approach. It doesn’t seem to be a matter of IQ or academic training. It’s instant recognition, or it is nothing."
Or in yoda speak, "can or can not, there is no try".
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You cite a guy (don't know who he is, don't care) presumably because he made some calls correctly? First, if so, why is he not on the Forbes list of richest people? Second, how many other people picked and got it wrong, and why do you conclude he (or you or whomever) is smarter at picking stocks? Why aren't they just the 12 of 50 million that happened to get it right for whatever the number of picks are?
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Clearly a time traveler trying to stay off the Time cop’s radar
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Or in yoda speak, "can or can not, there is no try".
I sentence you to 10 rewatchings of The Empire Strikes Back for this misquote.
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Or in yoda speak, "can or can not, there is no try".
I sentence you to 10 rewatchings of The Empire Strikes Back for this misquote.
I was trying to imitate the way he speaks! How should I have worded it, not yoda speak? Or yoda talk?
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Or in yoda speak, "can or can not, there is no try".
I sentence you to 10 rewatchings of The Empire Strikes Back for this misquote.
I was trying to imitate the way he speaks! How should I have worded it, not yoda speak? Or yoda talk?
The actual quote is “do or do not, there is no try”
Sent from my iPhone using Tapatalk
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I must not be saying it right because I am not getting my point across.
Yes the quote was "do or do not, there is no try." I am aware of that.
What I did was trying to summarize the Buffett quote into a single catch-phrase as if Yoda had said it, hence the "can or can not, there is no try".
I labeled the style "yoda speak", and apparently caused much confusion. I am asking, how should I have labeled it properly?
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Look, I don't think anyone will argue that value investing is impossible, people obviously pull it off, including Warren Buffet and his various buddies. But it has *zero* to do with market timing, which usually consists of watching some combination of random metrics (or a whole bunch, if you're really into it) and buying/selling diversified index type holdings. Market timing isn't about getting detailed info about a company, analyzing their assets and business, and buying if the price is right. It's about finding a "pattern" in random data and buying/selling everything at once.
At a granular level, there are always going to be inefficiencies to exploit. At the macro whole-market level... not so much.
-W
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Hello Mr. W,
I must commend you on your attention to details, as you are the first poster to notice I was talking about two things in my original post: stock picking and timing. I wish I knew how to insert clapping hands for you here.
Before I address your concerns, please excuse me as I can't help but to shake my head(s) since no one else had pointed it out even after I had spelled them out in italic in my second post. This may be pre-mature, but combined with the yoda speak confusion, I am beginning to wonder if this was a case of l2r (learn2read) and rpf (reading compre. failure). You will notice I tend to put clues in plain sight quite often, classic psychopath/villain stuff.
Now, regarding what you said. I recall you were one of the people asking me to explain my timing method earlier this year, I am not going to, but I will try my best to explain the way I see things and how I got on this path.
It is true that market timing typically revolves around watching some metrics and many people get destroyed (mis-timed) by following various indicators. However, if you believe that the market moves in tandem with the economy, ie, not just a simple random walk with an up-trend for no physical reason, then you would expect that sometimes (especially during major turning points of the cycle), you might be able to time the market with some success and confidence. Unfortunately, this also means that even if you succeed in timing the market using this method, your outperformance will be limited and any dreams of getting an annualized average return of 25%+ are quite unrealistic.
You said inefficiencies are only present at a granular level, I disagree. We behave irrationally all the time. Irrationality is an energy filed that creates and is created by all living things. It surrounds us and penetrates us; it binds our society together (maybe not the galaxy). At major turning points of the cycle, irrational behaviors beget massive bubbles and shear panic, which actually ties into the value investing principle, albeit by coincidence.
No, I am not talking about cape or any "simple" valuation methods/indicators. I am referring to what Buffett loves to use in his letters and speeches: the intrinsic value. Instead of individual companies, we would be dealing with the entire market (perhaps the economy itself), but the principles are the same or at least very similar.
If you instead believe that the market always moves independently of the fundamentals (underlying economy) in a simple random walk with an up-trend or is pretty much just psychology all the time, I have nothing more to say.
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Hello Mr. W,
I must commend you on your attention to details, as you are the first poster to notice I was talking about two things in my original post: stock picking and timing. I wish I knew how to insert clapping hands for you here.
Before I address your concerns, please excuse me as I can't help but to shake my head(s) since no one else had pointed it out even after I had spelled them out in italic in my second post. This may be pre-mature, but combined with the yoda speak confusion, I am beginning to wonder if this was a case of l2r (learn2read) and rpf (reading compre. failure). You will notice I tend to put clues in plain sight quite often, classic psychopath/villain stuff.
Now, regarding what you said. I recall you were one of the people asking me to explain my timing method earlier this year, I am not going to, but I will try my best to explain the way I see things and how I got on this path.
It is true that market timing typically revolves around watching some metrics and many people get destroyed (mis-timed) by following various indicators. However, if you believe that the market moves in tandem with the economy, ie, not just a simple random walk with an up-trend for no physical reason, then you would expect that sometimes (especially during major turning points of the cycle), you might be able to time the market with some success and confidence. Unfortunately, this also means that even if you succeed in timing the market using this method, your outperformance will be limited and any dreams of getting an annualized average return of 25%+ are quite unrealistic.
You said inefficiencies are only present at a granular level, I disagree. We behave irrationally all the time. Irrationality is an energy filed that creates and is created by all living things. It surrounds us and penetrates us; it binds our society together (maybe not the galaxy). At major turning points of the cycle, irrational behaviors beget massive bubbles and shear panic, which actually ties into the value investing principle, albeit by coincidence.
No, I am not talking about cape or any "simple" valuation methods/indicators. I am referring to what Buffett loves to use in his letters and speeches: the intrinsic value. Instead of individual companies, we would be dealing with the entire market (perhaps the economy itself), but the principles are the same or at least very similar.
If you instead believe that the market always moves independently of the fundamentals (underlying economy) in a simple random walk with an up-trend or is pretty much just psychology all the time, I have nothing more to say.
zzzzz
a tiny percent of people have some kind of skill that enables them to beat the market.
Some people will beat the market through chance, then be deluded that they did it through skill and lose to the market long term.
Most will not beat the market.
It's not worth trying in my opinion, as the odds are stacked against you.
In summary, nothing you say will make me thing you have any degree of skill/special knowledge/or ability to beat the market.
I might be wrong, but chances are I'm right.
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Hello Mr. W,
I must commend you on your attention to details, as you are the first poster to notice I was talking about two things in my original post: stock picking and timing. I wish I knew how to insert clapping hands for you here.
Before I address your concerns, please excuse me as I can't help but to shake my head(s) since no one else had pointed it out even after I had spelled them out in italic in my second post. This may be pre-mature, but combined with the yoda speak confusion, I am beginning to wonder if this was a case of l2r (learn2read) and rpf (reading compre. failure). You will notice I tend to put clues in plain sight quite often, classic psychopath/villain stuff.
Now, regarding what you said. I recall you were one of the people asking me to explain my timing method earlier this year, I am not going to, but I will try my best to explain the way I see things and how I got on this path.
It is true that market timing typically revolves around watching some metrics and many people get destroyed (mis-timed) by following various indicators. However, if you believe that the market moves in tandem with the economy, ie, not just a simple random walk with an up-trend for no physical reason, then you would expect that sometimes (especially during major turning points of the cycle), you might be able to time the market with some success and confidence. Unfortunately, this also means that even if you succeed in timing the market using this method, your outperformance will be limited and any dreams of getting an annualized average return of 25%+ are quite unrealistic.
You said inefficiencies are only present at a granular level, I disagree. We behave irrationally all the time. Irrationality is an energy filed that creates and is created by all living things. It surrounds us and penetrates us; it binds our society together (maybe not the galaxy). At major turning points of the cycle, irrational behaviors beget massive bubbles and shear panic, which actually ties into the value investing principle, albeit by coincidence.
No, I am not talking about cape or any "simple" valuation methods/indicators. I am referring to what Buffett loves to use in his letters and speeches: the intrinsic value. Instead of individual companies, we would be dealing with the entire market (perhaps the economy itself), but the principles are the same or at least very similar.
If you instead believe that the market always moves independently of the fundamentals (underlying economy) in a simple random walk with an up-trend or is pretty much just psychology all the time, I have nothing more to say.
zzzzz
a tiny percent of people have some kind of skill that enables them to beat the market.
Some people will beat the market through chance, then be deluded that they did it through skill and lose to the market long term.
Most will not beat the market.
It's not worth trying in my opinion, as the odds are stacked against you.
In summary, nothing you say will make me thing you have any degree of skill/special knowledge/or ability to beat the market.
I might be wrong, but chances are I'm right.
IME, one of the worst things that can happen to an investor is to try to time/guess the market and be right. That leads them to the idea that they have this whole thing "figured out" and leads them to more risky behavior later, and with higher sums. Of course losses are inevitable (since it really was luck in the first place), but the investor cannot accept that (having built up quite the image of themselves as genius market timers or stock pickers). So they keep taking bigger risks hoping one day it will all work out.
If you notice, this is the exact same thought process as another group of people - gamblers. And we all know that gambling is a losing proposition because the odds are all on the house. But some people delude themselves into thinking that they have a system that lets them beat the odds. And early/easy success only feeds that delusion.
Its the same for the market timers. The BEST thing that can happen is that someone tries it early and fails. And fails again. Then they are much more likely to admit they don't have any special insight and they should just buy and hold, like the rest of us.
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no problem. I've already given the reply regarding luck/chance in my earlier posts (buffett speech link where he talked about it). One group of us is bound to make money off another, right? :)
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If you notice, this is the exact same thought process as another group of people - gamblers.
Sure, with the key caveat that stock investing is different from casino gambling in that as long as we have a steady influx of new players, there is genuinely money to be made in the stock market. The house still gets a cut, but the pots keep growing.
And I think this is the most overlooked factor in market analysis. You don't need to deep dive into a particular company's fundamentals. You don't need any chartist bullshit. You don't care about seasonal earnings reports or the trade deficit. You only care about how much capital is currently in search of investments. When more money floods into the market, the index goes up. When people pull out the market drops. It's a popularity contest, not an analysis of risk vs reward.
So of you really want to prop up the market, you don't care what the Fed does or what the president tweets today, you only want to put more money into the hands of people who buy stocks. That can mean university foundations (dead wealth) or it can mean raising middle class wages enough to allow normal families to start saving for their retirement. As a policy goal, you grow the index by convincing people to invest. Bogle grew the market. Betterment grows the market. MMM grew the market. It's the people who convince money to go in search of profit that push up the index, not anything at all about the underlying economy.
The market/economy correlation, though popular, isn't nearly as strong as we like to think it is, and is generally correlative instead of causative.
Millennial are saving a bigger percentage of their income than any generation in American history. That's why I think the future of the US index is bright. As long as they keep adding more money to the market than boomers withdraw, the index will continue to climb.
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I must not be saying it right because I am not getting my point across.
Yes the quote was "do or do not, there is no try." I am aware of that.
What I did was trying to summarize the Buffett quote into a single catch-phrase as if Yoda had said it, hence the "can or can not, there is no try".
I labeled the style "yoda speak", and apparently caused much confusion. I am asking, how should I have labeled it properly?
I prefer using the phase "to bastardize a [insert quotable person here] quote". Then people know you're not trying for the exact quote, but adapting it to your situation.
For example:
To bastardize a Yoda quote, "timing the market you can't."
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Sol, always good to read your replies. What you described (the buying and selling of the market itself) relates to "market breadth". Much research had been done on that subject, unfortunately I don't know enough to discuss this with you. :(
I agree the market/econ link is weak most times..... except at major turning points, at least that has been my observation and experience.
Thanks for the suggestion, Eric, it's duly noted.
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You said inefficiencies are only present at a granular level, I disagree. We behave irrationally all the time. Irrationality is an energy filed that creates and is created by all living things. It surrounds us and penetrates us; it binds our society together (maybe not the galaxy). At major turning points of the cycle, irrational behaviors beget massive bubbles and shear panic, which actually ties into the value investing principle, albeit by coincidence.
I should have been more clear: there are certainly inefficiencies at a macro level. They are not inefficiencies that can be consistently and profitably used for anything, however. The market can go to P/E of 100 and stay there for a while, or it can crash at P/E 15. You don't know in advance, you will never know.
So you are correct, and (IMO) I am also correct. At a macro level, there are all sorts of irrational herd behaviors in effect - and unfortunately, you can't do squat to predict when they will begin/end in any useful way. It is, indeed, a random walk with an upward (humanity gets better at doing stuff) trend.
-W
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There will be a "correction" at some point. "If I predict it everyday I will be right at some point in the future....."
While buy and hold, dollar-cost averaging is not sexy, it is a relatively safe bet. When a correction comes, pump more money in and buy stocks and funds at a discount......Do so until the market returns and you are FI. Just my two cents.....