Author Topic: Does anyone think we are in a bubble?  (Read 16921 times)

tiberius

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Re: Does anyone think we are in a bubble?
« Reply #50 on: March 05, 2017, 12:15:02 PM »
Looking at the various suggested portfolio charts. I like the Ivy.

AdrianC

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Re: Does anyone think we are in a bubble?
« Reply #51 on: March 06, 2017, 08:37:58 AM »
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...
OK, but how will you know when to sell your stocks, and when to buy? That is the trick. Have you done it before? Did you do it in 2000 or 2008?

You can't wing it. You must have a plan - momentum, valuation, some other sort of timing signal. Be interested in hearing what your is.

tiberius

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Re: Does anyone think we are in a bubble?
« Reply #52 on: March 06, 2017, 11:36:34 AM »
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...
OK, but how will you know when to sell your stocks, and when to buy? That is the trick. Have you done it before? Did you do it in 2000 or 2008?

You can't wing it. You must have a plan - momentum, valuation, some other sort of timing signal. Be interested in hearing what your is.

When the CAPE number says less than 15.

http://www.multpl.com/shiller-pe/

That is when I will buy lots of US stocks.
Until then only 10% of my funds will be in US stocks.

boarder42

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Re: Does anyone think we are in a bubble?
« Reply #53 on: March 06, 2017, 11:55:59 AM »
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...
OK, but how will you know when to sell your stocks, and when to buy? That is the trick. Have you done it before? Did you do it in 2000 or 2008?

You can't wing it. You must have a plan - momentum, valuation, some other sort of timing signal. Be interested in hearing what your is.

When the CAPE number says less than 15.

http://www.multpl.com/shiller-pe/

That is when I will buy lots of US stocks.
Until then only 10% of my funds will be in US stocks.

it could never get there.  and while its a good indicator putting all your eggs on the shiller doesnt make much sense.  we could have a 2015 year again and the shiller would get right back in line with a historical 4% SWR.  a crash doesnt HAVE to happen the market could sustainably grow over the next decade and you miss out on all the gains.

boarder42

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Re: Does anyone think we are in a bubble?
« Reply #54 on: March 06, 2017, 11:57:22 AM »
every time anyone talks about a bubble all i hear is beerfest

https://www.youtube.com/watch?v=pZOKKtVbCKU

DE bubble ...

Retire-Canada

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Re: Does anyone think we are in a bubble?
« Reply #55 on: March 06, 2017, 11:57:44 AM »
When the CAPE number says less than 15.

http://www.multpl.com/shiller-pe/

That is when I will buy lots of US stocks.
Until then only 10% of my funds will be in US stocks.

What happens if you don't hit that metric in the next 10yrs and US stocks keep going up in price?

AdrianC

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Re: Does anyone think we are in a bubble?
« Reply #56 on: March 06, 2017, 01:05:20 PM »
When the CAPE number says less than 15.

http://www.multpl.com/shiller-pe/

That is when I will buy lots of US stocks.
Until then only 10% of my funds will be in US stocks.

The US market had a CAPE higher than 15 from 1990 to 2009 (20 years). There was a three-month window in 2009, then it went over 15 again until now (8 years).

You're basically looking for a 50% drawdown, a repeat of 2008/2009.

I hope we don't see that. It means something has gone very, very wrong.

tiberius

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Re: Does anyone think we are in a bubble?
« Reply #57 on: March 06, 2017, 01:13:58 PM »

Quote

it could never get there.  and while its a good indicator putting all your eggs on the shiller doesnt make much sense.  we could have a 2015 year again and the shiller would get right back in line with a historical 4% SWR.  a crash doesnt HAVE to happen the market could sustainably grow over the next decade and you miss out on all the gains.

No, I'm putting my eggs into 10 baskets. One of which is a US stock market tracker.
If it grows, I will gradually pull out the gains and buy other asset classes rebalancing as I go.

Should the US stock market half in value but nothing else, then I am down 5% overall.
I'm aiming for 5.3% returns overall.

tiberius

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Re: Does anyone think we are in a bubble?
« Reply #58 on: March 06, 2017, 01:18:08 PM »
When the CAPE number says less than 15.

http://www.multpl.com/shiller-pe/

That is when I will buy lots of US stocks.
Until then only 10% of my funds will be in US stocks.

The US market had a CAPE higher than 15 from 1990 to 2009 (20 years). There was a three-month window in 2009, then it went over 15 again until now (8 years).

You're basically looking for a 50% drawdown, a repeat of 2008/2009.

I hope we don't see that. It means something has gone very, very wrong.

I think we could see that in the next few years. Trump could trigger a trade war, or an actual war. Some Black Swan event could spook the market.
Anything could happen. The real question is how high do you think the CAPE could or should go?

US stocks are not cheap at the moment, the price could go up even further but it has to return to something approaching normality eventually.

boarder42

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Re: Does anyone think we are in a bubble?
« Reply #59 on: March 06, 2017, 01:20:23 PM »
When the CAPE number says less than 15.

http://www.multpl.com/shiller-pe/

That is when I will buy lots of US stocks.
Until then only 10% of my funds will be in US stocks.

it could remain flat for the next 9 months and that would return it to normal

The US market had a CAPE higher than 15 from 1990 to 2009 (20 years). There was a three-month window in 2009, then it went over 15 again until now (8 years).

You're basically looking for a 50% drawdown, a repeat of 2008/2009.

I hope we don't see that. It means something has gone very, very wrong.

I think we could see that in the next few years. Trump could trigger a trade war, or an actual war. Some Black Swan event could spook the market.
Anything could happen. The real question is how high do you think the CAPE could or should go?

US stocks are not cheap at the moment, the price could go up even further but it has to return to something approaching normality eventually.

bigfoot11

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Re: Does anyone think we are in a bubble?
« Reply #60 on: March 06, 2017, 01:34:57 PM »
Student loan bubble. That sucker is going to ruin a lot of people.

Eric

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Re: Does anyone think we are in a bubble?
« Reply #61 on: March 06, 2017, 02:54:48 PM »
Student loan bubble. That sucker is going to ruin a lot of people.

That's not a bubble.  Or at least not one that can actually pop.  It's not like you can just declare bankruptcy and get rid of them.

ChpBstrd

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Re: Does anyone think we are in a bubble?
« Reply #62 on: March 06, 2017, 03:28:39 PM »
If it's any consolation, I had about $100k invested when the 2008-2009 crisis happened. It was utterly terrifying. The news pundits were overlaying Great Depression charts with current charts and asking when the next 30% drop would happen. Layoffs everywhere. Numbers tanking left and right. Household name banks were disappearing. I lost more to the stock market in 2008 than I earned! Years of savings seemed to evaporate overnight. Even worse, if I lost my job and couldn't get another I'd be broke within a year!

I decided to invest cautiously for the next 9 years, keeping at least 20% in cash and another 30% in low-beta preferred stock, waiting to buy on the next drop. It seemed reasonable at the time.

The media helpfully informed me about how the national debt was spiraling out of control. Congress kept threatening not to renew the debt ceiling. Interest rates could rise at any minute. Commodities were crazy. China's market, which was surely a bubble the whole time, got scarier and scarier. Then Donald Trump, an obviously mentally ill person, was elected. PE ratios stayed above average, so I held back some more.

Now it's 2017, and I look back on a history of selling low and hoarding cash. My NW is $500k, but I realize I left at least $200k on the table by not staying invested over the years in a total market index fund like VTI.

By playing it "safe" for 9 years, I earned myself another FOUR YEARS of labor before financial independence. In other words, the effect of staying partially out of the market all these years has been the same as or worse than the financial crisis itself.

In the long run, the crisis cost me nothing. The shares I held onto recovered in due time. In fact, I even harvested some tax losses.

What I did with my own judgment, however, has permanently set back my aspirations. By playing it "safe" and waiting for a better time to buy, I lost a decent chunk of my remaining lifetime to a beige cubicle.

What would a 10% correction cost you at this point? The psychological angst of seeing a $500 paper loss? Learn to fear my outcome as much as you fear the correction, and you'll be all the wiser for it.

Spork

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Re: Does anyone think we are in a bubble?
« Reply #63 on: March 06, 2017, 03:56:51 PM »
If it's any consolation, I had about $100k invested when the 2008-2009 crisis happened. It was utterly terrifying. The news pundits were overlaying Great Depression charts with current charts and asking when the next 30% drop would happen. Layoffs everywhere. Numbers tanking left and right. Household name banks were disappearing. I lost more to the stock market in 2008 than I earned! Years of savings seemed to evaporate overnight. Even worse, if I lost my job and couldn't get another I'd be broke within a year!


I had considerably more than that and was taking a few years hiatus from work... a "mini-FIRE"... so I was actually living off of mine.  It was not terrifying to me.  It was infuriating.  I desperately wanted to be buying, but was instead drawing down.

tiberius

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Re: Does anyone think we are in a bubble?
« Reply #64 on: March 06, 2017, 04:38:50 PM »
I was working for Cisco Systems in 2000 as a contractor. When the crash happened they gave all contractors
they employed worldwide one months notice. ;)
It was a bad time for tech stocks.
I do think this is a bubble but I think it probably has a good while to go before the peak.

Actually some money to be made during the rise and after the collapse..

boarder42

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Re: Does anyone think we are in a bubble?
« Reply #65 on: March 09, 2017, 08:00:43 AM »
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...
OK, but how will you know when to sell your stocks, and when to buy? That is the trick. Have you done it before? Did you do it in 2000 or 2008?

You can't wing it. You must have a plan - momentum, valuation, some other sort of timing signal. Be interested in hearing what your is.

When the CAPE number says less than 15.

http://www.multpl.com/shiller-pe/

That is when I will buy lots of US stocks.
Until then only 10% of my funds will be in US stocks.

One thing to keep in mind about CAPE is that it just looks back  and compares the price to the average inflation adjusted earnings over the last 10 years.  However, the credit crunch of '08 and '09 caused a significant drop in earnings which really only has the '29 crash as comparison, in my opinion.  (Note the earnings drop at '29, and then at '08). 

http://www.multpl.com/s-p-500-earnings/

Does this mean that in 2 years when the '08 and '09 earnings drop falls off the back end of the 10-year CAPE window that the CAPE will go back down, even if prices rise a good bit, from here?  Does that mean the market would be a better buy in two years and possibly at higher prices because an event that happened 8 years ago from today, has instead happened 11 years ago from two years in the future, and is no longer considered? Since the credit crunch was in the past, I think that CAPE would be more normal  based on todays prices if the '08-'09 crunch were normalized to a more ordinary cyclical earnings drop.

agree greatly with these CAPE points its something i evaluate as well you cant just take something on the surface for what it is.  08 the worst year should fall off in 2018 and then i'd really like to see the cape plummet with it.  also a flat market over any of the next few years pull the shiller cape back in line. 

you cant time just keep pumping money in as soon as you get it. unless its earmarked for more lucrative investments.

AdrianC

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Re: Does anyone think we are in a bubble?
« Reply #66 on: March 09, 2017, 08:08:39 AM »
One thing to keep in mind about CAPE is that it just looks back  and compares the price to the average inflation adjusted earnings over the last 10 years.  However, the credit crunch of '08 and '09 caused a significant drop in earnings which really only has the '29 crash as comparison, in my opinion.  (Note the earnings drop at '29, and then at '08). 

http://www.multpl.com/s-p-500-earnings/

Does this mean that in 2 years when the '08 and '09 earnings drop falls off the back end of the 10-year CAPE window that the CAPE will go back down, even if prices rise a good bit, from here?  Does that mean the market would be a better buy in two years and possibly at higher prices because an event that happened 8 years ago from today, has instead happened 11 years ago from two years in the future, and is no longer considered? Since the credit crunch was in the past, I think that CAPE would be more normal  based on todays prices if the '08-'09 crunch were normalized to a more ordinary cyclical earnings drop.

Try this:

https://dqydj.com/shiller-pe-cape-ratio-calculator/

Current 10 year: 31.325
Current 7 year: 27.732
Current 5 year: 27.595

27 is still very high.


wenchsenior

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Re: Does anyone think we are in a bubble?
« Reply #67 on: March 09, 2017, 12:42:23 PM »
If it's any consolation, I had about $100k invested when the 2008-2009 crisis happened. It was utterly terrifying. The news pundits were overlaying Great Depression charts with current charts and asking when the next 30% drop would happen. Layoffs everywhere. Numbers tanking left and right. Household name banks were disappearing. I lost more to the stock market in 2008 than I earned! Years of savings seemed to evaporate overnight. Even worse, if I lost my job and couldn't get another I'd be broke within a year!


I had considerably more than that and was taking a few years hiatus from work... a "mini-FIRE"... so I was actually living off of mine.  It was not terrifying to me.  It was infuriating.  I desperately wanted to be buying, but was instead drawing down.

THIS SO MUCH. Unfortunate life events conspired to force us to REDUCE our investing in late 2007, because we needed free cash for a huge upcoming load of expenses.  We were cash poor for about a year and half, during which time the the market tanked and I went near-crazy because we couldn't invest at fire sale prices.  The only good thing about it was it made us redouble our efforts to get back in a place where we had cash flow to invest again. 

Eric

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Re: Does anyone think we are in a bubble?
« Reply #68 on: March 09, 2017, 01:22:08 PM »
Try this:

https://dqydj.com/shiller-pe-cape-ratio-calculator/

Current 10 year: 31.325
Current 7 year: 27.732
Current 5 year: 27.595

27 is still very high.

27 is nowhere near bubble territory though.

AdrianC

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Re: Does anyone think we are in a bubble?
« Reply #69 on: March 09, 2017, 05:38:22 PM »
Try this:

https://dqydj.com/shiller-pe-cape-ratio-calculator/

Current 10 year: 31.325
Current 7 year: 27.732
Current 5 year: 27.595

27 is still very high.

27 is nowhere near bubble territory though.

I agree. We could go up another 50% and only be where it was in the dot com bubble. I'll lighten up if we get there :-)

PDXTabs

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Re: Does anyone think we are in a bubble?
« Reply #70 on: March 09, 2017, 08:11:33 PM »
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.

I mostly agree but, I have index funds that I purchased when the Dow was at 6,500. Now the Dow is at 21,000. I would not be crazy to turn some of those profits into cash for the next market dip.

Retire-Canada

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Re: Does anyone think we are in a bubble?
« Reply #71 on: March 09, 2017, 08:22:35 PM »
I mostly agree but, I have index funds that I purchased when the Dow was at 6,500. Now the Dow is at 21,000. I would not be crazy to turn some of those profits into cash for the next market dip.

I would just leave your money invested and not try to time the market. You are likely to lose.

PDXTabs

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Re: Does anyone think we are in a bubble?
« Reply #72 on: March 09, 2017, 08:26:37 PM »
I would just leave your money invested and not try to time the market. You are likely to lose.

Well, almost 100% of my net worth was in stocks until last month. Now it's closer to 85%. Time will tell if I was wrong.

DavidAnnArbor

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Re: Does anyone think we are in a bubble?
« Reply #73 on: March 09, 2017, 08:51:33 PM »
If we want to be in the stock market we have to embrace the stomach turning volatility of it.

Roland of Gilead

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Re: Does anyone think we are in a bubble?
« Reply #74 on: March 09, 2017, 09:21:21 PM »
I thought for sure we were in a bubble back when the DOW was 16,000 or so.

I thought biotech was pretty fairly valued then it dropped 30%.

Time to stop thinking.

PDXTabs

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Re: Does anyone think we are in a bubble?
« Reply #75 on: March 09, 2017, 11:20:12 PM »
Time to stop thinking.

It is definitely true that market is not rational. The efficient market hypothesis is, IMHO, rubbish.

Mola

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Re: Does anyone think we are in a bubble?
« Reply #76 on: March 10, 2017, 08:52:14 AM »
I don't think we are in a bubble. I do think a recession will probably come around in the current presidential term. I doubt it will be a 2008 recession. Probably just your old 80s/90s style recession where stocks recover in a year or two.

Scortius

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Re: Does anyone think we are in a bubble?
« Reply #77 on: March 10, 2017, 09:42:35 AM »
I used to play poker for a living.  We focused so much on making sure that we stayed the course and played our 'A' game while going through a rough stretch and losing hand after hand.  Makes sense, right?

Do you know what was really hard?  Staying the course and playing your 'A' game when everything in the world was going right.  During a heater, it was almost impossible to play with the proper level of aggression and risk while avoiding the feeling of wanting to dial things back to 'lock in' the winnings. 

The catch is that the second mistake is just as bad as the first.  There were days where I'd lose and turn it around.  But, equally as important, there were days where I'd win a huge amount and then continue to win even more.  How did I know what was going to happen?  I didn't, I just had to do my best to stick to my strategy.  You should too.

Eric

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Re: Does anyone think we are in a bubble?
« Reply #78 on: March 10, 2017, 09:56:03 AM »
I used to play poker for a living.  We focused so much on making sure that we stayed the course and played our 'A' game while going through a rough stretch and losing hand after hand.  Makes sense, right?

Do you know what was really hard?  Staying the course and playing your 'A' game when everything in the world was going right.  During a heater, it was almost impossible to play with the proper level of aggression and risk while avoiding the feeling of wanting to dial things back to 'lock in' the winnings. 

The catch is that the second mistake is just as bad as the first.  There were days where I'd lose and turn it around.  But, equally as important, there were days where I'd win a huge amount and then continue to win even more.  How did I know what was going to happen?  I didn't, I just had to do my best to stick to my strategy.  You should too.

Excellent analogy!

ChpBstrd

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Re: Does anyone think we are in a bubble?
« Reply #79 on: March 10, 2017, 12:02:17 PM »
My question for those who say "keep in the market and don't think about it" is:

What, if any, criteria would cause you to exit the market?

S&P P/E = 40?
Stocks gain 50% in one year?
5 year CAPE = 50?
Price/Sales = 10?
Bond yields of 15%
Open interest in call options exceeds value of entire stock market?
Housing prices reach 40x income?
20% tariffs on all imports?
Door-to-door salesmen offering HELOCs to invest in stocks?
A war between the US and China?

Although buy-n-hold has historically been the winning strategy, it seems like certain identifiable events like these would cause it to necessarily underperform in the near future. Any advice would need to be qualified with "unless this happens".

frugledoc

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Re: Does anyone think we are in a bubble?
« Reply #80 on: March 10, 2017, 12:52:50 PM »
My question for those who say "keep in the market and don't think about it" is:

What, if any, criteria would cause you to exit the market?

S&P P/E = 40?
Stocks gain 50% in one year?
5 year CAPE = 50?
Price/Sales = 10?
Bond yields of 15%
Open interest in call options exceeds value of entire stock market?
Housing prices reach 40x income?
20% tariffs on all imports?
Door-to-door salesmen offering HELOCs to invest in stocks?
A war between the US and China?

Although buy-n-hold has historically been the winning strategy, it seems like certain identifiable events like these would cause it to necessarily underperform in the near future. Any advice would need to be qualified with "unless this happens".

None of these things would make me get out.

However, if I was near retirement I might reduce my allocation to equities and go 50:50 and then stay there

Eric

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Re: Does anyone think we are in a bubble?
« Reply #81 on: March 10, 2017, 01:00:37 PM »
Although buy-n-hold has historically been the winning strategy, it seems like certain identifiable events like these would cause it to necessarily underperform in the near future. Any advice would need to be qualified with "unless this happens".

Buy and hold will ALWAYS lose to market timing, if (and this is a big if) you actually hit on the timing.  And therein lies the problem.  It's tough to actually get the timing correct once, and nearly impossible over the long term.

Just search through this forum for threads littered with posters from 2013 who are/were sitting on the sidelines in cash because the next crash is imminent.  People suck at this sort of thing, which is why buy and hold is successful.

dougules

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Re: Does anyone think we are in a bubble?
« Reply #82 on: March 10, 2017, 01:03:18 PM »
My question for those who say "keep in the market and don't think about it" is:

What, if any, criteria would cause you to exit the market?

S&P P/E = 40?
Stocks gain 50% in one year?
5 year CAPE = 50?
Price/Sales = 10?
Bond yields of 15%
Open interest in call options exceeds value of entire stock market?
Housing prices reach 40x income?
20% tariffs on all imports?
Door-to-door salesmen offering HELOCs to invest in stocks?
A war between the US and China?

Although buy-n-hold has historically been the winning strategy, it seems like certain identifiable events like these would cause it to necessarily underperform in the near future. Any advice would need to be qualified with "unless this happens".

Where would you go after exiting the market?

Retire-Canada

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Re: Does anyone think we are in a bubble?
« Reply #83 on: March 10, 2017, 01:08:41 PM »
Marketing timing comments follow a familiar pattern - historically buy and hold worked, but this time it's different because ____________! [fill in the blank]. Thing is people having been telling themselves it's different that whole time, but it has not been different.

Scortius

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Re: Does anyone think we are in a bubble?
« Reply #84 on: March 10, 2017, 01:54:41 PM »
My question for those who say "keep in the market and don't think about it" is:

What, if any, criteria would cause you to exit the market?

S&P P/E = 40?
Stocks gain 50% in one year?
5 year CAPE = 50?
Price/Sales = 10?
Bond yields of 15%
Open interest in call options exceeds value of entire stock market?
Housing prices reach 40x income?
20% tariffs on all imports?
Door-to-door salesmen offering HELOCs to invest in stocks?
A war between the US and China?

Although buy-n-hold has historically been the winning strategy, it seems like certain identifiable events like these would cause it to necessarily underperform in the near future. Any advice would need to be qualified with "unless this happens".

I would exit the market only when I planned on accessing my investments for retirement income purposes.  Of those you listed, the only one that stands out at all is the 15% bond yield because that is a pretty darn good guarantee, but that would likely only be true if we were experiencing extreme inflation, in which case expected market returns would likely be even higher.  For all the others, the market will correct itself given a not-too-distant horizon.  The trick to market timing is that you have to hit twice, not just once.  You have to get out at the peak, and you have to get in at the floor.  In practice, even those who do have a good sense of market conditions either sell too early or late and exit too low, and then they buy back too early/late and return at a point equal or higher than they left. 

People look at the 2008 recession as a reference, but that was truly a black swan event, unlikely to be revisited.  It is not a good comparison for what we are likely to see next.  Rather, look at the 2002 crash.  If you sold at the peak, you could have reentered any time up until 2013 and done fine, but, look at the returns leading up to that peak.  It would have been almost impossible to time things that perfectly.  If you left in 1998 when the S&P was at an extreme all-time high, you would have had to buy back at the exact bottom of the following recession just to break even.  That would have been almost an impossible task.

Are we in the same position as the year 2000, or are we at 1998 with 2 more years of high returns still to come before the next drop?  Then, once we do hit a 'correction', how far down will it go?  What if it never drops below where you sold?  Are you willing to take that risk for the chance of a fairly minor gain?

ChpBstrd

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Re: Does anyone think we are in a bubble?
« Reply #85 on: March 10, 2017, 02:41:35 PM »
Yes, I get that people suck at market timing, and the right time is never obvious. I accept the "thou shalt not market time" rule and acknowledge you will lose a fortune trading based on Yahoo Finance stories.

What I'm asking is whether there is ANY theoretical limit to that rule. I.e. if the S&P's P/E ratio went from 27 to 100 in six months, would you honestly be unsure or unconcerned about whether an investment bubble had formed?

This is a different question than "what advice would you give a young investor."

Are you saying there was never a time in all history when a market was so expensive that it actually was different? Do bubbles not exist, or are they always invisible?

Scortius

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Re: Does anyone think we are in a bubble?
« Reply #86 on: March 10, 2017, 03:17:33 PM »
Yes, I get that people suck at market timing, and the right time is never obvious. I accept the "thou shalt not market time" rule and acknowledge you will lose a fortune trading based on Yahoo Finance stories.

What I'm asking is whether there is ANY theoretical limit to that rule. I.e. if the S&P's P/E ratio went from 27 to 100 in six months, would you honestly be unsure or unconcerned about whether an investment bubble had formed?

This is a different question than "what advice would you give a young investor."

Are you saying there was never a time in all history when a market was so expensive that it actually was different? Do bubbles not exist, or are they always invisible?

I would argue that yes, bubbles can be 'visible' (e.g. most people might agree that we're at some stage of a bubble right now), but that if the end-stage of the bubble was so visible that it could be accurately timed, the price would have already been factored in and therefore the bubble would have burst already.  Thus, by that definition, no bubble can ever be so visible that it can be timed.

Looking back, in retrospect, can you find a time where the answer to your question was true?  Was there a time ever where the bubble was so visible that average people like us could time it appropriately?  It's a real question, I would be interested to hear if there were positive examples.

For example, people tell stories about shoe-shine boys giving stock purchasing advice in 1928, yet I don't recall everyone bailing out of the market then.  Was it visible?  Maybe?  Could it be timed?  That's a much different question when you take off your 'glasses of future perspective'.  The same goes for 2008.  In retrospect it's easy to see the causes.  At the time?  Did you predict it?  From watching Inside Job, it seemed like the number of people who accurately predicted the actual timing and magnitude of the bubble could be measured on two hands (and maybe two feet as well).

ChpBstrd

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Re: Does anyone think we are in a bubble?
« Reply #87 on: March 10, 2017, 08:30:59 PM »
Yes, I get that people suck at market timing, and the right time is never obvious. I accept the "thou shalt not market time" rule and acknowledge you will lose a fortune trading based on Yahoo Finance stories.

What I'm asking is whether there is ANY theoretical limit to that rule. I.e. if the S&P's P/E ratio went from 27 to 100 in six months, would you honestly be unsure or unconcerned about whether an investment bubble had formed?

This is a different question than "what advice would you give a young investor."

Are you saying there was never a time in all history when a market was so expensive that it actually was different? Do bubbles not exist, or are they always invisible?

I would argue that yes, bubbles can be 'visible' (e.g. most people might agree that we're at some stage of a bubble right now), but that if the end-stage of the bubble was so visible that it could be accurately timed, the price would have already been factored in and therefore the bubble would have burst already.  Thus, by that definition, no bubble can ever be so visible that it can be timed.

Looking back, in retrospect, can you find a time where the answer to your question was true?  Was there a time ever where the bubble was so visible that average people like us could time it appropriately?  It's a real question, I would be interested to hear if there were positive examples.

For example, people tell stories about shoe-shine boys giving stock purchasing advice in 1928, yet I don't recall everyone bailing out of the market then.  Was it visible?  Maybe?  Could it be timed?  That's a much different question when you take off your 'glasses of future perspective'.  The same goes for 2008.  In retrospect it's easy to see the causes.  At the time?  Did you predict it?  From watching Inside Job, it seemed like the number of people who accurately predicted the actual timing and magnitude of the bubble could be measured on two hands (and maybe two feet as well).

Some bubbles, and their clues, come to mind:
1) Japan stocks and real estate, late 1980s: At one point, land prices in Tokyo hit $219,000 per square meter. Stocks more than tripled between '84 and '89.
2) US stocks, 2000. The tech bubble euphoria and people's astonishment at how much dot-com companies were selling for was unavoidable in the media. Nasdaq's PE was over 100.
3) US real estate, 2005ish-2008: bidding wars, 80% appreciation in some cities within a few years, liar loans, real estate seminars, Trump University
4) Chinese stock micro bubble, March 2, 2015 - April 26, 2015: 29% increase in just two months was the only warning. Still hasn't recovered.

Each of these was accompanied by tons of media coverage and pundits decrying the out-of-whack metrics.

But the question is not whether bubble-identification is a practical or even possible investment strategy. The questions are whether bubbles exist at all and if they are detectable at an actionable time. That is, if you were an investor in these markets at these times, prior to the crashes, did you have information suggesting a bubble?

DavidAnnArbor

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Re: Does anyone think we are in a bubble?
« Reply #88 on: March 10, 2017, 09:13:17 PM »
A lot of people who warned of the dotcom bubble were dismissed as pessimistic.

Don't think I can detect a bubble, but I'm hoping that world stock diversification as well as real estate and bonds will prevent my portfolio from being whipsawed by it.
The biggest issue is a bursting stock bubble just as you aspire to quit working.

Radagast

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Re: Does anyone think we are in a bubble?
« Reply #89 on: March 10, 2017, 09:41:17 PM »
My question for those who say "keep in the market and don't think about it" is:

What, if any, criteria would cause you to exit the market?

S&P P/E = 40?
Stocks gain 50% in one year?
5 year CAPE = 50?
Price/Sales = 10?
Bond yields of 15%
Open interest in call options exceeds value of entire stock market?
Housing prices reach 40x income?
20% tariffs on all imports?
Door-to-door salesmen offering HELOCs to invest in stocks?
A war between the US and China?

Although buy-n-hold has historically been the winning strategy, it seems like certain identifiable events like these would cause it to necessarily underperform in the near future. Any advice would need to be qualified with "unless this happens".
I doubt I would ever completely exit, but I could see myself moving money to somewhere else in extreme circumstances which I could not say for certain right now what they would be. For bubbles a few signs might be:
1) P/E10 over 35 or 50
2) inverted yield curve for more than a year
3) clear evidence of higher returns elsewhere, for example real bond yields higher than forecast stock returns by both E10/P and dividends+expected growth. Or perhaps for stocks a difference in earning multiples of around a factor of three higher in US vs. international.
It would probably take at least two of those three. The last one is the sanity check, because it makes the difference between "high price" which by itself is meaningless and "better investments elsewhere". I would not ditch a higher returning asset (stocks) for a lower returning one (cash).

War between US and China: no, because by the time you could react knowledgeably the market would be ahead of you. You should double down in this case. If you live and things eventually normalize you will come out far ahead. If you live and your side is crushingly defeated then cash and bonds would be even worse. If you die who cares. Example: Japan after WWII, Germany and France after WWI and WWII.

gggggg

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Re: Does anyone think we are in a bubble?
« Reply #90 on: March 10, 2017, 10:40:39 PM »
No one REALLY knows if we're in a bubble. The bulk of my money, in index funds, will drop if the market does; in my trading account I set bracket orders and will be automatically pulled out during drops.

PizzaSteve

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Re: Does anyone think we are in a bubble?
« Reply #91 on: March 10, 2017, 10:45:59 PM »
Time to stop thinking.

It is definitely true that market is not rational. The efficient market hypothesis is, IMHO, rubbish.
I suggest those who want to comment on the EMH read up on it and understand what it really mean.  It doenst mean that prices will be stable, correct and that assets will reach their fair price.  Is says that they will reach a price.  Whether or not it turns out to increase or decrease in  value in the future,  as information becomes known, is another thing altogether.   If it is rubbish, what is the foundation for your faith in using markets to exchange investments at a price?  You might want to avoid investing in equities if you truely believe this.
« Last Edit: March 10, 2017, 10:58:39 PM by PizzaSteve »

Mr Mark

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Re: Does anyone think we are in a bubble?
« Reply #92 on: March 11, 2017, 04:41:26 AM »
This bull could run for years. Right now private equity firms are sitting on $1.47 trillion in cash, and American firms alone have $1.8 trillion.  All that cash will need to go somewhere.
Just keep calm and dca plus drip. You are guaranteed to loose money holding large cash.

If you are risk averse or close to FIRE then have an asset allocation to match. Avoid the temptation to time the market, strong tho that siren call may be. 

ChpBstrd

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Re: Does anyone think we are in a bubble?
« Reply #93 on: March 11, 2017, 07:32:04 AM »
Seems like most people are missing the questions. The following are known:

a) Yes, market timing is a losing strategy in general.
b) No, most people cannot identify a bubble, so bubble identification isn't a practical option for most (or any, if you prefer) investors.
c) Yes, media people earn a living calling bubbles that aren't.

The questions are not any of the above, the questions are:

1) Do investment bubbles exist?
2) If you answered that bubbles do exist, what criteria would persuade you that one was occurring? Do you have defined metrics or characteristics that would define a bubble?

It would seem to be a problem if you answered that yes to #1, investment bubbles exist, but no to #2, there are no criteria that defines an investment bubble. It's like saying a thing exists, but you don't know what it is.

Retire-Canada

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Re: Does anyone think we are in a bubble?
« Reply #94 on: March 11, 2017, 07:46:00 AM »
Seems like most people are missing the questions. The following are known:

a) Yes, market timing is a losing strategy in general.
b) No, most people cannot identify a bubble, so bubble identification isn't a practical option for most (or any, if you prefer) investors.
c) Yes, media people earn a living calling bubbles that aren't.

The questions are not any of the above, the questions are:

1) Do investment bubbles exist?
2) If you answered that bubbles do exist, what criteria would persuade you that one was occurring? Do you have defined metrics or characteristics that would define a bubble?

It would seem to be a problem if you answered that yes to #1, investment bubbles exist, but no to #2, there are no criteria that defines an investment bubble. It's like saying a thing exists, but you don't know what it is.

If you start off saying "B" that nobody can identify a bubble there is no point asking "2" what metric indicates you are in a bubble.
« Last Edit: March 11, 2017, 10:54:33 AM by Retire-Canada »

Mr Mark

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Re: Does anyone think we are in a bubble?
« Reply #95 on: March 11, 2017, 10:32:54 AM »
Seems like most people are missing the questions. The following are known:

a) Yes, market timing is a losing strategy in general.
b) No, most people cannot identify a bubble, so bubble identification isn't a practical option for most (or any, if you prefer) investors.
c) Yes, media people earn a living calling bubbles that aren't.

The questions are not any of the above, the questions are:

1) Do investment bubbles exist?
2) If you answered that bubbles do exist, what criteria would persuade you that one was occurring? Do you have defined metrics or characteristics that would define a bubble?

It would seem to be a problem if you answered that yes to #1, investment bubbles exist, but no to #2, there are no criteria that defines an investment bubble. It's like saying a thing exists, but you don't know what it is.

I think it's quite clear asset bubbles can exist. The academic analysis suggests they can only be conclusively identified in most cases after they've popped.

A less academic question is what should you do about it if you think they exist and your spidey senses tell you you're in one? I'm not sure going to cash in 1996 would have been a good call for example.

ChpBstrd

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Re: Does anyone think we are in a bubble?
« Reply #96 on: March 11, 2017, 11:49:20 AM »
Seems like most people are missing the questions. The following are known:

a) Yes, market timing is a losing strategy in general.
b) No, most people cannot identify a bubble, so bubble identification isn't a practical option for most (or any, if you prefer) investors.
c) Yes, media people earn a living calling bubbles that aren't.

The questions are not any of the above, the questions are:

1) Do investment bubbles exist?
2) If you answered that bubbles do exist, what criteria would persuade you that one was occurring? Do you have defined metrics or characteristics that would define a bubble?

It would seem to be a problem if you answered that yes to #1, investment bubbles exist, but no to #2, there are no criteria that defines an investment bubble. It's like saying a thing exists, but you don't know what it is.

If you start off saying "B" that nobody can identify a bubble there is no point asking "2" what metric indicates you are in a bubble.
If you can't measure it, it probably does not exist. If there are no possible signals that = bubble, then bubbles don't exist.

Likewise, anything that is claimed to exist must be defined.

Scortius

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Re: Does anyone think we are in a bubble?
« Reply #97 on: March 11, 2017, 04:16:52 PM »
Another thing to think about is the greater fool theory.  The bubble may be quite visible, but people won't exit because they don't know when it will actually pop and they want to ride things a bit higher.  In that case, the last ones out get hit and the rest make out 'ok'.  But, once again, the trick is knowing where the drop will go to.  You may end up exiting at a point below the floor of the upcoming drop.  Even if you didn't, you may end up re-entering the market at the wrong point, costing yourself as compared to your results had you simply stayed in.  In this example, there would be an identifiable bubble, but even then it would be very difficult to time profitably.
« Last Edit: March 11, 2017, 10:15:00 PM by Scortius »