Author Topic: Does anyone think we are in a bubble?  (Read 18615 times)

supershrpy

  • 5 O'Clock Shadow
  • *
  • Posts: 9
Does anyone think we are in a bubble?
« on: February 27, 2017, 07:18:57 PM »
Does anyone think we are in a stock market bubble? Reason I am asking is that I have seen different headlines suggesting contradictory information. Just read an article that said Warren Buffett said we are not in a stock market bubble because things are cheap with interest rates. The same article seemed to suggest we could be in a bull market for another 6-8 years with DJIA hitting 4k. Other people say that in around March things are going to go towards a correction.

My main concern is that I just started investing in my 401k last October and about a month or so ago started my Roth IRA with vanguard total stock market index funds of 3k. I am concerned if I should move my investments over to some sort of "safe fund" where they could be protected from such a correction. Also, if we are headed towards a correction I was wondering if I should just stop investing and try to pay off my house in the meantime or just save the cash and invest when it comes time. The problem is that money from my check is going to my 401k and I can't invest after I get paid. And a Roth IRA the max is 5,500 a year. I owe around 32k on my house. I contribute 30% to my 401k now and the rest goes monthly to maxing out the Roth. I also have a second job to invest or pay off house. What are everyone's thoughts on this??

WildJager

  • Bristles
  • ***
  • Posts: 439
  • Age: 33
    • Can't complain.
Re: Does anyone think we are in a bubble?
« Reply #1 on: February 27, 2017, 08:02:30 PM »
Stay the course with your planned asset allocation.  Ignore market fears.  The whole point of developing a well thought out plan, and then execution that plan, is because regardless of what you see in the news, no one knows the future to any degree of fidelity.  Will there be a correction?  Sure, at some point.  But no one knows exactly when that point is, or what the bottom of that will be.  In other words, the people who have been waiting to invest because we were overvalued in, let's just say for this example, 2014 have missed out on a lot of gains.  Especially those gains since December. 

What you're asking basically is, "Should I time the market?"  And the answer is, unequivocally, no.  There is just too much data to process for the average investor. 

Another way of stating this is, do you check on the value of your house monthly and take out equity depending on when that value is too high?  If the answer is no, then it should be the same for your investments.  Your goal is the long game, and the upward trend line on the value of your portfolio, not the month to month speculation of the equity.

Radagast

  • Handlebar Stache
  • *****
  • Posts: 1596
  • Location: West of the Mountains, East of the Sea
  • One does not simply work into Mordor
Re: Does anyone think we are in a bubble?
« Reply #2 on: February 27, 2017, 08:43:48 PM »
I just made this handy "Radagast's Guide to Bubbles" that I was thinking about posting sometime, now is as good a time as any. It is an arbitrary method completely made up rule of thumb based on multiples of 1.4 (actually square root of 2), which I learned in my previous hobby of photography. In short: No. Come back if prices rise 20% over the next year though and I will issue a "bubble watch." Right now we are well within "high price advisory."

P/(E10) Multiple Range
100   +   Black Swan Event
71   100   Extraordinary Bubble
50   71   Bubble Warning
35   50   Bubble Watch
25   35   High Price Advisory <--29.5ish right now
18   25   Normal Market Conditions
12.5   18   Low Price Advisory
8.8   12.5   Fire Sale Watch
6.3   8.8   Fire Sale Warning
4.4   6.3   Extraordinary Fire Sale
-   4.4   Black Swan Event
You can find the current price of the S&P500 divided by its trailing 10-year average earnings here: http://www.multpl.com/shiller-pe/

Another classic sign of a bubble is a flat or inverted yield curve, which means investors are buying longer term bonds because they are concerned about a bubble popping in the short term. This causes short term rates to be higher than long term rates. Notice that the yield curve was flat or inverted in 1998, 1999, 2000, 2006, and 2007. Right now the yield curve is steep and consistent, which means the bond market does not see a bubble. The collective bond market is pretty smart. You can investigate for yourself here: https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/Historic-Yield-Data-Visualization.aspx
« Last Edit: March 05, 2017, 12:41:14 PM by Radagast »

marty998

  • Walrus Stache
  • *******
  • Posts: 6642
  • Location: Sydney, Oz
Re: Does anyone think we are in a bubble?
« Reply #3 on: February 27, 2017, 11:46:12 PM »
Interesting you think 18-25 is normal. In the Australian market we'd consider 13-16 to be normal.

If our market was over 20 I would call that bubble territory.

29.5 is insanity to me - better have some extraordinary profit growth to back that up...

bigchrisb

  • Handlebar Stache
  • *****
  • Posts: 1185
Re: Does anyone think we are in a bubble?
« Reply #4 on: February 28, 2017, 01:59:44 AM »
I'd agree on the "normal" range for Aus being 13-16 based on the next year's PE.  However, I think they are using the PE10 (from Shiller), which looks at the earnings over the last 10 years compared to the current price.   I've not been able to find this stat for the Aus market, but assuming earnings grow over time, it should typically be a bigger number than current year PE?

marty998

  • Walrus Stache
  • *******
  • Posts: 6642
  • Location: Sydney, Oz
Re: Does anyone think we are in a bubble?
« Reply #5 on: February 28, 2017, 03:32:15 AM »
I'd agree on the "normal" range for Aus being 13-16 based on the next year's PE.  However, I think they are using the PE10 (from Shiller), which looks at the earnings over the last 10 years compared to the current price.   I've not been able to find this stat for the Aus market, but assuming earnings grow over time, it should typically be a bigger number than current year PE?

Ahh I see. Yes you would expect then the P/Es to be quite a bit higher.

Mr Mark

  • Handlebar Stache
  • *****
  • Posts: 1187
  • Location: Planet Earth
  • Achieved Financial Independence summer 2014. RE'18
Re: Does anyone think we are in a bubble?
« Reply #6 on: February 28, 2017, 04:45:28 AM »
Things are certainly looking a bit frothy! PE(10) is today just under 30. So I share your concerns.

However, I'd just add that the P/E - however measured - will relate to alternative investments. When interest rates of 'risk free' US Treasuries are effectively zero (German equiv are actually negative), and even long term 30 year rates are <4%, it's not surprising that the price of buying a dividend stream goes up. Earnings growth is also good, and global alternatives look mediocre too.

So, yes, historically current PE(10) ratios are (very) high. But at current interest rates, arguably not unexpected. Where else to put your cash?

Being 100% stock invested lately has looked like a great strategy. It's possible (nay, likely) there's a significant correction coming and then a more bond heavy portfolio will look clever (even tho' interest rates going up will reduce bond prices) if you then rebalance (sell bonds to buy stock). But cash really hurts, as you gain no compounded dividend, and markets are often 'at all time highs', so trying to time the market is an historically unsuccessful strategy. This bull market could go for 2 more years easy, or it could drop like a rock tomorrow.

A slow correction via inflation may be what happens, and then the hold cash option would be really bad.

So I'm personally pretty 'bond' & RE heavy right now  - most of that outside my control - and letting my cash reserve build a bit for now. But I'm still reinvesting dividends. There just doesn't seem a better long term strategy than regular DCA/buy and hold in low cost index at an AA you are comfortable with in good and bad times.






Dicey

  • Senior Mustachian
  • ********
  • Posts: 11689
  • Age: 61
  • Location: NorCal
Re: Does anyone think we are in a bubble?
« Reply #7 on: February 28, 2017, 05:10:02 AM »
Meh.

Modified to add: The market doesn't care what I think.
« Last Edit: February 28, 2017, 05:20:10 AM by Diane C »

MasterStache

  • Handlebar Stache
  • *****
  • Posts: 2261
Re: Does anyone think we are in a bubble?
« Reply #8 on: February 28, 2017, 05:34:41 AM »
As long as you stay the course, don't worry about the market or what anybody else says, you are already in a "safe fund." If the market goes down, so what, keep buying. You just buy on sale!

I might have read the same Buffet article. He also insist your greatest enemy is fear. Don't buy into the fear and you'll be fine. I've been hearing that the market is overvalued for years now. And yet I just keep investing.

cheapass

  • Pencil Stache
  • ****
  • Posts: 507
  • Location: Dallas, Texas
  • On track for FIRE @ 40
Re: Does anyone think we are in a bubble?
« Reply #9 on: February 28, 2017, 06:14:42 AM »
When I go stock up on toilet paper and then it goes on sale the next week, I don't panic and sell what I have... I buy more!

Sent from my SCH-I545 using Tapatalk


AdrianC

  • Handlebar Stache
  • *****
  • Posts: 1040
  • Location: Cincinnati
Re: Does anyone think we are in a bubble?
« Reply #10 on: February 28, 2017, 07:01:22 AM »
Buffett:

http://www.cnbc.com/2017/02/27/billionaire-investor-warren-buffett-speaks-with-cnbcs-becky-quick-on-squawk-box.html

Quick: In terms of what the message is you want to get across to people, I mean, when we're looking at markets at such high levels, as Joe was just alluding to, it has a lot of doubters and a lot of people saying: "Wait, it's too late for me to get in. I've missed it. We're past Dow 20k, now I have to wait for the pullback." What would you say to someone like that?

Buffett: Well, I would say they don't know, and I don't know. And if there's a game it's very good to be in for the rest of your life, the idea to stay out of it because you think you know when to enter it-- is a terrible mistake. I don't know anybody that can time markets over the years. A lot of people thought they can. But, if you were buying a farm and you decided that farms were gonna be worth more money ten, or 20, or 30 years from now and that would be a productive asset, go out and buy it unless it was just ... some absurd price. And the best thing with stocks actually is to buy 'em consistently over time. You wanna spread the risk as far as the specific companies you're in by owning a diversified group, and you diversify over time by buying this month, next month, the year after, the year after, the year after. I ... but you ... making a terrible mistake if you stay out of a game that you think is going to be very good over time because you think you can pick a better time to enter it.


nihilism122

  • 5 O'Clock Shadow
  • *
  • Posts: 33
Re: Does anyone think we are in a bubble?
« Reply #11 on: February 28, 2017, 07:54:43 AM »
I've been investing for almost six years and one thing I have noticed is that someone always thinks we're in a bubble.  The markets have risen substantially over that period of time.  The S&P 500 was around 1100 when I started investing.
« Last Edit: February 28, 2017, 07:57:39 AM by nihilism122 »

koshtra

  • Pencil Stache
  • ****
  • Posts: 681
  • Location: Portland, Oregon, USA
    • Mole
Re: Does anyone think we are in a bubble?
« Reply #12 on: February 28, 2017, 08:01:17 AM »
Well, sure, I think we're in a bubble. Equity prices are on the high side. But it could be a bubble that pops tomorrow, or one that pops twenty years from now. And "popping" could be a global depression, or frantic inflation, or... some other thing we don't even know about yet.

If Mr Buffet can't time markets, then I sure can't.

Really, it's a losing game to try to time the markets. Just assume your return on stocks, in the long run, is going to be 4 to 7 percent, and make decisions about paying off your mortgage accordingly. If you run speculative numbers on your options, with or without a correction, and with or without significant inflation, I think you'll find that it doesn't actually make much difference.

Radagast

  • Handlebar Stache
  • *****
  • Posts: 1596
  • Location: West of the Mountains, East of the Sea
  • One does not simply work into Mordor
Re: Does anyone think we are in a bubble?
« Reply #13 on: February 28, 2017, 08:43:07 AM »
Interesting you think 18-25 is normal. In the Australian market we'd consider 13-16 to be normal.

If our market was over 20 I would call that bubble territory.

29.5 is insanity to me - better have some extraordinary profit growth to back that up...
I have read on the internet that US accounting standards changed c.a. 2000, which effectively makes current PE's about 5 points higher than they would have been before. I don't know how accurate that is, but it came from Larry Swedroe who should know what he is talking about. The internet bubble saw this in the 45's, while the Japanese bubble put it in the 90's, so I can't really say we are in a bubble right now. Of course stocks can crash at any time, though I perceive people to be sitting on too much money for them to crash right now.

prognastat

  • Pencil Stache
  • ****
  • Posts: 781
  • Location: Texas
Re: Does anyone think we are in a bubble?
« Reply #14 on: February 28, 2017, 09:54:45 AM »
I'm more of a fan of buying more when stocks "go on sale" after a crash. If you have the capability to temporarily either bring in some extra income from OT, cutting spending or working a side gig then do that when the market does crash and buy a little more than you usually would. You are unlikely to win big this way, but you may come slightly ahead and predicting when the crash is going to happen and selling just before is an extremely hard game to play. It is much easier to buy when low than to sell at a high right before a crash. Doing this for one specific stock would be a massive risk, but I believe doing this if you are buying diversified across the whole market such as low fee index funds it is a pretty safe strategy. Beyond this just putting constantly as soon as you have the money to put in is probably the best strategy by having your funds in the market for the longest time.

Retire-Canada

  • Walrus Stache
  • *******
  • Posts: 7118
Re: Does anyone think we are in a bubble?
« Reply #15 on: February 28, 2017, 10:18:34 AM »

Kaspian

  • Handlebar Stache
  • *****
  • Posts: 1536
  • Location: Canada
    • My Necronomicon of Badassity
Re: Does anyone think we are in a bubble?
« Reply #16 on: February 28, 2017, 02:16:10 PM »
...I am concerned if I should (1) move my investments over to some sort of "safe fund" where they could be protected from such a correction. Also, if we are headed towards a correction I was wondering if I should just (2) stop investing and try to pay off my house in the meantime or just save the cash and invest when it comes time...

People who have a solid index portfolio (possibly diversified) and do either or both of the 2 above always lose.  If you are having the thoughts above, it proves you haven't assessed your own risk tolerance properly.  Diversification isn't for everyone here, but it is for many of us.  25-40% in bonds never killed anyone. 

Rimu05

  • Stubble
  • **
  • Posts: 245
Re: Does anyone think we are in a bubble?
« Reply #17 on: February 28, 2017, 02:28:19 PM »
This to me is somewhat like asking if a fish knows it's wet. Bubbles are hard to predict and impossible to tell when you are in one. Really, we only ever know it was a bubble once it's burst.

Anything more is speculation. I say the precautions in my position is to increase emergency fund, but leave investments alone. History shows us that stock market crashes are cyclical. There's no point throwing bones and truth on a carpet and trying to prophecy here.

Last year was the first time I heard of Robert Kiyosaki and seeing so many good opinions, I clicked on his podcast and safe to say, it was off-putting. He was convinced 2016 was the year the market would crash terribly. Here, we are doing better than ever.

Pylortes

  • Stubble
  • **
  • Posts: 178
Re: Does anyone think we are in a bubble?
« Reply #18 on: February 28, 2017, 03:00:16 PM »
I don't think we are in a bubble. I think the general market price has been going higher, and is historically on the high side right now.  Earnings have been growing for quite a few years (although they seem to be flattening out somewhat now and revenues are not really growing- much of the earnings games have come from cost cutting and companies buying back shares). There is a difference between stocks that are valued richly and a "bubble".  A bubble implies that there is no economic justification for the current prices.  I think there is ample justification for stocks having run up to the current high prices- 1.  Earnings growth over the past several years.  2. The possibility of future corporate tax reform 3.  The possibility of future increased infrastructure spending other other stimulus. 4. For US based mulitnationals that make a lot of their sales overseas- the possibility for a drop in the dollar. 

You can judge for yourself which, if any, of these factors will play out (and to what extent)- but the collective market seems to be increasing company valuations for these and some other future predictions.   If stocks kept going up and up for no underlying reason (I'm buying because my neighbor bought and just made a ton of money and I don't want to miss the boat!)- that would be a bubble.


Indexer

  • Handlebar Stache
  • *****
  • Posts: 1437
Re: Does anyone think we are in a bubble?
« Reply #19 on: February 28, 2017, 04:19:25 PM »
Stay the course with your planned asset allocation.  Ignore market fears.

+1



On the note of P/E ratios, and CAPE(also called PE10) ratios: these do not predict market crashes. You can see high PE and CAPE ratios that last for years. They were high in 1996, but the tech bubble didn't burst until 2000. Markets don't normally crash just because PE and CAPE ratios are high. You normally need an event to happen that starts the crash.

All high PE and CAPE ratios tell you is that returns over the foreseeable future will likely be lower than historical averages. The logic is that when PE ratios are high part of the appreciation of the stock has been the PE ratio increasing, and not because of earnings. The opposite is also true, low PE ratios mean you have lots of room for price growth even if earnings stay flat. So there is a higher probability that we will see below average returns and a lower probability we will see above average returns over the next 10 years. However, even if stocks have lower than average returns they will probably still be higher than cash and bond returns.

Conclusion: Stay the course with your planned asset allocation.  Ignore market fears.

YoungStache

  • 5 O'Clock Shadow
  • *
  • Posts: 97
  • Location: California
Re: Does anyone think we are in a bubble?
« Reply #20 on: February 28, 2017, 05:38:07 PM »
What would you guys invest in now? Considering VTSAX is so high and VTIAX has not grown as much lately.

VTSAX?

VTIAX?

Or another vanguard fund?

Retire-Canada

  • Walrus Stache
  • *******
  • Posts: 7118
Re: Does anyone think we are in a bubble?
« Reply #21 on: February 28, 2017, 05:41:53 PM »
What would you guys invest in now? Considering VTSAX is so high and VTIAX has not grown as much lately.

VTSAX?

VTIAX?

Or another vanguard fund?

Follow your investment plan and your asset allocation. What do they say?

Mr Mark

  • Handlebar Stache
  • *****
  • Posts: 1187
  • Location: Planet Earth
  • Achieved Financial Independence summer 2014. RE'18
Re: Does anyone think we are in a bubble?
« Reply #22 on: February 28, 2017, 10:47:19 PM »
What would you guys invest in now? Considering VTSAX is so high and VTIAX has not grown as much lately.

VTSAX?

VTIAX?

Or another vanguard fund?

I like the look of #5 horse "Wow it's hot" running in race 6 at Santa Anita tomorrow. Bet it to win and place... ;-)

larmando

  • Stubble
  • **
  • Posts: 193
  • Location: Germany
Re: Does anyone think we are in a bubble?
« Reply #23 on: March 01, 2017, 01:53:19 AM »
My main concern is that I just started investing in my 401k last October and about a month or so ago started my Roth IRA with vanguard total stock market index funds of 3k.

Look at this from another perspective: suppose we are in a bubble, and the market crashes *gasp* 50% next month. That's amazing for you: you (temporarily) lose 50% of your 3k, or 1.5k and get to buy funds for the next bunch of years cheaper (unless it's a flash crash flash recover, in which case you can totally ignore it). Considering you may need about 200 times that 3k to retire, it's really nothing to worry about. When you'll be 50% or 60% through saving for retirement 1.5k will be a daily movement. Not only you don't know if we are in a bubble: you totally shouldn't care less.

MustacheAndaHalf

  • Handlebar Stache
  • *****
  • Posts: 1980
Re: Does anyone think we are in a bubble?
« Reply #24 on: March 01, 2017, 05:34:20 AM »
The financial news media would be ignored if they didn't stir up fear and greed.  So if someone warns of a bubble, they make the front page.  What's less obvious is the person's track record - have they predicted correctly and consistently in the past?  Or do they keep telling people to sell every year?  The spoiler is that they have no ability to predict when the market will crash and when it will recover.  You don't need to listen to stories predicting the next crash.

I just made this handy "Radagast's Guide to Bubbles" what I was thinking about posting sometime, now is as good a time as any. It is an arbitrary method ...
An arbitrary method with no track record isn't a good start to providing investing advice.

MasterStache

  • Handlebar Stache
  • *****
  • Posts: 2261
Re: Does anyone think we are in a bubble?
« Reply #25 on: March 01, 2017, 10:02:37 AM »
The financial news media would be ignored if they didn't stir up fear and greed.  So if someone warns of a bubble, they make the front page.  What's less obvious is the person's track record - have they predicted correctly and consistently in the past?  Or do they keep telling people to sell every year? The spoiler is that they have no ability to predict when the market will crash and when it will recover.  You don't need to listen to stories predicting the next crash.

I just made this handy "Radagast's Guide to Bubbles" what I was thinking about posting sometime, now is as good a time as any. It is an arbitrary method ...
An arbitrary method with no track record isn't a good start to providing investing advice.

See that's the thing. You know the saying, even a clock is right twice a day? They predict market doom year after year and when it doesn't happen no one really pays attention because everything is going swimmingly. And then suddenly the market drops and out comes the "see I told you so" without acknowledging they have been falsely predicting drops for years.

Spork

  • Walrus Stache
  • *******
  • Posts: 5750
    • Spork In The Eye
Re: Does anyone think we are in a bubble?
« Reply #26 on: March 01, 2017, 10:11:40 AM »
Instructions on what to do with your 401k when the stock market is gaining slowly:
* buy low cost index funds with every paycheck

Instructions on what to do with your 401k when the stock market tanks:
* buy low cost index funds with every paycheck

Instructions on what to do with your 401k when the market is in a bubble:
* buy low cost index funds with every paycheck

redrocker

  • Stubble
  • **
  • Posts: 125
  • Location: New Orleans, LA
Re: Does anyone think we are in a bubble?
« Reply #27 on: March 01, 2017, 01:07:47 PM »
My main concern is that I just started investing in my 401k last October and about a month or so ago started my Roth IRA with vanguard total stock market index funds of 3k. I am concerned if I should move my investments over to some sort of "safe fund" where they could be protected from such a correction. Also, if we are headed towards a correction I was wondering if I should just stop investing and try to pay off my house in the meantime or just save the cash and invest when it comes time. The problem is that money from my check is going to my 401k and I can't invest after I get paid. And a Roth IRA the max is 5,500 a year. I owe around 32k on my house. I contribute 30% to my 401k now and the rest goes monthly to maxing out the Roth. I also have a second job to invest or pay off house. What are everyone's thoughts on this??

I'm not sure if there's a bubble. Perhaps you didn't ask this explicitly, but a related question would be: "is there reason to expect a market correction soon?" While you shouldn't believe anyone who tells you they can predict the future, I suspect we will see a correction sometime this year. The market does seem overly exuberant about the new regime. But unless Congress basically starts rubberstamping the Orange One's plans, I think we'll see at least a momentary clawback of the election season and post-election gains.

What this means for me personally: I'm about 15% in cash right now and waiting for a correction. I didn't sell out of the market to time for a correction, this was a strategic sell-off of some old funds that I did in late 2016 for tax purposes. I admit that I *am* timing the market in terms of reinvesting those funds. I wouldn't give advice to anyone to do the same thing, that's me taking a gamble and I acknowledge that.

As for you and what you should do, I would not advise selling your current investments. Buy and hold, then stay the course. If you're feeling anxiety over $3,000 invested in equities, then you should have a higher bond allocation to protect yourself from market volatility. That's a personal choice and one you should ask yourself.

As for whether you should stop investing in the market at current prices and instead divert money to paying off your house or into savings, well, if I were you I think I'd split any surplus from your paycheck amongst all three of those options: 1/3 in the market, 1/3 additional principal towards your mortgage, 1/3 to cash savings for either emergency fund or for investing in the event of a correction. That way you hedge against a market correction in the short term but you'll also continue to benefit if the market continues to go up for months/years before a correction.

One other note, I don't know your income or retirement plans but have you evaluated whether a traditional IRA is better for you? You might want to consider a tIRA and then if you do early retirement on a low income for awhile you'd have the opportunity to do Roth conversions and get the best of both worlds.

marty998

  • Walrus Stache
  • *******
  • Posts: 6642
  • Location: Sydney, Oz
Re: Does anyone think we are in a bubble?
« Reply #28 on: March 01, 2017, 01:10:22 PM »
Dow 21,000...

Onwards and upwards.

Radagast

  • Handlebar Stache
  • *****
  • Posts: 1596
  • Location: West of the Mountains, East of the Sea
  • One does not simply work into Mordor
Re: Does anyone think we are in a bubble?
« Reply #29 on: March 01, 2017, 01:23:50 PM »
I just made this handy "Radagast's Guide to Bubbles" what I was thinking about posting sometime, now is as good a time as any. It is an arbitrary method ...
An arbitrary method with no track record isn't a good start to providing investing advice.
You are right, I changed it to "completely made up rule of thumb." Completely made up rules of thumb are an amazing source of investing advice :-)

Heckler

  • Handlebar Stache
  • *****
  • Posts: 1346
Re: Does anyone think we are in a bubble?
« Reply #30 on: March 01, 2017, 04:02:10 PM »
Dow 21,000...

Onwards and upwards.

A great day for my planned first annual rebalancing!


???!??!?


One Noisy Cat

  • Stubble
  • **
  • Posts: 221
Re: Does anyone think we are in a bubble?
« Reply #31 on: March 01, 2017, 04:33:45 PM »
We've been in a bubble ever since 1953 when the Dow surpassed its high in 1929 (yes, people were worried about that back in the day).

At least in a stock market, you are (or should be) re investing dividends and investing each pay day.
Other things such as gold, tulip bulbs, real estate don't pay dividends and may even need financing (low margin limits wiped out many a person in 1929 as they had to sell to meet margin requirements.)

We easily could get a 20% or even more drop in the market over a year's time: these things happen.
But my pension and social security revenues are greater than my monthly expenses so I'm investing the surplus in some blue chip stocks.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7848
Re: Does anyone think we are in a bubble?
« Reply #32 on: March 01, 2017, 04:45:17 PM »
The market could increase at inflation for the next year then bubble talk would stop.  The pe10 would.be back in normal grounds. Also the pe10 is high for 2 reason right now. 2009 BC earnings were in the toilet. Remove just that year and it eases back close to normal. Secondly this is an epically low time for interest rates. So between those 2. The PE may not be as overpriced as it looks. But either way. Who the hell cares. BC I'm not a magician. So it is what it is and I'll just keep dumping money in.

As a matter of fact my wife's car loan is almost up so I'm looking at used cars at a similar price to what we could sell hers for to buy a new one and dump that money back in. And take out another loan.

AdrianC

  • Handlebar Stache
  • *****
  • Posts: 1040
  • Location: Cincinnati
Re: Does anyone think we are in a bubble?
« Reply #33 on: March 02, 2017, 08:57:08 AM »
Interesting chart - Inflation adjusted S&P 500:

http://www.multpl.com/inflation-adjusted-s-p-500

cheapass

  • Pencil Stache
  • ****
  • Posts: 507
  • Location: Dallas, Texas
  • On track for FIRE @ 40
Re: Does anyone think we are in a bubble?
« Reply #34 on: March 02, 2017, 09:05:27 AM »
Interesting chart - Inflation adjusted S&P 500:

http://www.multpl.com/inflation-adjusted-s-p-500

I wonder if that's price only or includes DRIP?

tooqk4u22

  • Handlebar Stache
  • *****
  • Posts: 2219
Re: Does anyone think we are in a bubble?
« Reply #35 on: March 02, 2017, 11:06:15 AM »
Interesting chart - Inflation adjusted S&P 500:

http://www.multpl.com/inflation-adjusted-s-p-500

I wonder if that's price only or includes DRIP?

Probably excludes DRIP as point to point is only a 2.3% return...whereas the average dividend yield was 4.4% over that period.  Average earnings yield (inverse of PE) was 7.4%.

solon

  • Handlebar Stache
  • *****
  • Posts: 1739
  • Age: 1819
  • Location: CO
Re: Does anyone think we are in a bubble?
« Reply #36 on: March 02, 2017, 12:05:03 PM »
Here's one that includes the dividends.

http://thume.ca/indexView/

AdrianC

  • Handlebar Stache
  • *****
  • Posts: 1040
  • Location: Cincinnati
Re: Does anyone think we are in a bubble?
« Reply #37 on: March 03, 2017, 07:28:06 AM »
Relevant and good article by Brooklyn Investor:

Buffett on Valuation
http://brooklyninvestor.blogspot.com/2017/03/buffett-on-valuation.html

Conclusion: Not in a bubble.

frugal_c

  • Bristles
  • ***
  • Posts: 256
Re: Does anyone think we are in a bubble?
« Reply #38 on: March 04, 2017, 09:25:22 AM »
I think we are in a bit of a bubble.  My plan from the get-go, was to slowly increase my bond allocation as the PE10 increases.  I don't have a solid rule on it but I am at 30% bonds and will gradually increase that.  3 years ago I was 25% bonds and 5 years ago it was about 15%.  With my approach you decrease your potential gain but you also decrease your possible loss.  In other words it is just a balancing act of return / loss.  15 to 20 year bear markets do happen and that would mess up my retirement.  I don't need crazy gains to retire, I am planning for 2% per year ahead of inflation over the next decade.   I am not willing to go 100% stocks just to shave a year or two off my retirement date.
« Last Edit: March 04, 2017, 09:28:39 AM by frugal_c »

Kaspian

  • Handlebar Stache
  • *****
  • Posts: 1536
  • Location: Canada
    • My Necronomicon of Badassity
Re: Does anyone think we are in a bubble?
« Reply #39 on: March 04, 2017, 12:04:41 PM »
I think we are in a bit of a bubble.  My plan from the get-go, was to slowly increase my bond allocation as the PE10 increases.  I don't have a solid rule on it but I am at 30% bonds and will gradually increase that.  3 years ago I was 25% bonds and 5 years ago it was about 15%.  With my approach you decrease your potential gain but you also decrease your possible loss.  In other words it is just a balancing act of return / loss.  15 to 20 year bear markets do happen and that would mess up my retirement.  I don't need crazy gains to retire, I am planning for 2% per year ahead of inflation over the next decade.   I am not willing to go 100% stocks just to shave a year or two off my retirement date.

Yes, having your approximate age in bonds isn't a bad strategy.  I use my age minus 5 years.  As you get older, wealth preservation becomes increasingly important over growth.  (Caveat: There are philosophies which state the opposite, however.) I would never let this surpass something like 50-55% though because that's weighing one asset class too heavily.

tiberius

  • 5 O'Clock Shadow
  • *
  • Posts: 18
Re: Does anyone think we are in a bubble?
« Reply #40 on: March 05, 2017, 07:04:10 AM »
I think we are in a bubble. Japanese and US stocks have shot up in the last 18 months.
Also the CAPE index is huge at the moment.
http://www.multpl.com/shiller-pe/
I would like to make some money from the bubble but not be caught out.
When it pops I will stay out of stocks for about 18 months. Then there were will a huge amount
of bargains available. So it's not all bad news.

I'm putting money into Gold ETF's and bonds at the moment but I'm not sure what the best
strategy is.

Retire-Canada

  • Walrus Stache
  • *******
  • Posts: 7118
Re: Does anyone think we are in a bubble?
« Reply #41 on: March 05, 2017, 07:44:58 AM »
I'm putting money into Gold ETF's and bonds at the moment but I'm not sure what the best
strategy is.

What happens if the bubble doesn't pop in 2017 or 2018? What happens if the growth of stocks just slows and maybe there is a small correction such that you don't get the chance to buy in at these prices again?

How long do you keep buying bonds/gold for?

People have been predicting the next big crash every year since the last big crash.

chasesfish

  • Magnum Stache
  • ******
  • Posts: 3381
  • Age: 37
  • Location: South Carolina
Re: Does anyone think we are in a bubble?
« Reply #42 on: March 05, 2017, 07:56:30 AM »
I've been hearing about the bubble for four years...

Those who pulled out got hurt.  There's always someone predicting a bubble every week, so when there is a stock market drop, the person of the week is right.

I'd say track the PE of the S&P 500.  When that gets to all time highs, then its time to be conservative.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7848
Re: Does anyone think we are in a bubble?
« Reply #43 on: March 05, 2017, 08:39:57 AM »
I think we are in a bubble. Japanese and US stocks have shot up in the last 18 months.
Also the CAPE index is huge at the moment.
http://www.multpl.com/shiller-pe/
I would like to make some money from the bubble but not be caught out.
When it pops I will stay out of stocks for about 18 months. Then there were will a huge amount
of bargains available. So it's not all bad news.

I'm putting money into Gold ETF's and bonds at the moment but I'm not sure what the best
strategy is.

Sounds like a terrible plan.

tiberius

  • 5 O'Clock Shadow
  • *
  • Posts: 18
Re: Does anyone think we are in a bubble?
« Reply #44 on: March 05, 2017, 09:37:51 AM »
I'm putting money into Gold ETF's and bonds at the moment but I'm not sure what the best
strategy is.

What happens if the bubble doesn't pop in 2017 or 2018? What happens if the growth of stocks just slows and maybe there is a small correction such that you don't get the chance to buy in at these prices again?

How long do you keep buying bonds/gold for?

People have been predicting the next big crash every year since the last big crash.

I'm gonig to do a three way split of
Gold ETF's
Bond Funds
Equity Tracker Funds

Then once a month rebalance so it's equal thirds.
So while we are in the bubble the equity tracker funds will go up, then I'll take some money out and put it into
the other pots.
If we go into actual downturn, I will probably cash in the equity tracker funds and not invest in them until the recovery.

AdrianC

  • Handlebar Stache
  • *****
  • Posts: 1040
  • Location: Cincinnati
Re: Does anyone think we are in a bubble?
« Reply #45 on: March 05, 2017, 10:45:19 AM »
I think we are in a bubble. Japanese and US stocks have shot up in the last 18 months.
Also the CAPE index is huge at the moment.
http://www.multpl.com/shiller-pe/
I would like to make some money from the bubble but not be caught out.
When it pops I will stay out of stocks for about 18 months. Then there were will a huge amount
of bargains available. So it's not all bad news.

CAPE is high at 30. During the dot com bubble it got to 45. That's a bubble.

We would all like to get out at the top and back in at the bottom. I have no way to know so I'm not going to stress about it, not going to try. Buying during a downturn is hard. Can you do it?

Quote

I'm gonig to do a three way split of
Gold ETF's
Bond Funds
Equity Tracker Funds

Then once a month rebalance so it's equal thirds.
So while we are in the bubble the equity tracker funds will go up, then I'll take some money out and put it into
the other pots.
If we go into actual downturn, I will probably cash in the equity tracker funds and not invest in them until the recovery.

Have you seen the discussions on the Permanent Portfolio (4 way split) and Golden Butterfly (4 way split with equity having a 2/5 share)? proponents have reasons for the 4 way split. Why do you go with 3 way?

tiberius

  • 5 O'Clock Shadow
  • *
  • Posts: 18
Re: Does anyone think we are in a bubble?
« Reply #46 on: March 05, 2017, 11:39:18 AM »
I think we are in a bubble. Japanese and US stocks have shot up in the last 18 months.
Also the CAPE index is huge at the moment.
http://www.multpl.com/shiller-pe/
I would like to make some money from the bubble but not be caught out.
When it pops I will stay out of stocks for about 18 months. Then there were will a huge amount
of bargains available. So it's not all bad news.

CAPE is high at 30. During the dot com bubble it got to 45. That's a bubble.

We would all like to get out at the top and back in at the bottom. I have no way to know so I'm not going to stress about it, not going to try. Buying during a downturn is hard. Can you do it?

Quote

I'm gonig to do a three way split of
Gold ETF's
Bond Funds
Equity Tracker Funds

Then once a month rebalance so it's equal thirds.
So while we are in the bubble the equity tracker funds will go up, then I'll take some money out and put it into
the other pots.
If we go into actual downturn, I will probably cash in the equity tracker funds and not invest in them until the recovery.

Have you seen the discussions on the Permanent Portfolio (4 way split) and Golden Butterfly (4 way split with equity having a 2/5 share)? proponents have reasons for the 4 way split. Why do you go with 3 way?

I've not seen discussions on the Permanent Portfolio or Golden Butterfly previously but I've had a look just now. There is a good website on the various
portfolios people have suggested here: https://portfoliocharts.com/portfolio/
The split I'm going for is because I'm expecting US stock prices to collapse soon-ish. If and when that happens and then US stocks are a bargain price,
I will change the percentages to something where equities are a much larger portion of the pie...

StreetCat

  • 5 O'Clock Shadow
  • *
  • Posts: 81
Re: Does anyone think we are in a bubble?
« Reply #47 on: March 05, 2017, 11:40:27 AM »
"Bubble" is a vague term and I don't have a yes/no answer.  Right now isn't as bad as dot-com was in 2000, but right now US stock market is among the most expensive.

I am no longer buying US stocks due to high valuations.  There are other country ETFs/MFs out there which are significantly less expensive: http://www.starcapital.de/research/CAPE_Stock_Market_Expectations

I do agree with the difficulties and near futility of market timing.  But at the same time, also be aware that if the US market crashes from this point and there is a 30, 40, 50% draw-down from your purchase point,  then you will have a LOT of difficulty staying the course due to psychological reasons.  You may end up selling at the worst possible time in a draw-down.  So, it's one kind of problem vs another.

If you can get into US markets now and leave your money in there for another 20-30 years and not look at it and not worry about it along the way, then I guess you can invest in the US markets.  If not, I would look elsewhere.

Radagast

  • Handlebar Stache
  • *****
  • Posts: 1596
  • Location: West of the Mountains, East of the Sea
  • One does not simply work into Mordor
Re: Does anyone think we are in a bubble?
« Reply #48 on: March 05, 2017, 11:45:34 AM »
I'm putting money into Gold ETF's and bonds at the moment but I'm not sure what the best
strategy is.

What happens if the bubble doesn't pop in 2017 or 2018? What happens if the growth of stocks just slows and maybe there is a small correction such that you don't get the chance to buy in at these prices again?

How long do you keep buying bonds/gold for?

People have been predicting the next big crash every year since the last big crash.

I'm gonig to do a three way split of
Gold ETF's
Bond Funds
Equity Tracker Funds

Then once a month rebalance so it's equal thirds.
So while we are in the bubble the equity tracker funds will go up, then I'll take some money out and put it into
the other pots.
If we go into actual downturn, I will probably cash in the equity tracker funds and not invest in them until the recovery.
I don't think it is wise to have less than 50% in stocks in any case. Invest around the globe if you are concerned about a US bubble, and also as a general best practice. This goes doubly if you have less than 50% of your "number."
I don't think we are in a bubble.
I don't think Japan is in a bubble.
I don't think you know whether we are in a bubble.
Another classic sign of a bubble is a flat or inverted yield curve, which means investors are buying longer term bonds because they are concerned about a bubble popping in the short term. This causes short term rates to be higher than long term rates. Notice that the yield curve was flat or inverted in 1998, 1999, 2000, 2006, and 2007. Right now the yield curve is steep and consistent, which means the bond market does not see a bubble. The collective bond market is pretty smart. You can investigate for yourself here: https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/Historic-Yield-Data-Visualization.aspx

StreetCat

  • 5 O'Clock Shadow
  • *
  • Posts: 81
Re: Does anyone think we are in a bubble?
« Reply #49 on: March 05, 2017, 11:49:18 AM »
I've been investing for almost six years and one thing I have noticed is that someone always thinks we're in a bubble.  The markets have risen substantially over that period of time.  The S&P 500 was around 1100 when I started investing.
This is Outcome Bias: https://en.wikipedia.org/wiki/Outcome_bias

If I flip a coin and purchase a stock based on the flip and the purchase makes me a big profit, it still doesn't justify my action of buying that stock based on a coin flip.  My decision to purchase that stock is still a bad decision, even though the decision gave rise to a positive outcome.

There may be many good reasons to keep buying US stocks at this time, but the fact that bubble-sayers have been proven wrong for the past few years isn't one of them.