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Learning, Sharing, and Teaching => Investor Alley => Topic started by: kenmoremmm on April 29, 2019, 01:43:22 PM

Title: How concerned are you about the Everything Bubble?
Post by: kenmoremmm on April 29, 2019, 01:43:22 PM
would love to see the perspective of the community. i suspect with the buy and hold mentality, that the general consensus is 'not much'.
Title: Re: How concerned are you about the Everything Bubble?
Post by: TheHardenedInvestor on April 29, 2019, 01:50:43 PM
There is always an everything bubble. Always.
Title: Re: How concerned are you about the Everything Bubble?
Post by: lowroller4111 on April 29, 2019, 02:52:01 PM
not concerned.. the formation of bubbles and their subsequent implosion is in the nature of markets.  A good long term investment plan should not be bothered by it, infact in the accumulation phase it's a great opportunity to reduce cost basis.
Title: Re: How concerned are you about the Everything Bubble?
Post by: seattlecyclone on April 29, 2019, 02:55:38 PM
Seems to me that bubbles are most dangerous when only some things are overvalued. The bubble pops and the people holding the overvalued assets are in bad shape relative to the people who own other stuff that wasn't subject to the bubble. But if literally everything is overvalued, what happens when the bubble pops? We all agree that the price of everything should go down by a similar amount? So what?
Title: Re: How concerned are you about the Everything Bubble?
Post by: Laserjet3051 on April 29, 2019, 03:04:23 PM
concerned about equity collapse, not an everything bubble. a well constructed portfolio should be able to withstand most foreseeable crises.
Title: Re: How concerned are you about the Everything Bubble?
Post by: socalrider on April 29, 2019, 05:28:02 PM
Yup.  If everything is overvalued, then nothing is overvalued.  Value is 100% relative.  What is a dollar worth?
Title: Re: How concerned are you about the Everything Bubble?
Post by: maizefolk on April 29, 2019, 05:31:08 PM
I mean I'd prefer we weren't in an everything bubble. In that case the same number of dollars I'm investing into the market would be buying me bigger chunks of companies. But what can you do?

Either eventually markets will pull back and I'll be getting a better deal on my monthly investments, or this is the new normal and they won't.
Title: Re: How concerned are you about the Everything Bubble?
Post by: Heckler on April 29, 2019, 07:21:27 PM
Not concerned at all.

I realized that my 70/30 allocation, currently at 75/25, still within my 6% reallocate line, should have me holding onto my new cash as part of my fixed income (making my allocation closer to intended without selling anything) so that I can take advantage of the next Oct-December 2018 opportunities and rebalance without spending commissions ($10/ETF trade).   I don't know how else to follow Buffet's "be greedy when others are fearful", but it makes sense to me.

Real Estate is still hovering at 3X our purchase price 16 years ago.  Not concerned at all.
Title: Re: How concerned are you about the Everything Bubble?
Post by: BTDretire on April 29, 2019, 07:34:34 PM
concerned about equity collapse, not an everything bubble. a well constructed portfolio should be able to withstand most foreseeable crises.

  Might I suggest that the advice often seen here, of 100% equities is not a well constructed portfolio.
Although, in the long run it may provide the highest return, it could also cause lean times during the withdrawal period.
Title: Re: How concerned are you about the Everything Bubble?
Post by: ChpBstrd on April 29, 2019, 08:11:51 PM
Seems to me that bubbles are most dangerous when only some things are overvalued. The bubble pops and the people holding the overvalued assets are in bad shape relative to the people who own other stuff that wasn't subject to the bubble. But if literally everything is overvalued, what happens when the bubble pops? We all agree that the price of everything should go down by a similar amount? So what?

The popping of an everything bubble would involve the stock market returning to a historically normal PE ratio around 15, investment grade bonds again yielding a historically normal 6-8%, real estate earning over 1% of its value in monthly rent, and savings accounts, CDs, or treasuries yielding 5-6%.

To reach these historically normal levels, stocks, bonds, and real estate would need to fall 40%ish in market price. The problem is that we can safely assume groceries, rents, transportation, and healthcare would not drop in price with such a scenario.

To quantify my concern, I use an options strategy called a collar to protect against a decline in prices of greater than 7-8% and pay about 2% of my portfolio per year for this protection, except in years like 2018 where my hedges actually earned money.
Title: Re: How concerned are you about the Everything Bubble?
Post by: JAYSLOL on April 29, 2019, 10:05:14 PM
The everything bubble?  Like, our ever-expanding universe?  Yeah, somewhat concerned, will a large meteor strike earth in my lifetime? is there alien life out there? can Thanos be defeated?  So many questions about our universe.  All kidding aside, no I don't worry about normal financial bubbles, I can neither predict or control them, so I relax and ride out whatever happens.  The higher my savings rate gets the less I tend to worry about market crashes or job loss or whatever worries haunt most people.  Pre-MMM when I was saving sub-10% of my income I had a lot more worries about investing at the wrong time, now that I'm at nearly 50% I don't worry about markets at all.  Weird how that works. 
Title: Re: How concerned are you about the Everything Bubble?
Post by: Maenad on April 30, 2019, 05:02:06 AM
The last year or two I've seen the doomsayers uttering a lot of "only the FAANGs and similar stocks are soaring, the market's growth is giving us a false sense of security because this one sector is so heavily weighted, we're in for another 2000-style meltdown" etc. etc.

Now that all sectors are seeing growth it's an "everything bubble"? Bears are gonna bear, I guess. Some day they'll be right and feel vindicated, good for them.
Title: Re: How concerned are you about the Everything Bubble?
Post by: vand on April 30, 2019, 05:22:07 AM
Yup, fairly concerned.. but also accepting there's nothing I can do about it.

I do have a significant amount of my wealth in my own version of a "permanent portfolio" with uncorrelated assets; my expectation is that if and when the everything bubble goes tits and paper assets are smashed, the real assets will compensate accordingly.
Title: Re: How concerned are you about the Everything Bubble?
Post by: J Boogie on April 30, 2019, 08:15:52 AM
If you feel like your investing opportunities are negatively affected by low interest rates, you can use REML as a way to benefit from these low interest rates. It's 2x leveraged REIT but it yields 20%. As long as it's raining we might as well get buckets until it stops.
Title: Re: How concerned are you about the Everything Bubble?
Post by: CorpRaider on April 30, 2019, 08:59:20 AM
I don't see an everything bubble.  Non U.S. stocks are cheap based on existing data and super duper cheap relative to current world interest rates.
Title: Re: How concerned are you about the Everything Bubble?
Post by: Enigma on April 30, 2019, 09:01:19 AM
Everything bubble sounds like buying opportunities
Title: Re: How concerned are you about the Everything Bubble?
Post by: sol on April 30, 2019, 09:13:14 AM
Either eventually markets will pull back and I'll be getting a better deal on my monthly investments, or this is the new normal and they won't.

This feels like useful advice that offers real clarity on what you should do next.  If option A, stay the course and buy more equities.  If option B, stay the course and buy more equities.  Way to cut through the noise, maizeman.
Title: Re: How concerned are you about the Everything Bubble?
Post by: ysette9 on April 30, 2019, 10:31:11 AM
Every time in the past Iíve thought that stock X would go up or down Iíve pretty much uniformly been completely wrong. So I donít try to play that game anymore. Sometimes my gut is right and mostly it is wrong. So we have a plan that is based on our personal situation and not market indicators. We write it down, discuss and agree, and then follow it like clockwork.

We are increasing our bonds right now because of how close we are to our FI number. If that happens to hedge against some future downturn then so be it. If it means we miss out on some of a future run-up, so be it. It is like buying a house when it is right for your personal situation, not when some real estate agent tells you that you have to jump and buy because X.
Title: Re: How concerned are you about the Everything Bubble?
Post by: DadJokes on April 30, 2019, 10:51:20 AM
I am fairly early in my investing life, and I have good job security. I wish whatever the next bubble is would burst already, so I can load up on low cost stocks at this ideal time.
Title: Re: How concerned are you about the Everything Bubble?
Post by: MaaS on April 30, 2019, 10:59:54 AM
Yup.  If everything is overvalued, then nothing is overvalued.  Value is 100% relative.  What is a dollar worth?

Meh. Disagree.

I agree that when talking about products and services, something is worth what others are willing to pay. But, with an investment?

Not sure that logic holds up when your intent is to resell. The value of buying a piece of a company is in it's future perceived value. If it's your belief that that perceived value will be lower in the future, then to you, it's currently overvalued. You may be wrong, of course.
Title: Re: How concerned are you about the Everything Bubble?
Post by: frugledoc on April 30, 2019, 12:28:54 PM
Not concerned. Just bought 35k equities with a new lump sum.  Iím in a government pension scheme so will just stick with my 100% equities all world.
Title: Re: How concerned are you about the Everything Bubble?
Post by: thd7t on April 30, 2019, 12:43:54 PM
concerned about equity collapse, not an everything bubble. a well constructed portfolio should be able to withstand most foreseeable crises.

  Might I suggest that the advice often seen here, of 100% equities is not a well constructed portfolio.
Although, in the long run it may provide the highest return, it could also cause lean times during the withdrawal period.
I've always felt that the 100% equities portfolio was meant to deal with the acquisition phase.  Most people seem to wind things down as they approach retirement (which is pretty traditional outside of the FIRE sphere).
Title: Re: How concerned are you about the Everything Bubble?
Post by: FINate on April 30, 2019, 01:14:34 PM
Back around 2012 the big fear was runaway inflation. Huge piles of QE money were dumped into the economy and many experts predicted doom. Confession: I shifted some of my portfolio to real estate reasoning this would be reasonably well protected. However overall inflation never really took off. Fortunately for me, and purely dumb luck, much of the money sloshing around found its way into real estate and the stock market so I came out ahead. The lesson: economic prognosticators don't know their arse from their elbow. And as a corollary: since no one knows the future the only thing you can do is put money to work and leave it.

Also back in those days, as someone politically unaffiliated, I ended up talking down multiple conservative friends. They were convinced that Obama [who in my view did a pretty great job with a terrible situation] was going to wreck the economy, so they were super pessimistic and making all sorts of strange decisions. Now I find that I'm talking down my liberal friends. Is there even an Everything Bubble? I can't say for sure. But letting the person in the White House color the way you think about your personal finances doesn't seem like a good plan. I don't yet see the same irrational exuberance that existed in the Tech 1.0 and Housing bubbles...not saying it isn't possible in the near future, but I don't see it yet.
Title: Re: How concerned are you about the Everything Bubble?
Post by: PDXTabs on April 30, 2019, 01:32:36 PM
We are either in an everything bubble (likely in my view) or we aren't. But how would I change my behavior? I still want to buy as many equities as possible. I just hope that when it pops I still have a job to buy more equities.

Also, when the everything bubble pops central banks around the world will do their best to re-inflate it, and we will benefit.*

* - even if that isn't good social, economic, or monetary policy.
Title: Re: How concerned are you about the Everything Bubble?
Post by: Stimpy on April 30, 2019, 02:35:10 PM
Honest truth.... I am looking for the needle to pop that bubble!   

But as Sol said, unless you feel it's all going to zero then the right path is..... Buy more, and stay the course.

If you feel its going to zero.... Well I think costco ran out the preper mac and cheese, so I guess your screwed as we all would be.   The collapse of civilization as we know it... etc etc.. blah.

Worry sells new papers and ads, and is what FOX, MSNBC, <insert your favorite or hated news network here> want.  If your feeling something your engaged.  And that makes them cash.  (Nothing wrong with them making cash, but you being engaged is a different number).   As has been stated by many a smart person, ignore the noise, and relax.  That bubble, is nothing.
Title: Re: How concerned are you about the Everything Bubble?
Post by: Wintergreen78 on April 30, 2019, 02:51:52 PM
The everything bubble?  Like, our ever-expanding universe?  Yeah, somewhat concerned, will a large meteor strike earth in my lifetime? is there alien life out there? can Thanos be defeated?  So many questions about our universe.  All kidding aside, no I don't worry about normal financial bubbles, I can neither predict or control them, so I relax and ride out whatever happens.  The higher my savings rate gets the less I tend to worry about market crashes or job loss or whatever worries haunt most people.  Pre-MMM when I was saving sub-10% of my income I had a lot more worries about investing at the wrong time, now that I'm at nearly 50% I don't worry about markets at all.  Weird how that works.

Personally, I spend time every day contemplating the ever-increasing amount of entropy in the universe. All human endeavour is doomed by thermodynamics.
Title: Re: How concerned are you about the Everything Bubble?
Post by: Villanelle on April 30, 2019, 02:59:17 PM
I'd say I am pretty much zero percent concerned.  We aren't FIRE yet, but whether we are or not if/when a bubble pops, out plan is flexible in so many ways.  I'd prefer not to flex it, but if I need to, I will. 
Title: Re: How concerned are you about the Everything Bubble?
Post by: FIRE 20/20 on April 30, 2019, 04:10:00 PM
Not worried at all.  I just FIREd, and because of what I was able to add during my OMY and the crazy run-up we've had recently I'm down to 3.1% WDR.  I didn't plan to get that low, but I committed to staying on at work until this month.  If the bubble really pops and we end up at a CAPE of under 20, then I'll be confident that my higher WDR will be safe because everything will be undervalued and should recover.  If it drops just enough to get me to a 4% WDR then I still should be fine, and valuations will be reasonable.  If it stays high and my WDR stays below or well below 4% then I'm confident that a low WDR will see me through.  Win/win/win. 
Title: Re: How concerned are you about the Everything Bubble?
Post by: brooklynmoney on April 30, 2019, 04:23:51 PM
I believe what you are trying to say is . . . https://forum.mrmoneymustache.com/investor-alley/top-is-in/
Title: Re: How concerned are you about the Everything Bubble?
Post by: Laserjet3051 on April 30, 2019, 05:39:32 PM
kenmoremmm, exactly what are you trying to say here? That the top is in? Who do you think you are, Thorstache?
Title: Re: How concerned are you about the Everything Bubble?
Post by: kenmoremmm on April 30, 2019, 05:43:00 PM
i am no thorstache and am humbled by the mention.

if you pay enough attention to the hundreds of random threads on this board, you'll occasionally see 'everything bubble' pop up here and there. many other places too. maybe it's the cool thing to justify bear mentality, but given the unprecedented fed tinkering, it sure seems like things could implode. i know, i know, worse things have happened. but, this is a serious financial market manipulation the likes that haven't been seen before...
Title: Re: How concerned are you about the Everything Bubble?
Post by: SwordGuy on April 30, 2019, 09:18:26 PM
We have income sources that include:

Rented Farmland
Rented Homes (different state)
Stocks and Bonds
Social Security

And we have a cash stash.


They aren't correlated and they, on average, can be expected to produce significantly more than we budget to spend and we could cut what we budget to spend by a fair bit if we had to.

I have no idea whether we're in an everything bubble or not.   I've diversified and done the best I could.  After that it's just luck.
Title: Re: How concerned are you about the Everything Bubble?
Post by: Bloop Bloop on May 01, 2019, 05:25:39 PM
Seems to me that bubbles are most dangerous when only some things are overvalued. The bubble pops and the people holding the overvalued assets are in bad shape relative to the people who own other stuff that wasn't subject to the bubble. But if literally everything is overvalued, what happens when the bubble pops? We all agree that the price of everything should go down by a similar amount? So what?

The popping of an everything bubble would involve the stock market returning to a historically normal PE ratio around 15, investment grade bonds again yielding a historically normal 6-8%, real estate earning over 1% of its value in monthly rent, and savings accounts, CDs, or treasuries yielding 5-6%.

To reach these historically normal levels, stocks, bonds, and real estate would need to fall 40%ish in market price. The problem is that we can safely assume groceries, rents, transportation, and healthcare would not drop in price with such a scenario.

To quantify my concern, I use an options strategy called a collar to protect against a decline in prices of greater than 7-8% and pay about 2% of my portfolio per year for this protection, except in years like 2018 where my hedges actually earned money.

I would love for the bubble to pop as above. (If there is even a bubble.) Because it would let me RE a lot faster, since I depend on rent and dividends for my FIRE plans (I don't plan on ever drawing principle, so the underlying value of the asset is of less importance to me).

I wouldn't mind a recession at all - lower inflation, buying opportunities, lower prices and economic turbulence are generally good for well-placed investors.

A successful economy - with higher inflation, high asset values and few bargains - is a much harder environment to invest in.
Title: Re: How concerned are you about the Everything Bubble?
Post by: talltexan on May 03, 2019, 08:56:07 AM
The problem I have with market timing is that I remember how I felt that last week of December when it seemed like nothing would go up. I was scared. Didn't have the courage to invest anything extra (beyond my auto-pilot retirement savings).
Title: Re: How concerned are you about the Everything Bubble?
Post by: sol on May 03, 2019, 09:04:17 AM
I remember how I felt that last week of December when it seemed like nothing would go up.(beyond my auto-pilot retirement savings).

This just seems so weird, right?  2018 was literally a negative year for the stock market, down over 4%, and yet everyone is convinced the market is white hot overvalued?  If you think the market is overvalued when it goes down for a 12 month period, when will you ever think it's undervalued?

What I'm seeing in this thread is lots of perma-bears.  Markets are going up?  It's a bubble, sell quick!  Markets are going down?  The top is in, sell quick! 

Make up your minds, bears.
Title: Re: How concerned are you about the Everything Bubble?
Post by: Dare2Dream on May 03, 2019, 09:17:20 AM
Yup, fairly concerned.. but also accepting there's nothing I can do about it.

I do have a significant amount of my wealth in my own version of a "permanent portfolio" with uncorrelated assets; my expectation is that if and when the everything bubble goes tits and paper assets are smashed, the real assets will compensate accordingly.

I am in this camp.  Don't worry about things you cannot control.  And part of that control is having uncorrelated assets, healthy savings and controlled expenses. 

Floating along slightly trailing the market in good times but significantly outperforming during the eventual bumps in the road. 
Title: Re: How concerned are you about the Everything Bubble?
Post by: Buffaloski Boris on May 03, 2019, 09:42:58 AM
Concerned is too strong a term. Iím in the perma-sceptic, not perma-bear camp. Am slowly going back to equities on a DCA basis. One of the posters here actually persuaded me of the forehead-slapping folly of being low equities exposure if an important goal is building generational wealth. Over a very long time period I think itís clear that equities provide the best returns. Period, hard stop. The question is your relevant time period. Mine is just a whole lot longer than I thought.

I do think assets are overpriced and risk returns are underpriced compared to historical norms. ďEverything is different this timeĒ until it isnít. Cash is not a bad place to be right now if you have a relatively short time horizon.
Title: Re: How concerned are you about the Everything Bubble?
Post by: lowroller4111 on May 03, 2019, 12:53:28 PM
The popping of an everything bubble would involve the stock market returning to a historically normal PE ratio around 15, investment grade bonds again yielding a historically normal 6-8%,

Low rates can last for a VERY long time, look at Japan... 30 years and interest rates near 0.  We are nowhere close to that situation.  My guess is that interest rates will be fluctuating from 0-3 for the forseeable future and assets are priced accordingly.  With the new $2 Trillion infrastructure plan coming onboard now there is no way in hell interest rates are going to 4 or 5%, let alone higher than that.
Title: Re: How concerned are you about the Everything Bubble?
Post by: waltworks on May 03, 2019, 01:09:08 PM
The popping of an everything bubble would involve the stock market returning to a historically normal PE ratio around 15

P/E of 15 hasn't happened (with one very brief exception) in about 30 years, though, and we've seen plenty of bubbles pop in that time. Accounting changes and the increase in buybacks/decrease in dividends overall put "normal" P/E somewhere around 20, though you can debate the details and exact number.

Put another way, was 2009 a really, really good time to buy, or just average?

-W
Title: Re: How concerned are you about the Everything Bubble?
Post by: ysette9 on May 03, 2019, 03:53:46 PM
The problem I have with market timing is that I remember how I felt that last week of December when it seemed like nothing would go up. I was scared. Didn't have the courage to invest anything extra (beyond my auto-pilot retirement savings).
Is that what happened? I was vaguely aware of some rumblings on these forums but otherwise I didnít really notice and didnít really care. I just kept plugging my cash into Vanguard each week when it became available.

For someone smarter than me: my impression is that last December/all of 2018 was a blip compare to overall market ups and downs. Is that a fair assessment?
Title: Re: How concerned are you about the Everything Bubble?
Post by: FIREstache on May 03, 2019, 04:55:00 PM

I'm not as worried now that I have moved toward a more conservative AA as I near FIRE.  I had been 80% equities until last July.
Title: Re: How concerned are you about the Everything Bubble?
Post by: maizefolk on May 03, 2019, 05:12:13 PM
The problem I have with market timing is that I remember how I felt that last week of December when it seemed like nothing would go up. I was scared. Didn't have the courage to invest anything extra (beyond my auto-pilot retirement savings).

+1 to this. A great thing about auto-pilot investments is that you don't have to be worried all the time. Otherwise you spent half your time worrying if the market is too high and you should sell, and the other half worrying if it is low enough now for you to buy.

Although I do wish the Christmas Crash had held out long enough for my December paycheck's retirement contributions to post. Instead the market was back up almost 5% by the time the automatic investments hit my accounts in January.
Title: Re: How concerned are you about the Everything Bubble?
Post by: harvestbook on May 03, 2019, 06:47:40 PM
What I love about stocks and bonds at any price is that all you have to do to make money is nothing.
Title: Re: How concerned are you about the Everything Bubble?
Post by: Bloop Bloop on May 03, 2019, 07:01:33 PM
My country (Australia) has a housing downturn and I'm hoping it turns into a full-on crash with reduced consumer confidence and deflation/nil inflation to boot. That would be very good for investors trying to get a few properties on the cheap.
Title: Re: How concerned are you about the Everything Bubble?
Post by: Dare2Dream on May 04, 2019, 08:44:52 AM
The problem I have with market timing is that I remember how I felt that last week of December when it seemed like nothing would go up. I was scared. Didn't have the courage to invest anything extra (beyond my auto-pilot retirement savings).
Is that what happened? I was vaguely aware of some rumblings on these forums but otherwise I didnít really notice and didnít really care. I just kept plugging my cash into Vanguard each week when it became available.

For someone smarter than me: my impression is that last December/all of 2018 was a blip compare to overall market ups and downs. Is that a fair assessment?

Yes, within the big picture the last correction was not that bad and rebounded very fast.  A lot of people panicked then, imagine what happens if/when the market falls 30-40% and smart people question whether it will ever go up again.  That's when you find out what you are made of.  Not during the more common 10% blip.
Title: Re: How concerned are you about the Everything Bubble?
Post by: FIREstache on May 04, 2019, 09:56:22 AM
The problem I have with market timing is that I remember how I felt that last week of December when it seemed like nothing would go up. I was scared. Didn't have the courage to invest anything extra (beyond my auto-pilot retirement savings).
Is that what happened? I was vaguely aware of some rumblings on these forums but otherwise I didnít really notice and didnít really care. I just kept plugging my cash into Vanguard each week when it became available.

For someone smarter than me: my impression is that last December/all of 2018 was a blip compare to overall market ups and downs. Is that a fair assessment?

Yes, within the big picture the last correction was not that bad and rebounded very fast.  A lot of people panicked then, imagine what happens if/when the market falls 30-40% and smart people question whether it will ever go up again.  That's when you find out what you are made of.  Not during the more common 10% blip.

You've had a correction with a 10% drop, a bear market at 20%.   Since the S&P 500 dropped 20% from record highs by Dec 24, that's actually at the edge of the "worst" correction or mildest bear market.  Small caps were down 27% and still haven't fully recovered.  A fourth of S&P 500 stocks are still in bear market territory.

You should have your AA set appropriately for your risk tolerance.
Title: Re: How concerned are you about the Everything Bubble?
Post by: habanero on May 04, 2019, 11:58:56 AM
I made my first entry in the equities market at the - back then - close to worst time. As a student I bough some of a domestic index fund in early 1998. Six moths later it was down 40%. To my current standard it was small potatoes, but I've kept it until recently as a remainder of how things actually work. This investment has survived the 1997/98 asian crash, the .doc-bubble and the 2008-2009 financial crisis. I sold it the other day to clean up things a bit, and it was up approx 500% since I bought it - even with higher-than-neccessary management fees. Yes, if I had bought 6 months to a year later I would be up by a lot more. But looking back that massive crash looks like a small blip in the grander scheme of things.

There is of course always the possibility that the coming weeks, months or years might be horrible for equities. But you never know. Stay calm, stick to the plan and be happy. After all, its only money. In the long run you are likely to be just fine. 
Title: Re: How concerned are you about the Everything Bubble?
Post by: John Galt incarnate! on May 04, 2019, 01:29:59 PM
What I love about stocks and bonds at any price is that all you have to do to make money is nothing.

During a period of extraordinary  stock-market volatility John Bogle was a guest on a  TV show that covers finance/investing/money.

When Bogle was asked what investors should do the hoary sage of investing said "do nothing."
Title: Re: How concerned are you about the Everything Bubble?
Post by: Indexer on May 04, 2019, 01:51:55 PM
How could there be a bubble in everything? There is only so much money to compete for asset classes and enough money to create a bubble in everything would create inflation... which means that anything that acts as a hedge against inflation wouldn't be in a bubble.


No, I'm not concerned.

That said, higher valuations in stocks and lower yields in bonds than historical averages does tell me that I shouldn't be surprised if we see lower than average returns over the next 5-10 years. Instead of 100% stocks earning 10% and a 60/40 earning 8.5%, I use 7% and 5% in my FIRE calculations.
Title: Re: How concerned are you about the Everything Bubble?
Post by: ChpBstrd on May 04, 2019, 10:48:30 PM
How could there be a bubble in everything? There is only so much money to compete for asset classes and enough money to create a bubble in everything would create inflation... which means that anything that acts as a hedge against inflation wouldn't be in a bubble.


Actually, there has been a rapid increase in the amount of money competing in investments:
https://fred.stlouisfed.org/series/M2 (https://fred.stlouisfed.org/series/M2)

However, inflation is not the amount of money in existence, it is an increase in the price of a basket of goods. The modern understanding of how inflation works (i.e. not monetarism) is that it is related to the velocity of money - i.e. how frequently a typical dollar changes hands.

Put all this together and we currently see an increased trajectory of money creation accompanied by a slow velocity of money and low inflation (a combo thought to be impossible in the monetarist paradigm), which means the money being created is flowing into accounts and sitting. It's going into investments instead of trade.

A bubble in everything could also be understood as the price of investments being too high as measured in dollars. The inverse is that the price of dollars as measured in investments is too low. An everything bubble would therefore be a situation where dollars were undervalued and investments were overvalued.

Everything bubbles have happened before. In 1929, for example, the prices of stocks, bonds, and real estate all fell at once as people scrambled for dollars. Meanwhile, dollars increased in value in the sense that they bought more goods (deflation).

Bonds: https://fred.stlouisfed.org/series/BAA (https://fred.stlouisfed.org/series/BAA)
Stocks: https://www.macrotrends.net/2324/sp-500-historical-chart-data (https://www.macrotrends.net/2324/sp-500-historical-chart-data)
Real Estate: http://people.hbs.edu/tnicholas/anna_tom.pdf (http://people.hbs.edu/tnicholas/anna_tom.pdf)
Deflation: https://www.thebalance.com/u-s-inflation-rate-history-by-year-and-forecast-3306093 (https://www.thebalance.com/u-s-inflation-rate-history-by-year-and-forecast-3306093)
Title: Re: How concerned are you about the Everything Bubble?
Post by: maizefolk on May 05, 2019, 07:31:47 AM
Huh, that's a fascinating way of putting it, @ChpBstrd

The growth of the money supply without any really growth in the price of consumer goods and services is something I've heard a lot of discussion about. Another explanation (or perhaps another way of saying the same thing) is a lot of the newly created dollars have flowed out of the US and are sitting in the reserves of foreign governments and the savings of private individuals in countries where their own currencies are less reliable.

This would potentially also contribute to an asset/everything bubble. The same people who'd want to hold US dollars as a more secure form of capital than their local currencies might also turn around and use some of those dollars to purchase US bonds/stocks/real estate as also more secure investments than their local equivalents. At least in real estate in some of the major coastal cities, it appears to be that a lot of the growth at the high end of the market is being driven by purchasers from China, Russia, and the Middle East.
Title: Re: How concerned are you about the Everything Bubble?
Post by: vand on May 05, 2019, 11:08:40 AM
Btw I donít agree with the broad statement that ďeverythingĒ is over-inflated. For sure, I think western Bond, Equity and real estate markets are, but there are always some sectors that are beaten down and cheap.. you just have to cast your net wide enough and look beyond the mainstream markets. Today, those depressed  markets are commodities and emerging markets, which have both been heavily battered due to a strong USD, but may have bottomed.
Title: Re: How concerned are you about the Everything Bubble?
Post by: frugledoc on May 05, 2019, 03:38:30 PM
Btw I donít agree with the broad statement that ďeverythingĒ is over-inflated. For sure, I think western Bond, Equity and real estate markets are, but there are always some sectors that are beaten down and cheap.. you just have to cast your net wide enough and look beyond the mainstream markets. Today, those depressed  markets are commodities and emerging markets, which have both been heavily battered due to a strong USD, but may have bottomed.

Arenít many stocks on the SP500 currently still beaten down to bear market levels?

Not that it matters, everything looks cheapish to me.
Title: Re: How concerned are you about the Everything Bubble?
Post by: effigy98 on May 06, 2019, 10:15:37 PM
Concerned especially if I look at the news (which I usually try to avoid). I have diversified in uncorrelated asset classes across the globe, paid off house, and have multiple income streams. The thing that keeps me going is freedom and knowing that very few (if any) of my peers are doing the same. Most have new cars, 100% S&P with their 6% 401k match, and still pay PMI on their 1m+ mortgages. Investing gives me a sense of control in my life.
Title: Re: How concerned are you about the Everything Bubble?
Post by: Classical_Liberal on May 06, 2019, 10:58:40 PM
Actually, there has been a rapid increase in the amount of money competing in investments...

Excellent, succinct description of whats going on, IMO.

Add the that, one of the main reasons money has moved into investment capital vs good/services (how we measure velocity), is because the new money which has been created has mostly ended up in the hands of the wealthiest.  These are the folks/institutions that buy "assets" as opposed to goods/services.  The inflation predicted with QE was born out in the price (lower yield) of assets.

The ramifications of this can play out in many differing ways, with many second order effects an armchair economist like me can't even imagine (unknown, unknowns).  I'm guessing the net effect will bear out in reduced real yield over time.  This could play out in a myriad of ways, depending on ongoing macro policy.

The bottom line is that it doesn't spell disaster, it just means the future will play out different than the past.  And we already knew that. 
Title: Re: How concerned are you about the Everything Bubble?
Post by: vand on May 07, 2019, 01:24:25 AM
Btw I donít agree with the broad statement that ďeverythingĒ is over-inflated. For sure, I think western Bond, Equity and real estate markets are, but there are always some sectors that are beaten down and cheap.. you just have to cast your net wide enough and look beyond the mainstream markets. Today, those depressed  markets are commodities and emerging markets, which have both been heavily battered due to a strong USD, but may have bottomed.

Arenít many stocks on the SP500 currently still beaten down to bear market levels?

Not that it matters, everything looks cheapish to me.

Do you consider it cheap because its down from recent highs? Or do you consider them cheap based on fundamental factors?

25% off a recent high is nothing in the world of stocks.

Cyclical stocks can easily lose 80-90% through a downturn.. and then gain it back again.

Yes, its true that many stocks are down from recent highs, and the indexes do not paint a full picture. the broader RUT index is nowhere near to recapturing the old highs, and other developed markets are not close to their ATHs. This suggests that the rally is pretty narrow and underpinned by a few big stocks.

Warren Buffett is usually a pretty good barometer on things, and he's been using his massive cash position to buy back stock recently because he can't find anything worth buying... something that he has avoided doing in the past because he was always confident that he could generate better returns by buying companies.
https://www.bloomberg.com/news/articles/2019-05-04/berkshire-buys-back-more-stock-as-cash-pile-continues-to-grow
Title: Re: How concerned are you about the Everything Bubble?
Post by: frugledoc on May 07, 2019, 03:11:41 AM
Btw I donít agree with the broad statement that ďeverythingĒ is over-inflated. For sure, I think western Bond, Equity and real estate markets are, but there are always some sectors that are beaten down and cheap.. you just have to cast your net wide enough and look beyond the mainstream markets. Today, those depressed  markets are commodities and emerging markets, which have both been heavily battered due to a strong USD, but may have bottomed.

Arenít many stocks on the SP500 currently still beaten down to bear market levels?

Not that it matters, everything looks cheapish to me.

Do you consider it cheap because its down from recent highs? Or do you consider them cheap based on fundamental factors?

25% off a recent high is nothing in the world of stocks.

Cyclical stocks can easily lose 80-90% through a downturn.. and then gain it back again.

Yes, its true that many stocks are down from recent highs, and the indexes do not paint a full picture. the broader RUT index is nowhere near to recapturing the old highs, and other developed markets are not close to their ATHs. This suggests that the rally is pretty narrow and underpinned by a few big stocks.

Warren Buffett is usually a pretty good barometer on things, and he's been using his massive cash position to buy back stock recently because he can't find anything worth buying... something that he has avoided doing in the past because he was always confident that he could generate better returns by buying companies.
https://www.bloomberg.com/news/articles/2019-05-04/berkshire-buys-back-more-stock-as-cash-pile-continues-to-grow

I consider them cheap compared to what I think they will be worth in 50 years or more when my children will have inherited my assets
Title: Re: How concerned are you about the Everything Bubble?
Post by: vand on May 07, 2019, 03:13:40 AM
Btw I donít agree with the broad statement that ďeverythingĒ is over-inflated. For sure, I think western Bond, Equity and real estate markets are, but there are always some sectors that are beaten down and cheap.. you just have to cast your net wide enough and look beyond the mainstream markets. Today, those depressed  markets are commodities and emerging markets, which have both been heavily battered due to a strong USD, but may have bottomed.

Arenít many stocks on the SP500 currently still beaten down to bear market levels?

Not that it matters, everything looks cheapish to me.

Do you consider it cheap because its down from recent highs? Or do you consider them cheap based on fundamental factors?

25% off a recent high is nothing in the world of stocks.

Cyclical stocks can easily lose 80-90% through a downturn.. and then gain it back again.

Yes, its true that many stocks are down from recent highs, and the indexes do not paint a full picture. the broader RUT index is nowhere near to recapturing the old highs, and other developed markets are not close to their ATHs. This suggests that the rally is pretty narrow and underpinned by a few big stocks.

Warren Buffett is usually a pretty good barometer on things, and he's been using his massive cash position to buy back stock recently because he can't find anything worth buying... something that he has avoided doing in the past because he was always confident that he could generate better returns by buying companies.
https://www.bloomberg.com/news/articles/2019-05-04/berkshire-buys-back-more-stock-as-cash-pile-continues-to-grow

I consider them cheap compared to what I think they will be worth in 50 years or more when my children will have inherited my assets

Ah yes, the old "I'm buying for the long term" arugment.
Stocks are either cheap or they are expensive. The investment horizon does not change that. An overpriced BMW is still an overpriced BMW regardless if you sell it on after a year or run it into the ground over 20.

The erntswhile Mr Buffett's famously favourite holding period is "forever" and even he is sitting on oodles of cash.
Title: Re: How concerned are you about the Everything Bubble?
Post by: frugledoc on May 07, 2019, 07:17:03 AM
Btw I donít agree with the broad statement that ďeverythingĒ is over-inflated. For sure, I think western Bond, Equity and real estate markets are, but there are always some sectors that are beaten down and cheap.. you just have to cast your net wide enough and look beyond the mainstream markets. Today, those depressed  markets are commodities and emerging markets, which have both been heavily battered due to a strong USD, but may have bottomed.

Arenít many stocks on the SP500 currently still beaten down to bear market levels?

Not that it matters, everything looks cheapish to me.

Do you consider it cheap because its down from recent highs? Or do you consider them cheap based on fundamental factors?

25% off a recent high is nothing in the world of stocks.

Cyclical stocks can easily lose 80-90% through a downturn.. and then gain it back again.

Yes, its true that many stocks are down from recent highs, and the indexes do not paint a full picture. the broader RUT index is nowhere near to recapturing the old highs, and other developed markets are not close to their ATHs. This suggests that the rally is pretty narrow and underpinned by a few big stocks.

Warren Buffett is usually a pretty good barometer on things, and he's been using his massive cash position to buy back stock recently because he can't find anything worth buying... something that he has avoided doing in the past because he was always confident that he could generate better returns by buying companies.
https://www.bloomberg.com/news/articles/2019-05-04/berkshire-buys-back-more-stock-as-cash-pile-continues-to-grow

I consider them cheap compared to what I think they will be worth in 50 years or more when my children will have inherited my assets

Ah yes, the old "I'm buying for the long term" arugment.
Stocks are either cheap or they are expensive. The investment horizon does not change that. An overpriced BMW is still an overpriced BMW regardless if you sell it on after a year or run it into the ground over 20.

The erntswhile Mr Buffett's famously favourite holding period is "forever" and even he is sitting on oodles of cash.

Iím 100% equities so I donít have to spend any time thinking about that.  I used to spend a lot of time agonising over market valuations and timing before I realised that being intelligent and logical doesnít help so I just want to participate in the global economy.

Title: Re: How concerned are you about the Everything Bubble?
Post by: talltexan on May 07, 2019, 07:24:26 AM
I put my 401K 20% into bonds in the Fall of 2018. It sure gave me some piece of mind when things dropped during December. Going through the cycle tells you how you'll do emotionally, and I do not think I can handle those kind of drops at 100% stock.

I do have some other asset classes in there: REIT's, Small Cap, Int'l, as well as the SP500.
Title: Re: How concerned are you about the Everything Bubble?
Post by: maizefolk on May 07, 2019, 07:29:09 AM
Ah yes, the old "I'm buying for the long term" arugment.
Stocks are either cheap or they are expensive. The investment horizon does not change that. An overpriced BMW is still an overpriced BMW regardless if you sell it on after a year or run it into the ground over 20.

That's the great thing about equities (and how they are different from consumer goods like your new BMW, or commodities like oil or copper).

If equities are average priced right now, $1000 invested today might grow to $13,000 in 30 years* If, with the benefit of hindsight, equities are priced at twice what they "should" be and crash back down in the future, perhaps $1,000 invested today might only grow to $6,500 in 30 years. Either way I'll be a lot better off having invested than not invested.

The same cannot be said of buying a new car (lose money as soon as you drive it off the lot regardless of what you paid)) or a warehouse full of copper (might go up, might go down, but no matter how long you hold, it may still turn out you over paid originally, and meanwhile you're paying rent on the warehouse either directly or indirectly though things like premiums in options contracts).

*In nominal terms with dividends reinvested. Normally I like to use real returns, but since if I choose not to invest my money its value really will be eroded by inflation every year so nominal seems like the correct benchmark for comparison.
Title: Re: How concerned are you about the Everything Bubble?
Post by: vand on May 07, 2019, 03:41:13 PM
Ah yes, the old "I'm buying for the long term" arugment.
Stocks are either cheap or they are expensive. The investment horizon does not change that. An overpriced BMW is still an overpriced BMW regardless if you sell it on after a year or run it into the ground over 20.

That's the great thing about equities (and how they are different from consumer goods like your new BMW, or commodities like oil or copper).

If equities are average priced right now, $1000 invested today might grow to $13,000 in 30 years* If, with the benefit of hindsight, equities are priced at twice what they "should" be and crash back down in the future, perhaps $1,000 invested today might only grow to $6,500 in 30 years. Either way I'll be a lot better off having invested than not invested.

The same cannot be said of buying a new car (lose money as soon as you drive it off the lot regardless of what you paid)) or a warehouse full of copper (might go up, might go down, but no matter how long you hold, it may still turn out you over paid originally, and meanwhile you're paying rent on the warehouse either directly or indirectly though things like premiums in options contracts).

*In nominal terms with dividends reinvested. Normally I like to use real returns, but since if I choose not to invest my money its value really will be eroded by inflation every year so nominal seems like the correct benchmark for comparison.

I personally don't know why I bother having these circular discussions with perma-bulls. Your argument goes something like this.. prices don't matter because investments pay for themselves over enough time.

Each to their own.

Just remember when you are liquidating your positions at the bottom of the bear market that I'll be the one steadily deploying my capital.

Title: Re: How concerned are you about the Everything Bubble?
Post by: sol on May 07, 2019, 03:47:04 PM
Just remember when you are liquidating your positions at the bottom of the bear market that I'll be the one steadily deploying my capital.

Why would I ever liquidate my net worth at the bottom of a bear market?  That would be counterproductive.  Sounds like something a market timer might try.

As for "steadily deploying my capital" I do that all the time.  Tuesdays and Thursdays, in fact, year in and year out. 
Title: Re: How concerned are you about the Everything Bubble?
Post by: frugledoc on May 07, 2019, 03:51:28 PM
Ah yes, the old "I'm buying for the long term" arugment.
Stocks are either cheap or they are expensive. The investment horizon does not change that. An overpriced BMW is still an overpriced BMW regardless if you sell it on after a year or run it into the ground over 20.

That's the great thing about equities (and how they are different from consumer goods like your new BMW, or commodities like oil or copper).

If equities are average priced right now, $1000 invested today might grow to $13,000 in 30 years* If, with the benefit of hindsight, equities are priced at twice what they "should" be and crash back down in the future, perhaps $1,000 invested today might only grow to $6,500 in 30 years. Either way I'll be a lot better off having invested than not invested.

The same cannot be said of buying a new car (lose money as soon as you drive it off the lot regardless of what you paid)) or a warehouse full of copper (might go up, might go down, but no matter how long you hold, it may still turn out you over paid originally, and meanwhile you're paying rent on the warehouse either directly or indirectly though things like premiums in options contracts).

*In nominal terms with dividends reinvested. Normally I like to use real returns, but since if I choose not to invest my money its value really will be eroded by inflation every year so nominal seems like the correct benchmark for comparison.

I personally don't know why I bother having these circular discussions with perma-bulls. Your argument goes something like this.. prices don't matter because investments pay for themselves over enough time.

Each to their own.

Just remember when you are liquidating your positions at the bottom of the bear market that I'll be the one steadily deploying my capital.

We were a whisker away from a bear market in December, did you time it perfectly and go all in, and then take your easy 20% profit a few months later?  If not, why did you not buy at the recent market bottom?
Title: Re: How concerned are you about the Everything Bubble?
Post by: maizefolk on May 07, 2019, 05:17:47 PM
Just remember when you are liquidating your positions at the bottom of the bear market that I'll be the one steadily deploying my capital.

It's a lot easier to win arguments when you can just make up what the other side thinks or how they will act, isn't it?

Personally, I find it particularly satisfying though. Like winning the game using cheat codes to get invincibility and unlimited ammo.
Title: Re: How concerned are you about the Everything Bubble?
Post by: vand on May 08, 2019, 05:34:58 AM
Just remember when you are liquidating your positions at the bottom of the bear market that I'll be the one steadily deploying my capital.

Why would I ever liquidate my net worth at the bottom of a bear market?  That would be counterproductive.  Sounds like something a market timer might try.


Because you may not have a choice. That's why it's called liquidation.

Bear markets are usually accompanied with recessions, which mean higher unemployment, and all sort of other things that happen in life. What if you lose your job and have no household income? What happens if you then develop a health problem related to stress about that?

It's a inconvenient truth that most investors suck at investing because they buy when its easy to do so when times are good and then sell to release some cash when times are hard. It is much harder to do the opposite, not only because of psychology, but by running with the herd you may be putting yourself in the position of not having the wherewithal to do so.
Title: Re: How concerned are you about the Everything Bubble?
Post by: Malcat on May 08, 2019, 05:45:22 AM
Just remember when you are liquidating your positions at the bottom of the bear market that I'll be the one steadily deploying my capital.

Why would I ever liquidate my net worth at the bottom of a bear market?  That would be counterproductive.  Sounds like something a market timer might try.


Because you may not have a choice. That's why it's called liquidation.

Bear markets are usually accompanied with recessions, which mean higher unemployment, and all sort of other things that happen in life. What if you lose your job and have no household income? What happens if you then develop a health problem related to stress about that?

It's a inconvenient truth that most investors suck at investing because they buy when its easy to do so when times are good and then sell to release some cash when times are hard. It is much harder to do the opposite, not only because of psychology, but by running with the herd you may be putting yourself in the position of not having the wherewithal to do so.

Mustachians don't run with the herd.
Title: Re: How concerned are you about the Everything Bubble?
Post by: habanero on May 08, 2019, 06:21:45 AM

Because you may not have a choice. That's why it's called liquidation.

The key is to manage the stash in such a way that one actually has a choice - or at least maximize the probability of having a choice. That, preferably, means not having to sell when one doesn't want to or just have to sell a little. Or have different sources of wealth / income so more options on what to liquidate.

The strategy depends on situation, but I have enough cash to live happily off for quite some time, I would receive unemployment benefits generous enough to live off for 3 years if I lost my job. If still stuck downsizing housing an option. Forced selling of equities is quite far down the list of options. Not that it could never happen, but very, very unlikely.
Title: Re: How concerned are you about the Everything Bubble?
Post by: frugledoc on May 08, 2019, 06:58:41 AM
Just remember when you are liquidating your positions at the bottom of the bear market that I'll be the one steadily deploying my capital.

Why would I ever liquidate my net worth at the bottom of a bear market?  That would be counterproductive.  Sounds like something a market timer might try.


Because you may not have a choice. That's why it's called liquidation.

Bear markets are usually accompanied with recessions, which mean higher unemployment, and all sort of other things that happen in life. What if you lose your job and have no household income? What happens if you then develop a health problem related to stress about that?

It's a inconvenient truth that most investors suck at investing because they buy when its easy to do so when times are good and then sell to release some cash when times are hard. It is much harder to do the opposite, not only because of psychology, but by running with the herd you may be putting yourself in the position of not having the wherewithal to do so.

Personally, I find it hard to buy when the markets are up and easy when they are going down. Itís not easy to buy now, you are evidence of that because you are scared of a crash. Lots of amateur investors are currently fearful.

What you need to do is chose an asset allocation which matches your low risk tolerance. Something like 60:40 would do. Once you decide, then itís best to lump sum, but given you are nervous dollar cost averaging may feel more comfortable.

Title: Re: How concerned are you about the Everything Bubble?
Post by: mjones1234 on May 08, 2019, 07:07:09 AM
I'm concerned for older family members heavily invested in equities. There is no doubt that stocks are currently priced for perfection. Personally, I'm in cash, PM's and paid off real estate, so not concerned. But, like any smart investor, looking to deploy cash if equities go on sale.
Title: Re: How concerned are you about the Everything Bubble?
Post by: DadJokes on May 08, 2019, 07:31:22 AM
For those who are sitting on cash, how far does the market drop before you buy? Obviously, the drop in December would have been a good time to buy, but how many people thought it would come back the next day as opposed to being a longer downturn?
Title: Re: How concerned are you about the Everything Bubble?
Post by: thd7t on May 08, 2019, 07:43:47 AM
For those who are sitting on cash, how far does the market drop before you buy? Obviously, the drop in December would have been a good time to buy, but how many people thought it would come back the next day as opposed to being a longer downturn?
This is another reason it's silly to sit on cash.  If you knew there would be a 20% drop, but not how long it would last, why wouldn't you buy at 20% down?  It shouldn't matter how long the downturn lasts if you know the bottom or have some trigger to buy.  The thing that this thread points out again and again is that market timers rarely really time the market.  They just stay ready to time the market and then lose out.

Title: Re: How concerned are you about the Everything Bubble?
Post by: frugledoc on May 08, 2019, 07:54:12 AM
For those who are sitting on cash, how far does the market drop before you buy? Obviously, the drop in December would have been a good time to buy, but how many people thought it would come back the next day as opposed to being a longer downturn?
This is another reason it's silly to sit on cash.  If you knew there would be a 20% drop, but not how long it would last, why wouldn't you buy at 20% down?  It shouldn't matter how long the downturn lasts if you know the bottom or have some trigger to buy.  The thing that this thread points out again and again is that market timers rarely really time the market.  They just stay ready to time the market and then lose out.

And then berate level headed buy and hold indexers despite the fact that they have been wrong.

The higher the market goes, the more wrong we are lol
Title: Re: How concerned are you about the Everything Bubble?
Post by: sol on May 08, 2019, 08:10:20 AM
What if you lose your job and have no household income? What happens if you then develop a health problem related to stress about that?

Your argument made a lot more sense a decade ago than it does today.  Today, I've already won the game using a buy and hold strategy, and I no longer care about market fluctuations.

Like basically every mustachian who started saving 60% or more of their income during the great recession, I have long since passed the 25x expenses threshold.  I FIRED by buying every month even while people like you told me to wait, and now my investments can provide my income even in the face of another great recession.

Every single early retiree like me is proof positive that the mustachian investing mindset works.  Hundreds of forum members have used it to reach FIRE.  By ignoring the doubters and the naysayers, we have made ourselves financially invulnerable to market moves.  So the entire premise of "well, what if prices go down" no longer concerns us.  We're not trying to time the market now, and we got to that place of guaranteed security by not trying to time the market over the past decade.

So I am not worried about losing my job.  I already gave it away, and it was one of the best things I have ever done.  I am also not worried about the stress of having no job, because it turns out that being retired and financially independent is about the least stressful thing you can do with your life.  You too could be early retired right along with me, if only you had started saving the majority of your paycheck in 2008, every week, instead of holding cash waiting for your dry powder moment.
Title: Re: How concerned are you about the Everything Bubble?
Post by: waltworks on May 08, 2019, 08:24:55 AM
The thing is, if you invest almost completely incompetently wrt prices/timing, but optimistically (put in money when you have it) you're virtually guaranteed to do well.

If you hoard cash and wait, you have some vanishingly small chance of doing well but a much better chance of doing very, very poorly.

Being cynical and negative is unavoidable for some people. I get that. But it's not a good thing when it comes to investing.

-W
Title: Re: How concerned are you about the Everything Bubble?
Post by: Malcat on May 08, 2019, 08:28:01 AM
The thing is, if you invest almost completely incompetently wrt prices/timing, but optimistically (put in money when you have it) you're virtually guaranteed to do well.

If you hoard cash and wait, you have some vanishingly small chance of doing well but a much better chance of doing very, very poorly.

Being cynical and negative is unavoidable for some people. I get that. But it's not a good thing when it comes to investing.

-W

There are also much more lucrative ways to bet against the market.

The potential gains of market timing just don't ever seem to be worth the risk of losing out. I don't get it.
Title: Re: How concerned are you about the Everything Bubble?
Post by: kenmoremmm on May 08, 2019, 10:32:25 AM
The thing is, if you invest almost completely incompetently wrt prices/timing, but optimistically (put in money when you have it) you're virtually guaranteed to do well.

If you hoard cash and wait, you have some vanishingly small chance of doing well but a much better chance of doing very, very poorly.

Being cynical and negative is unavoidable for some people. I get that. But it's not a good thing when it comes to investing.

-W

didn't you just sell your rentals because you thought the market had peaked???
Title: Re: How concerned are you about the Everything Bubble?
Post by: PDXTabs on May 08, 2019, 10:59:02 AM
Like basically every mustachian who started saving 60% or more of their income during the great recession, I have long since passed the 25x expenses threshold.  I FIRED by buying every month even while people like you told me to wait, and now my investments can provide my income even in the face of another great recession.

I was not in a position to invest 60% through the great recession, but this comment still resonates with me. I purchased some broad based index funds with every single paycheck. I only regret not buying more (bought a house right before the crash, and I purchased some bond funds too).

To put it another way, for those of us still working, always being all in is a really simple/easy/foolproof way to always win. Specifically, if the market goes up you win. If the market goes down and you are still working, you get to buy more for less, and you still win. Not to mention the lack of pressure, because trading my (currently) six figure portfolio would significantly distract from the life that I want to live. It's way easier to just buy more every two weeks and know that I'm still collecting dividends.
Title: Re: How concerned are you about the Everything Bubble?
Post by: never give up on May 08, 2019, 11:03:15 AM
I havenít got a clue if everything is in a bubble or even if that is possible. Iím afraid I canít really contribute much intellectually to this conversation at all. I donít have advanced economics skills and my maths is fairly basic. I donít know if interest rates are too high or too low or how things get valued. The only thing I know about cape is that Batman looks cool in one. I couldnít tell you if it was a good time to buy or if it was the worst ever. I donít know what all the lines on the graphs mean. I suppose itís good I at least have awareness of my limitations.

Having found these forums I have got a firm grasp of expenses and I choose to buy a cheap global tracker every month as well as a cheap government bond index fund. I would hope if I was really talented at all of the above I would still do the same.

It appears to be going very well.

Regardless of how well my investments do (will my window of buying be favourable or not long term?) lowering my expenses to a level where I could do any minimum wage job and still be able to save money is the biggest single thing I have gained here. I donít have to compete with the top 20% for jobs if I donít want to or simply donít have the ability to. That is so freeing. It is incredibly freeing not to be trapped by consumerism. Knowing pre-FIRE I could take any job if I had to and be ok, and knowing that this path will ultimately lead me to FIRE, means I couldnít be happier to be in the Mustachian Freedom Bubble. This is the only bubble Iím going to spend any time concentrating on.
Title: Re: How concerned are you about the Everything Bubble?
Post by: Telecaster on May 08, 2019, 12:31:54 PM
Bear markets are usually accompanied with recessions, which mean higher unemployment, and all sort of other things that happen in life. What if you lose your job and have no household income? What happens if you then develop a health problem related to stress about that?


What if the same thing happens to you and you have to spend your cash?   
Title: Re: How concerned are you about the Everything Bubble?
Post by: waltworks on May 08, 2019, 01:01:11 PM
didn't you just sell your rentals because you thought the market had peaked???

Yes, but local RE markets are (relatively speaking) easy to time. You can have all sorts of (local information, personal contacts, etc) advantages over supercomputers on Wall Street. I've done it twice now.

All RE is local. It's a cliche but it's a true one.

Stock market, not so much. 

-W
Title: Re: How concerned are you about the Everything Bubble?
Post by: Davnasty on May 08, 2019, 01:07:10 PM
Just remember when you are liquidating your positions at the bottom of the bear market that I'll be the one steadily deploying my capital.

Why would I ever liquidate my net worth at the bottom of a bear market?  That would be counterproductive.  Sounds like something a market timer might try.


Because you may not have a choice. That's why it's called liquidation.


What? It's called liquidation because your turning less than liquid assets into liquid assets. The necessity of doing so is irrelevant.
Title: How concerned are you about the Everything Bubble?
Post by: ysette9 on May 08, 2019, 01:33:10 PM
Even if shit hit the fan and you ran through several layers of emergency planning (emergency fund, lowered savings rate, lower expenses, spend some bonds) and you had to start selling stocks at a low to live on, you would only liquidate the very small amount you need to live on for a month or two while you seek other employment or otherwise find a solution. The only reason you would liquidate the entire portfolio is if you were scared/foolish and made a massive mistake.
Title: Re: How concerned are you about the Everything Bubble?
Post by: FIRE 20/20 on May 08, 2019, 03:17:09 PM
What if you lose your job and have no household income? What happens if you then develop a health problem related to stress about that?

Your argument made a lot more sense a decade ago than it does today.  Today, I've already won the game using a buy and hold strategy, and I no longer care about market fluctuations.

Like basically every mustachian who started saving 60% or more of their income during the great recession, I have long since passed the 25x expenses threshold.  I FIRED by buying every month even while people like you told me to wait, and now my investments can provide my income even in the face of another great recession.

Every single early retiree like me is proof positive that the mustachian investing mindset works.  Hundreds of forum members have used it to reach FIRE.  By ignoring the doubters and the naysayers, we have made ourselves financially invulnerable to market moves.  So the entire premise of "well, what if prices go down" no longer concerns us.  We're not trying to time the market now, and we got to that place of guaranteed security by not trying to time the market over the past decade.

So I am not worried about losing my job.  I already gave it away, and it was one of the best things I have ever done.  I am also not worried about the stress of having no job, because it turns out that being retired and financially independent is about the least stressful thing you can do with your life.  You too could be early retired right along with me, if only you had started saving the majority of your paycheck in 2008, every week, instead of holding cash waiting for your dry powder moment.


sol, you forgot the mike drop .gif after this post. 

I'd like to +1 this post as I just FIREd doing almost exactly what you described, but there's no way I could have written it as well as you did. 
Title: Re: How concerned are you about the Everything Bubble?
Post by: FINate on May 08, 2019, 03:30:21 PM
didn't you just sell your rentals because you thought the market had peaked???

Yes, but local RE markets are (relatively speaking) easy to time. You can have all sorts of (local information, personal contacts, etc) advantages over supercomputers on Wall Street. I've done it twice now.

All RE is local. It's a cliche but it's a true one.

Stock market, not so much. 

-W

And I'd venture to guess that waltworks didn't sell his RE and then sit on the cash. A change in investment mix, not a run for the sidelines.
Title: Re: How concerned are you about the Everything Bubble?
Post by: Laserjet3051 on May 08, 2019, 04:03:03 PM
Even if shit hit the fan and you ran through several layers of emergency planning (emergency fund, lowered savings rate, lower expenses, spend some bonds) and you had to start selling stocks at a low to live on, you would only liquidate the very small amount you need to live on for a month or two while you seek other employment or otherwise find a solution. The only reason you would liquidate the entire portfolio is if you were scared/foolish and made a massive mistake.

I realize that at the moment, employment in the USA is relatively strong, though this will vary depending on ones location, skills, etc. However it is wrong to assume that job loss would only take 1 or 2 months at most to recover from. Many of us during the Great Recession in the USA took a lot longer than that. Despite having a PhD, years of experience, etc etc, it still took me 1.25 years of agressive networking and applications to land something. Couple that (no income for 15 months) with the fact that tens of millions of people live in HCOL locations, and your advice is a recipe for disaster should unfortunate circumstances transpire. True, for some folks, 2 months will be enough time, today perhaps. But unless you have walked in the shoes I describe, you cannot write off the real risk that such a dramatic recession imposes on some families, in particular, for those whose careers are in sectors of the economy that severely contract. In these situations, one could potentially burn through a lot of equity investments just to put food on the table.
Title: Re: How concerned are you about the Everything Bubble?
Post by: FIRE 20/20 on May 08, 2019, 04:25:02 PM
Even if shit hit the fan and you ran through several layers of emergency planning (emergency fund, lowered savings rate, lower expenses, spend some bonds) and you had to start selling stocks at a low to live on, you would only liquidate the very small amount you need to live on for a month or two while you seek other employment or otherwise find a solution. The only reason you would liquidate the entire portfolio is if you were scared/foolish and made a massive mistake.

I realize that at the moment, employment in the USA is relatively strong, though this will vary depending on ones location, skills, etc. However it is wrong to assume that job loss would only take 1 or 2 months at most to recover from. Many of us during the Great Recession in the USA took a lot longer than that. Despite having a PhD, years of experience, etc etc, it still took me 1.25 years of agressive networking and applications to land something. Couple that (no income for 15 months) with the fact that tens of millions of people live in HCOL locations, and your advice is a recipe for disaster should unfortunate circumstances transpire. True, for some folks, 2 months will be enough time, today perhaps. But unless you have walked in the shoes I describe, you cannot write off the real risk that such a dramatic recession imposes on some families, in particular, for those whose careers are in sectors of the economy that severely contract. In these situations, one could potentially burn through a lot of equity investments just to put food on the table.

You highlighted the wrong part of ysette9's post.  She was not arguing for only needing to have 2 months of money available to get through a downturn.  The following fully addresses your concern:

"if shit hit the fan and you ran through several layers of emergency planning (emergency fund, lowered savings rate, lower expenses, spend some bonds)"

Of course someone in a HCOL area in a field that is impacted by economic downturns and a family to take care of should have a very substantial emergency fund that is not in VTSAX!  No one here is suggesting that no one should have an emergency fund that's appropriate to their situation.  That's not at all the same thing as holding dry powder in anticipation of a downturn.  I think her point was that you wouldn't liquidate *everything* if a downturn occurred, but would rather do it one ore two months at a time as needed - after getting through your emergency fund.
Title: How concerned are you about the Everything Bubble?
Post by: ysette9 on May 08, 2019, 04:29:47 PM
Even if shit hit the fan and you ran through several layers of emergency planning (emergency fund, lowered savings rate, lower expenses, spend some bonds) and you had to start selling stocks at a low to live on, you would only liquidate the very small amount you need to live on for a month or two while you seek other employment or otherwise find a solution. The only reason you would liquidate the entire portfolio is if you were scared/foolish and made a massive mistake.

I realize that at the moment, employment in the USA is relatively strong, though this will vary depending on ones location, skills, etc. However it is wrong to assume that job loss would only take 1 or 2 months at most to recover from. Many of us during the Great Recession in the USA took a lot longer than that. Despite having a PhD, years of experience, etc etc, it still took me 1.25 years of agressive networking and applications to land something. Couple that (no income for 15 months) with the fact that tens of millions of people live in HCOL locations, and your advice is a recipe for disaster should unfortunate circumstances transpire. True, for some folks, 2 months will be enough time, today perhaps. But unless you have walked in the shoes I describe, you cannot write off the real risk that such a dramatic recession imposes on some families, in particular, for those whose careers are in sectors of the economy that severely contract. In these situations, one could potentially burn through a lot of equity investments just to put food on the table.
I think you have some good points. It is understood that people with more education, more specialized jobs, and earning more will likely take longer to find a new job in the case of a job loss. That is why an emergency fund should be tailored to a specific situation. I can see your emergency fund size should be determined based on factors including:
Overall savings rate
Single or dual income household
How much do you earn and how specialized are you
Stability of your job and industry
How big is your stash and how close are you to FI
What other levers can you tap (HELOC, CCs, family support


I think in some ways we are talking about different scenarios. One is where you hit hard times and have to tap your investments to keep food on the table. You do what you have to in that situation. The other scenario is a big market drop makes people scared and they foolishly liquidate their investments and hang tight in cash or gold bars or bills under the mattress. This situation is avoidable and can have devastating consequences for overall portfolio performance. I was thinking more the latter and I believe you are talking about the former.
Title: Re: How concerned are you about the Everything Bubble?
Post by: kenmoremmm on May 08, 2019, 04:41:34 PM
And I'd venture to guess that waltworks didn't sell his RE and then sit on the cash. A change in investment mix, not a run for the sidelines.

i'd love to hear where WW moved these liquidated assets to.
Title: Re: How concerned are you about the Everything Bubble?
Post by: Telecaster on May 08, 2019, 07:00:41 PM
Even if shit hit the fan and you ran through several layers of emergency planning (emergency fund, lowered savings rate, lower expenses, spend some bonds) and you had to start selling stocks at a low to live on, you would only liquidate the very small amount you need to live on for a month or two while you seek other employment or otherwise find a solution. The only reason you would liquidate the entire portfolio is if you were scared/foolish and made a massive mistake.

I realize that at the moment, employment in the USA is relatively strong, though this will vary depending on ones location, skills, etc. However it is wrong to assume that job loss would only take 1 or 2 months at most to recover from. Many of us during the Great Recession in the USA took a lot longer than that. Despite having a PhD, years of experience, etc etc, it still took me 1.25 years of agressive networking and applications to land something. Couple that (no income for 15 months) with the fact that tens of millions of people live in HCOL locations, and your advice is a recipe for disaster should unfortunate circumstances transpire. True, for some folks, 2 months will be enough time, today perhaps. But unless you have walked in the shoes I describe, you cannot write off the real risk that such a dramatic recession imposes on some families, in particular, for those whose careers are in sectors of the economy that severely contract. In these situations, one could potentially burn through a lot of equity investments just to put food on the table.

That's true, and in some ways having an advanced degree like a PhD is a liability because you're in a small niche, and if there's nothing happening in that niche then you got nothing.

But remember, the question was being in cash vs. being in equities right now.  And the situation was presented that the person in equities suffers a job loss, but the person in cash doesn't and is able to deploy all that cash at attractive prices.  Which, quite frankly, is a pretty silly comparison.  If the comparison is equal, both people would lose their jobs and be forced to burn through assets.  Or both people would keep their jobs, in which case the index investor would be vastly wealthier. 

Now, if you are early in your investing career, it is prudent to maintain a cash cushion.  But as your stache grows, that cash cushion becomes less and less important.  And in fact becomes more and more of a liability because you are giving up market gains for a false sense of security. 
Title: Re: How concerned are you about the Everything Bubble?
Post by: waltworks on May 08, 2019, 08:08:42 PM
And I'd venture to guess that waltworks didn't sell his RE and then sit on the cash. A change in investment mix, not a run for the sidelines.

i'd love to hear where WW moved these liquidated assets to.

In reverse order of magnitude: Solar panels, building a basement apartment, VTSAX, and some deleveraging (paid off mortgage on primary).

That combination of things rendered us FIRE. The rentals did not bring in anything like enough to accomplish that, but their values had skyrocketed beyond all reason so we put the money where it would work harder for us.
 
-W
Title: Re: How concerned are you about the Everything Bubble?
Post by: aspiringnomad on May 08, 2019, 08:14:38 PM
...
Ah yes, the old "I'm buying for the long term" arugment.
Stocks are either cheap or they are expensive. The investment horizon does not change that. An overpriced BMW is still an overpriced BMW regardless if you sell it on after a year or run it into the ground over 20.

The erntswhile Mr Buffett's famously favourite holding period is "forever" and even he is sitting on oodles of cash.

Iím 100% equities so I donít have to spend any time thinking about that.  I used to spend a lot of time agonising over market valuations and timing before I realised that being intelligent and logical doesnít help so I just want to participate in the global economy.

frugaldoc's response is such a wise one that I had to acknowledge it.

I'll also add that Warren Buffett is not playing the same game us FIRE aspirees. Much like sol, Warren is already financially independent. In fact, he has been for 63 years since he was 26 years old. He's playing a completely different game, and to him it truly is a game. He's in the business of buying (hopefully) undervalued companies in a fundamentally different way than retail stock investors, which often necessitates sitting on oodles of cash in preparation for the right opportunity. He likely views it as a necessary evil to do what he does. For most people seeking early retirement, beyond the necessary evil of an emergency fund, cash is just a drag.
Title: Re: How concerned are you about the Everything Bubble?
Post by: aspiringnomad on May 08, 2019, 09:10:57 PM
But if you have cats then you should definitely be very concerned about your Everything Bubble.





(https://media.giphy.com/media/l3q2P2l54336ew5iM/giphy.gif)
Title: Re: How concerned are you about the Everything Bubble?
Post by: ILikeDividends on May 08, 2019, 09:55:16 PM
But if you have cats then you should definitely be very concerned about your Everything Bubble.

I'd be more concerned about how long ago the kitten had to use the kitty litter box, before re-chewing that gum.

;)
Title: Re: How concerned are you about the Everything Bubble?
Post by: CrankAddict on May 08, 2019, 10:10:48 PM
Instead of starting a new, loosely related thread, I figured I'd jump in here and ask...  if market conditions are not to the point of making most of you concerned, are they at least meriting the idea of an AA revision?  My current AA is 85% total market, 15% total bond.  I'm 44 now but in the last 2 years I contributed 3x as much annually to my 401k as the previous 20 annually, and from this year forward it'll be more like 7x.  I'm really trying to make up for lost time, without a ton of time to do so.  Reading Buffet and others predict the next decade likely to be very flat or even negative for "currently over-valued" stocks it has me a bit concerned. 

Any hopes of FIRE'ing require some non-trivial return rate over the next 5-7 years.  What I really need is historically more the realm of stocks, but all of this has me wondering if I need to play it safer and lean more towards bonds.  I know the "stick to the plan" mantra is well-loved around here, but that seems to presume I started with a reasonable plan.  In some sense I'm 45, investing like I'm 25, hoping to retire when I'm 50, none of which probably makes much sense.  So do I switch towards more bonds now, and if so, is that more because of my age than the current market or does the current outlook argue for making that move sooner?  I know that sounds a bit "market timey" but I'll ask it anyway.
Title: Re: How concerned are you about the Everything Bubble?
Post by: sol on May 08, 2019, 11:04:19 PM
Instead of starting a new, loosely related thread, I figured I'd jump in here and ask...  if market conditions are not to the point of making most of you concerned, are they at least meriting the idea of an AA revision?

The whole point of an AA is that you don't revise it.  If current market conditions make you want to buy more bonds, then you chose the wrong AA for your risk tolerance to begin with.

Quote
I know that sounds a bit "market timey"

Yes.  Yes it does.
Title: Re: How concerned are you about the Everything Bubble?
Post by: vand on May 09, 2019, 02:52:26 AM
The thing is, if you invest almost completely incompetently wrt prices/timing, but optimistically (put in money when you have it) you're virtually guaranteed to do well.

If you hoard cash and wait, you have some vanishingly small chance of doing well but a much better chance of doing very, very poorly.

Being cynical and negative is unavoidable for some people. I get that. But it's not a good thing when it comes to investing.

-W

There is a medium to be struck.

I don't believe that you should ever be fully invested, and I also don't believe that you should ever be fully out of the market. I do buy equities every month, but I also hold and build my cash reserve. Cash is an asset and should be considered a part of a sensible asset allocation strategy. As of this month this bull market has just become the longest running bull market in the history. Complacency is rife, and people have long forgotten what a bear market fells like. The next downturn is going to be a painful realisation for people who think that investing is as easy as throwing money at the market, or even worse throwing borrowed money at the market, which is, frankly, the level of analysis that I commonly see.

Laserjet3051's post is an excellent one. The reason everyone's bullish about their own prospects right now is the same reason why stocks are richly priced; employment is high, income is growing, they have spare cash to be buying stocks, and they see things getting better for them in the next few years. Conversely, in a downturn everything works in reverse.  The stock market, economy, and peoples' individual circumstances are not separate things. People tend to sell low because they have little choice.. they become forced sellers. When you have no income, or much reduced income, losing sleep because you're worried about being foreclosed, this creates FEAR. Buying cheap stocks is probably the last thing on your mind.


Title: Re: How concerned are you about the Everything Bubble?
Post by: thd7t on May 09, 2019, 06:45:44 AM
Instead of starting a new, loosely related thread, I figured I'd jump in here and ask...  if market conditions are not to the point of making most of you concerned, are they at least meriting the idea of an AA revision?

The whole point of an AA is that you don't revise it.  If current market conditions make you want to buy more bonds, then you chose the wrong AA for your risk tolerance to begin with.

Quote
I know that sounds a bit "market timey"

Yes.  Yes it does.
I don't like to disagree with Sol, because I generally don't, but I'd like to put a little spin on his comment: The whole point of an AA is that you don't revise it based on market conditions.  I could see revising my AA based on moving to a new Real Estate market and becoming comfortable holding rentals or based on trying to change how my FIRE income was structured (Sol has a thread on this).  None of these involve what the market at large is doing, though.
Title: Re: How concerned are you about the Everything Bubble?
Post by: CrankAddict on May 09, 2019, 07:26:37 AM
Instead of starting a new, loosely related thread, I figured I'd jump in here and ask...  if market conditions are not to the point of making most of you concerned, are they at least meriting the idea of an AA revision?

The whole point of an AA is that you don't revise it.  If current market conditions make you want to buy more bonds, then you chose the wrong AA for your risk tolerance to begin with.

Quote
I know that sounds a bit "market timey"

Yes.  Yes it does.
I don't like to disagree with Sol, because I generally don't, but I'd like to put a little spin on his comment: The whole point of an AA is that you don't revise it based on market conditions.

Yes, that sounds more reasonable.  Everybody revises, or should at least, their AA over time.  I am coming into this question basically asking, am I already too aggressive given my age and early retirement hopes, and as a further nudge towards shifting the AA, does it seem highly unlikely that the next decade of stocks will provide massive growth?  The market already seems bitcoinish to me, but do most of you believe a 50k+ Dow is really where we'll be in a decade? 
Title: Re: How concerned are you about the Everything Bubble?
Post by: FIRE 20/20 on May 09, 2019, 09:16:12 AM
Laserjet3051's post is an excellent one. The reason everyone's bullish about their own prospects right now is the same reason why stocks are richly priced; employment is high, income is growing, they have spare cash to be buying stocks, and they see things getting better for them in the next few years. Conversely, in a downturn everything works in reverse.  The stock market, economy, and peoples' individual circumstances are not separate things. People tend to sell low because they have little choice.. they become forced sellers. When you have no income, or much reduced income, losing sleep because you're worried about being foreclosed, this creates FEAR. Buying cheap stocks is probably the last thing on your mind.

I don't think "everyone's bullish" right now because the good times are rolling, we've forgotten the past, or we think things are "getting better" (financially, I assume you mean).  I fully expect a major market pullback soon - like 30% plus.  However, I expected that in 2018, with CAPE moving well into the 30s.  And 2017 with the threat of nuclear war, Mueller getting started, and one of the longest bull markets on record.  And 2016 with Trump being elected, the Brexit vote, etc.  And 2015...
However, because I stuck to my IPS and just kept buying, I am now at a point where even if the markets drop 50% I'll still never need to work again.  Ok, if they drop 70% I'll be properly freaked out.  But 50%?  meh. 

The point is, I've learned I'm spectacularly bad at predicting what the markets are going to do and if I'd listened to my fears I wouldn't be FIREd right now because I'd still be waiting to buy the dip.  It's absolutely true that someone is going to come to these boards with excellent reasons why we should all get out now and start hoarding cash, and everything is going to crash right after they say that.  That's a 100% guarantee.  Just like it's a guarantee that someone's going to pick the Powerball numbers in an upcoming drawing.  In both cases we KNOW that's coming, we just have no idea which of the doomsday prophets will be correct or when it will happen. 

So yes, when the next crash comes I might have to sell some of my VTSAX when it's down - way down.  But because I didn't freak out when I started investing in the early 2000s when the tech bubble burst and I didn't change anything when my investments plummeted in 2008-2009, I'm now in a position where I DGAF what the markets do next.  I know I can't predict it.  But I also know I have enough that even if there's a major crash I can still live on the savings I built up ignoring all the people who said there was a bubble - even when they were right. 
Title: Re: How concerned are you about the Everything Bubble?
Post by: vand on May 09, 2019, 09:29:03 AM
Instead of starting a new, loosely related thread, I figured I'd jump in here and ask...  if market conditions are not to the point of making most of you concerned, are they at least meriting the idea of an AA revision?  My current AA is 85% total market, 15% total bond.  I'm 44 now but in the last 2 years I contributed 3x as much annually to my 401k as the previous 20 annually, and from this year forward it'll be more like 7x.  I'm really trying to make up for lost time, without a ton of time to do so.  Reading Buffet and others predict the next decade likely to be very flat or even negative for "currently over-valued" stocks it has me a bit concerned. 

Any hopes of FIRE'ing require some non-trivial return rate over the next 5-7 years.  What I really need is historically more the realm of stocks, but all of this has me wondering if I need to play it safer and lean more towards bonds.  I know the "stick to the plan" mantra is well-loved around here, but that seems to presume I started with a reasonable plan.  In some sense I'm 45, investing like I'm 25, hoping to retire when I'm 50, none of which probably makes much sense.  So do I switch towards more bonds now, and if so, is that more because of my age than the current market or does the current outlook argue for making that move sooner?  I know that sounds a bit "market timey" but I'll ask it anyway.

Only you can really know if your AA is too aggressive, because it ties in with your own appetite for risk. How would you feel if your portfolio was down 40-60% in the next few years? Granted, this is very much towards the "worst case scenario" but this sort of decline is not out of line of historical bear markets. Would you lose sleep, or would you sleep like a baby knowing that you are now presented with an opportunity to buy more stocks while they are on sale?

What you should also realise is that the sooner you are aiming to FIRE, the less of a factor your return on investment becomes, and the more important your own contributions (ie savings rate) becomes. With a 5-7 year span, you should not expect the market to deliver more than maybe a 20-30% return on your investment, so all your pot needs to be built up from your own contributions. Don't take this personally, but the market doesn't really care about your goals and dream (or mine, or anyone else's). It will let you come along for the ride, but don't be too upset if it doesn't work to your schedule or live up to your expectations.
Title: Re: How concerned are you about the Everything Bubble?
Post by: BicycleB on May 09, 2019, 10:00:25 AM
Btw I donít agree with the broad statement that ďeverythingĒ is over-inflated. For sure, I think western Bond, Equity and real estate markets are, but there are always some sectors that are beaten down and cheap.. you just have to cast your net wide enough and look beyond the mainstream markets. Today, those depressed  markets are commodities and emerging markets, which have both been heavily battered due to a strong USD, but may have bottomed.

Arenít many stocks on the SP500 currently still beaten down to bear market levels?

Not that it matters, everything looks cheapish to me.

Do you consider it cheap because its down from recent highs? Or do you consider them cheap based on fundamental factors?

25% off a recent high is nothing in the world of stocks.

Cyclical stocks can easily lose 80-90% through a downturn.. and then gain it back again.

Yes, its true that many stocks are down from recent highs, and the indexes do not paint a full picture. the broader RUT index is nowhere near to recapturing the old highs, and other developed markets are not close to their ATHs. This suggests that the rally is pretty narrow and underpinned by a few big stocks.


@vand, I found both of your quotes above to be usefully thought provoking. They seem very relevant to the topic of an Everything Bubble!

Question: How do you think an investor should distinguish between "a few big stocks have an overly high value" vs "a few big stocks are correctly valued at a high price because they have established a valuable position in the economy"?
Title: Re: How concerned are you about the Everything Bubble?
Post by: ysette9 on May 09, 2019, 10:02:11 AM
Personally our AA is not something set in stone but we have a plan for adjusting it based on our personal financial situation. Specifically, we are planning to implement the bond tent strategy to hedge against sequence of returns risk in early retirement, as well as the short runway we have now leading up to FI. So, we are increasing our bonds now, and will then slowly increase equities after we pull the plug on retirement.

This is a moving AA but it isnít market timing because nowhere does market conditions factor into the plan.

So to the question above, it may be reasonable to adjust your AA based on how old you are and how many years left you have to save. But donít let that be a slippery slope to wanting to predict the next stock crash or whatnot.
Title: Re: How concerned are you about the Everything Bubble?
Post by: appleshampooid on May 09, 2019, 01:25:45 PM
Personally our AA is not something set in stone but we have a plan for adjusting it based on our personal financial situation. Specifically, we are planning to implement the bond tent strategy to hedge against sequence of returns risk in early retirement, as well as the short runway we have now leading up to FI. So, we are increasing our bonds now, and will then slowly increase equities after we pull the plug on retirement.

This is a moving AA but it isnít market timing because nowhere does market conditions factor into the plan.

So to the question above, it may be reasonable to adjust your AA based on how old you are and how many years left you have to save. But donít let that be a slippery slope to wanting to predict the next stock crash or whatnot.
Same. Went from 10% bonds to 11% this year. Next year will tick it another percent. Aiming for 20% bonds at retirement, which should be about 9 years out. If things change, we can adjust the tent/ramp.
Title: Re: How concerned are you about the Everything Bubble?
Post by: habanero on May 09, 2019, 01:37:24 PM
With a 5-7 year span, you should not expect the market to deliver more than maybe a 20-30% return on your investment, so all your pot needs to be built up from your own contributions. Don't take this personally, but the market doesn't really care about your goals and dream (or mine, or anyone else's). It will let you come along for the ride, but don't be too upset if it doesn't work to your schedule or live up to your expectations.

This is an important point. Especially for an all-equities portfolio, returns over 5-7 years might be very low or even negative. Its not very likely but it's definately with possible scenarios if history is any guide. They can of course also be very high, but the range of possible outcomes is very wide. Historically the range of annual real returns with dividends reinvested for the S&P 500 for 7 years is in the range -7.5% to + 25.3%. For 5 years its -13% to +33.3%.
Title: Re: How concerned are you about the Everything Bubble?
Post by: thd7t on May 09, 2019, 02:14:32 PM
With a 5-7 year span, you should not expect the market to deliver more than maybe a 20-30% return on your investment, so all your pot needs to be built up from your own contributions. Don't take this personally, but the market doesn't really care about your goals and dream (or mine, or anyone else's). It will let you come along for the ride, but don't be too upset if it doesn't work to your schedule or live up to your expectations.

This is an important point. Especially for an all-equities portfolio, returns over 5-7 years might be very low or even negative. Its not very likely but it's definately with possible scenarios if history is any guide. They can of course also be very high, but the range of possible outcomes is very wide. Historically the range of annual real returns with dividends reinvested for the S&P 500 for 7 years is in the range -7.5% to + 25.3%. For 5 years its -13% to +33.3%.
Could you clarify what you mean by "historically the range"?  I'm probably misunderstanding this, because you can definitely find periods of greater growth than you're showing (like the last seven years) and I suspect losses as well (although with more finagling). 

I also tend to disagree with vand's point, because by the time you are approaching FI, your contributions are probably pretty small compared to market movements (in either direction) and have been for some time.  They help, but aren't the main driver.
Title: Re: How concerned are you about the Everything Bubble?
Post by: ysette9 on May 09, 2019, 02:30:12 PM
Personally our AA is not something set in stone but we have a plan for adjusting it based on our personal financial situation. Specifically, we are planning to implement the bond tent strategy to hedge against sequence of returns risk in early retirement, as well as the short runway we have now leading up to FI. So, we are increasing our bonds now, and will then slowly increase equities after we pull the plug on retirement.

This is a moving AA but it isnít market timing because nowhere does market conditions factor into the plan.

So to the question above, it may be reasonable to adjust your AA based on how old you are and how many years left you have to save. But donít let that be a slippery slope to wanting to predict the next stock crash or whatnot.
Same. Went from 10% bonds to 11% this year. Next year will tick it another percent. Aiming for 20% bonds at retirement, which should be about 9 years out. If things change, we can adjust the tent/ramp.
That slope seems so gentle compared to ours! We are at 25% bonds, goal is 40% at FI. Weíll probably reach FI in 6-24 months
Title: Re: How concerned are you about the Everything Bubble?
Post by: habanero on May 09, 2019, 02:38:31 PM

Could you clarify what you mean by "historically the range"?  I'm probably misunderstanding this, because you can definitely find periods of greater growth than you're showing (like the last seven years) and I suspect losses as well (although with more finagling). 

I also tend to disagree with vand's point, because by the time you are approaching FI, your contributions are probably pretty small compared to market movements (in either direction) and have been for some time.  They help, but aren't the main driver.

The returns I gave were annualized real returns, not returns over X years in total.
Title: Re: How concerned are you about the Everything Bubble?
Post by: thd7t on May 09, 2019, 02:57:18 PM

Could you clarify what you mean by "historically the range"?  I'm probably misunderstanding this, because you can definitely find periods of greater growth than you're showing (like the last seven years) and I suspect losses as well (although with more finagling). 

I also tend to disagree with vand's point, because by the time you are approaching FI, your contributions are probably pretty small compared to market movements (in either direction) and have been for some time.  They help, but aren't the main driver.

The returns I gave were annualized real returns, not returns over X years in total.
Thanks!  I missed the word "annually" and figured I had to have something wrong.
Title: Re: How concerned are you about the Everything Bubble?
Post by: Classical_Liberal on May 09, 2019, 03:50:28 PM
I also tend to disagree with vand's point, because by the time you are approaching FI, your contributions are probably pretty small compared to market movements (in either direction) and have been for some time.  They help, but aren't the main driver.

This is exactly why some portfolio value stability is MORE critical to early RE period than to any other period.  Just to clarify its more critical IF someone is choosing a fixed, inflation adjusted withdrawal (ie 4%rule).  It matters much less if someone has very flexible WR's.  Hence all the discussions around here lately regarding bond tents.
Title: Re: How concerned are you about the Everything Bubble?
Post by: ChpBstrd on May 09, 2019, 04:12:24 PM
I think an 80% equity portfolio is a lot more aggressive and risky at a time when the market P/E is over 20 than the same allocation when the market P/E is 12. Equities are also a lot more risky when unemployment is under 4% than during the middle of a brutal recession.

Similarly, long-term bonds are more risky when the yield is less than 3% than they are when the yield is 6-10%. Remember, a blip of just a couple interest rate points would demolish long term bond prices worse than a bear market would do for equities.

Rental real estate investments that break even and depend upon rapid appreciation as a justification are more aggressive and risky than high-cash flow, high-ROE properties.

If these statements are self-evident, why hold an aggressive AA of such investments unhedged?
Title: Re: How concerned are you about the Everything Bubble?
Post by: PDXTabs on May 09, 2019, 04:23:08 PM
This is exactly why some portfolio value stability is MORE critical to early RE period than to any other period.  Just to clarify its more critical IF someone is choosing a fixed, inflation adjusted withdrawal (ie 4%rule).  It matters much less if someone has very flexible WR's.

Yup. I'm very willing to sit on a farm in Vietnam or Nepal for a couple years if I really need to.* Of course, I'm also willing to keep working.

* - Which is not to say that there is anything wrong with Vietnamese and Nepalese farms, just that the cost of living in rural Vietnam and Nepal is much lower than the west coast of the US.
Title: Re: How concerned are you about the Everything Bubble?
Post by: frugledoc on May 09, 2019, 04:23:26 PM
I think an 80% equity portfolio is a lot more aggressive and risky at a time when the market P/E is over 20 than the same allocation when the market P/E is 12. Equities are also a lot more risky when unemployment is under 4% than during the middle of a brutal recession.

Similarly, long-term bonds are more risky when the yield is less than 3% than they are when the yield is 6-10%. Remember, a blip of just a couple interest rate points would demolish long term bond prices worse than a bear market would do for equities.

Rental real estate investments that break even and depend upon rapid appreciation as a justification are more aggressive and risky than high-cash flow, high-ROE properties.

If these statements are self-evident, why hold an aggressive AA of such investments unhedged?

These statements are your personal opinion but they are by no means self evident or factual.

Stop thinking so much. Choose an asset allocation that lets you sleep at night and then throw everything you have at it.

I donít fear a big crash, but donít wish for it because of the harm it would cause to many.  Iím a doctor so a bad recession wouldnít affect me too badly and I would continue with my plan.
Title: Re: How concerned are you about the Everything Bubble?
Post by: FIREstache on May 09, 2019, 04:26:18 PM
Personally our AA is not something set in stone but we have a plan for adjusting it based on our personal financial situation. Specifically, we are planning to implement the bond tent strategy to hedge against sequence of returns risk in early retirement, as well as the short runway we have now leading up to FI. So, we are increasing our bonds now, and will then slowly increase equities after we pull the plug on retirement.

This is a moving AA but it isnít market timing because nowhere does market conditions factor into the plan.

So to the question above, it may be reasonable to adjust your AA based on how old you are and how many years left you have to save. But donít let that be a slippery slope to wanting to predict the next stock crash or whatnot.

Thank you.  Same thing here - I've already made multiple changes to my  AA in the last year leading to my retirement and plan to ride up using a rising equity glide path after my FIRE date.  The last big change was last Friday when my investments were at a record high.
Title: Re: How concerned are you about the Everything Bubble?
Post by: PDXTabs on May 09, 2019, 04:31:19 PM
I think an 80% equity portfolio is a lot more aggressive and risky at a time when the market P/E is over 20 than the same allocation when the market P/E is 12.

These statements are your personal opinion but they are by no means self evident or factual.

There is certainly some evidence for very high CAPE ratios. Check out table 2 (https://www.brandes.com/docs/default-source/brandes-institute/2018/the-cape-ratio-and-future-returns-a-note-on-market-timing.pdf). But it's not like we have an N of 30 or anything, I'm still a buy more with every paycheck kind of guy.
Title: Re: How concerned are you about the Everything Bubble?
Post by: sol on May 09, 2019, 04:32:34 PM
I think an 80% equity portfolio is a lot more aggressive and risky at a time when the market P/E is over 20 than the same allocation when the market P/E is 12.

Twelve?  That's funny.  You mean like back in 1982?  Entire investing careers have come and gone while someone waiting for a P/E of 12 would have been sitting on the sidelines.  I'm already FIREd and I was literally in kindergarten the last time the P/E was 12.
Title: Re: How concerned are you about the Everything Bubble?
Post by: Telecaster on May 09, 2019, 04:35:21 PM
I think an 80% equity portfolio is a lot more aggressive and risky at a time when the market P/E is over 20 than the same allocation when the market P/E is 12. Equities are also a lot more risky when unemployment is under 4% than during the middle of a brutal recession.

I have a quibble with how you are using the term "risky."  What is your holding period?   Most people here have investing horizons of 30, 40, years or more.  There have been very few ten year periods where stock returns have been negative.  There have been no 15 years periods with negative returns.  CrankAddict is just starting investing.   His investment horizon is likely more than 15 years.   Aside from an asteroid or zombie apocalypse,  What is the risk?    Bonds, by the way, commonly lose to inflation.  So it is not like you are getting off risk free there either. 
Title: Re: How concerned are you about the Everything Bubble?
Post by: ChpBstrd on May 09, 2019, 08:29:45 PM
I think an 80% equity portfolio is a lot more aggressive and risky at a time when the market P/E is over 20 than the same allocation when the market P/E is 12.

Twelve?  That's funny.  You mean like back in 1982?  Entire investing careers have come and gone while someone waiting for a P/E of 12 would have been sitting on the sidelines.  I'm already FIREd and I was literally in kindergarten the last time the P/E was 12.

That would have been a low-risk time to go all-in stocks. 1999 was a risker time. Disagree?
Title: Re: How concerned are you about the Everything Bubble?
Post by: Telecaster on May 09, 2019, 11:23:38 PM
I think an 80% equity portfolio is a lot more aggressive and risky at a time when the market P/E is over 20 than the same allocation when the market P/E is 12.

Twelve?  That's funny.  You mean like back in 1982?  Entire investing careers have come and gone while someone waiting for a P/E of 12 would have been sitting on the sidelines.  I'm already FIREd and I was literally in kindergarten the last time the P/E was 12.

That would have been a low-risk time to go all-in stocks. 1999 was a risker time. Disagree?

Define risky.  Since 1999 stocks have returned 218%

If a "risky" time means more than doubling your money...it doesn't sound all that risky. 
Title: Re: How concerned are you about the Everything Bubble?
Post by: Classical_Liberal on May 10, 2019, 01:22:10 AM
Define risky.  Since 1999 stocks have returned 218%

If a "risky" time means more than doubling your money...it doesn't sound all that risky. 
Well, following the 4% rule with 100% Total US in 1999 and you'd be over half depleted in real terms only 20 years in.  Someone who bond tented at 60/40 is looking a whole lot better.  So "risk" is more than total returns, 218% doesn't mean jack to that person.   

Advocating a very high equity allocation, no matter goals, no matter valuations, is a poor policy.  It works great for someone who retires at 30 with income from real estate rentals and side gigs that cover expenses (why this person even needs 25X in backup is a better question).  It also works great for a 25 year old who DCA's 50% of their income and doesn't plan to FIRE for more than a decade.  It probably isn't the best idea for someone with CAPE>30 who's planning to FIRE soon with no additional income sources.  But to each their own.
Title: Re: How concerned are you about the Everything Bubble?
Post by: vand on May 10, 2019, 03:07:31 AM
Question: How do you think an investor should distinguish between "a few big stocks have an overly high value" vs "a few big stocks are correctly valued at a high price because they have established a valuable position in the economy"?

It just depends on your investment philosophy; do you believe in paying top dollar today for the expectation of high future earnings (growth investing), or are you looking for something that has been around for a while and proven, has good solid cashflows, and selling at a reasonable price and will provide a known, steady expected return (value investing)?

Right now the market is willing to pay high premium for the promise of growth, but market history has shown that this is often a mistake and such lofty future expectations are unlikely to be met.  The problems with growth investing are that

1. tomorrow's growth and higher earnings are far from guaranteed. This is simply the free market at work; excess profit provides an economic signal for other companies to move into that space and compete for those customers. They bring new idea and new ways of doing things that usurp the original, so it becomes difficult for today's leading companies to always remain ahead of competition. History has shown this to be the case; look at any number of companies from GE, IBM, Microsoft, Ericsson, Intel that mature and then eventually fall behind the next new innovator. Apple & Amazon are world leaders today, they probably won't be 20 years from now.

Therefore, if you bet on growth stocks, you are betting against the long term economic forces of & profit signalling, supply & demand that are constantly churning away

Not only do profits tend to be normalized within industries, but also between industries. If one industry is loss making, firms will cease to operate in that industry and move to one where there are excess profits. These isalso self evident just looking at an individual level; you bring your particular set of skills to the market and there are market forces at work that mean you will get paid roughly similar if you work for a oil producer, software developer, or fashion retailer (ok, maybe not great examples, but my point is that it's your skills that primarily determine your wages, not the industry you work in).


2. Investors tend to get much more excited about growth and therefore overpay more than they do for steady value, and of course this is reflected in the price premium built into the share price of these stocks. If and when those target start getting missed (they always do, eventually, see point above) the revision of expectations can be savage, much more so than just a boring value stock missing earnings, which of course also happens

Title: Re: How concerned are you about the Everything Bubble?
Post by: vand on May 10, 2019, 03:31:58 AM
Also see https://seekingalpha.com/article/3987114-predicting-stock-market-returns-using-shiller-cape-pb

Note figure 7; current earnings growth provides absolutely no clairvoyance wrt to long term future price performance. Buying when profits are rising provides little better guidance than buying when profits are falling

(https://static.seekingalpha.com/uploads/2016/7/7/47560766-14678850441129029.jpg)

Compare this to price/book valuation, which have much stronger correlation,

(https://static.seekingalpha.com/uploads/2016/7/7/47560766-1467884952322071.jpg)

so by buying when cheap you are putting yourself in a position with a statistically better chance of realising higher future returns, and of course conversely the opposite is true, buying expensive you are statistically putting yourself in a position with a higher chance of lower future returns




Question: How do you think an investor should distinguish between "a few big stocks have an overly high value" vs "a few big stocks are correctly valued at a high price because they have established a valuable position in the economy"?

It just depends on your investment philosophy; do you believe in paying top dollar today for the expectation of high future earnings (growth investing), or are you looking for something that has been around for a while and proven, has good solid cashflows, and selling at a reasonable price and will provide a known, steady expected return (value investing)?

Right now the market is willing to pay high premium for the promise of growth, but market history has shown that this is often a mistake and such lofty future expectations are unlikely to be met.  The problems with growth investing are that

1. tomorrow's growth and higher earnings are far from guaranteed. This is simply the free market at work; excess profit provides an economic signal for other companies to move into that space and compete for those customers. They bring new idea and new ways of doing things that usurp the original, so it becomes difficult for today's leading companies to always remain ahead of competition. History has shown this to be the case; look at any number of companies from GE, IBM, Microsoft, Ericsson, Intel that mature and then eventually fall behind the next new innovator. Apple & Amazon are world leaders today, they probably won't be 20 years from now.

Therefore, if you bet on growth stocks, you are betting against the long term economic forces of & profit signalling, supply & demand that are constantly churning away

Not only do profits tend to be normalized within industries, but also between industries. If one industry is loss making, firms will cease to operate in that industry and move to one where there are excess profits. These isalso self evident just looking at an individual level; you bring your particular set of skills to the market and there are market forces at work that mean you will get paid roughly similar if you work for a oil producer, software developer, or fashion retailer (ok, maybe not great examples, but my point is that it's your skills that primarily determine your wages, not the industry you work in).


2. Investors tend to get much more excited about growth and therefore overpay more than they do for steady value, and of course this is reflected in the price premium built into the share price of these stocks. If and when those target start getting missed (they always do, eventually, see point above) the revision of expectations can be savage, much more so than just a boring value stock missing earnings, which of course also happens
Title: Re: How concerned are you about the Everything Bubble?
Post by: vand on May 10, 2019, 04:05:51 AM

Laserjet3051's post is an excellent one. The reason everyone's bullish about their own prospects right now is the same reason why stocks are richly priced; employment is high, income is growing, they have spare cash to be buying stocks, and they see things getting better for them in the next few years. Conversely, in a downturn everything works in reverse.  The stock market, economy, and peoples' individual circumstances are not separate things. People tend to sell low because they have little choice.. they become forced sellers. When you have no income, or much reduced income, losing sleep because you're worried about being foreclosed, this creates FEAR. Buying cheap stocks is probably the last thing on your mind.

I don't think "everyone's bullish" right now because the good times are rolling, we've forgotten the past, or we think things are "getting better" (financially, I assume you mean).  I fully expect a major market pullback soon - like 30% plus.  However, I expected that in 2018, with CAPE moving well into the 30s.  And 2017 with the threat of nuclear war, Mueller getting started, and one of the longest bull markets on record.  And 2016 with Trump being elected, the Brexit vote, etc.  And 2015...
However, because I stuck to my IPS and just kept buying, I am now at a point where even if the markets drop 50% I'll still never need to work again.  Ok, if they drop 70% I'll be properly freaked out.  But 50%?  meh. 

The point is, I've learned I'm spectacularly bad at predicting what the markets are going to do and if I'd listened to my fears I wouldn't be FIREd right now because I'd still be waiting to buy the dip.  It's absolutely true that someone is going to come to these boards with excellent reasons why we should all get out now and start hoarding cash, and everything is going to crash right after they say that.  That's a 100% guarantee.  Just like it's a guarantee that someone's going to pick the Powerball numbers in an upcoming drawing.  In both cases we KNOW that's coming, we just have no idea which of the doomsday prophets will be correct or when it will happen. 

So yes, when the next crash comes I might have to sell some of my VTSAX when it's down - way down.  But because I didn't freak out when I started investing in the early 2000s when the tech bubble burst and I didn't change anything when my investments plummeted in 2008-2009, I'm now in a position where I DGAF what the markets do next.  I know I can't predict it.  But I also know I have enough that even if there's a major crash I can still live on the savings I built up ignoring all the people who said there was a bubble - even when they were right.

It's easy for those people who have had the fortune and patience to have ridden a 10 year bull market to suggest to others do the same thing, but it's not 2009 any more, or even 2014 or 2017.

Just to be clear, I am NOT against cost averaging over a long period; I do largely agree that monthly buying the market should be a part of of most people's strategy and do so myself, but only a part; asset allocation is also hugely important.  If you are fine with mediocre (possibly negative real) returns then I don't have a problem with you being fully 100% invested in the market, but if not and you want your money to work harder than 2% then you should probably exercise some caution and have some cash on the side - it makes sense if the spread between the risk-free rate of return vs the expected market return is as low as it is right now.

Title: Re: How concerned are you about the Everything Bubble?
Post by: frugledoc on May 10, 2019, 04:19:13 AM

Laserjet3051's post is an excellent one. The reason everyone's bullish about their own prospects right now is the same reason why stocks are richly priced; employment is high, income is growing, they have spare cash to be buying stocks, and they see things getting better for them in the next few years. Conversely, in a downturn everything works in reverse.  The stock market, economy, and peoples' individual circumstances are not separate things. People tend to sell low because they have little choice.. they become forced sellers. When you have no income, or much reduced income, losing sleep because you're worried about being foreclosed, this creates FEAR. Buying cheap stocks is probably the last thing on your mind.

I don't think "everyone's bullish" right now because the good times are rolling, we've forgotten the past, or we think things are "getting better" (financially, I assume you mean).  I fully expect a major market pullback soon - like 30% plus.  However, I expected that in 2018, with CAPE moving well into the 30s.  And 2017 with the threat of nuclear war, Mueller getting started, and one of the longest bull markets on record.  And 2016 with Trump being elected, the Brexit vote, etc.  And 2015...
However, because I stuck to my IPS and just kept buying, I am now at a point where even if the markets drop 50% I'll still never need to work again.  Ok, if they drop 70% I'll be properly freaked out.  But 50%?  meh. 

The point is, I've learned I'm spectacularly bad at predicting what the markets are going to do and if I'd listened to my fears I wouldn't be FIREd right now because I'd still be waiting to buy the dip.  It's absolutely true that someone is going to come to these boards with excellent reasons why we should all get out now and start hoarding cash, and everything is going to crash right after they say that.  That's a 100% guarantee.  Just like it's a guarantee that someone's going to pick the Powerball numbers in an upcoming drawing.  In both cases we KNOW that's coming, we just have no idea which of the doomsday prophets will be correct or when it will happen. 

So yes, when the next crash comes I might have to sell some of my VTSAX when it's down - way down.  But because I didn't freak out when I started investing in the early 2000s when the tech bubble burst and I didn't change anything when my investments plummeted in 2008-2009, I'm now in a position where I DGAF what the markets do next.  I know I can't predict it.  But I also know I have enough that even if there's a major crash I can still live on the savings I built up ignoring all the people who said there was a bubble - even when they were right.

It's easy for those people who have had the fortune and patience to have ridden a 10 year bull market to suggest to others do the same thing, but it's not 2009 any more, or even 2014 or 2017.

Just to be clear, I am NOT against cost averaging over a long period; I do largely agree that monthly buying the market should be a part of of most people's strategy and do so myself, but only a part; asset allocation is also hugely important.  If you are fine with mediocre (possibly negative real) returns then I don't have a problem with you being fully 100% invested in the market, but if not and you want your money to work harder than 2% then you should probably exercise some caution and have some cash on the side - it makes sense if the spread between the risk-free rate of return vs the expected market return is as low as it is right now.

Vand, Iím ok with 2% or negative returns compared to trying to time the market .  Just keep on accumulating for the next boom.   Long term markets are the opposite of gravity. What goes down must go up (in the long term).  Iím 100% confident I will outperform > 95% of market timers/swing traders over 10 years plus.  I definitely have no interest in trying to be in the 5% who are lucky/ďskilledĒ to outperform.

Title: Re: How concerned are you about the Everything Bubble?
Post by: vand on May 10, 2019, 05:05:40 AM

Laserjet3051's post is an excellent one. The reason everyone's bullish about their own prospects right now is the same reason why stocks are richly priced; employment is high, income is growing, they have spare cash to be buying stocks, and they see things getting better for them in the next few years. Conversely, in a downturn everything works in reverse.  The stock market, economy, and peoples' individual circumstances are not separate things. People tend to sell low because they have little choice.. they become forced sellers. When you have no income, or much reduced income, losing sleep because you're worried about being foreclosed, this creates FEAR. Buying cheap stocks is probably the last thing on your mind.

I don't think "everyone's bullish" right now because the good times are rolling, we've forgotten the past, or we think things are "getting better" (financially, I assume you mean).  I fully expect a major market pullback soon - like 30% plus.  However, I expected that in 2018, with CAPE moving well into the 30s.  And 2017 with the threat of nuclear war, Mueller getting started, and one of the longest bull markets on record.  And 2016 with Trump being elected, the Brexit vote, etc.  And 2015...
However, because I stuck to my IPS and just kept buying, I am now at a point where even if the markets drop 50% I'll still never need to work again.  Ok, if they drop 70% I'll be properly freaked out.  But 50%?  meh. 

The point is, I've learned I'm spectacularly bad at predicting what the markets are going to do and if I'd listened to my fears I wouldn't be FIREd right now because I'd still be waiting to buy the dip.  It's absolutely true that someone is going to come to these boards with excellent reasons why we should all get out now and start hoarding cash, and everything is going to crash right after they say that.  That's a 100% guarantee.  Just like it's a guarantee that someone's going to pick the Powerball numbers in an upcoming drawing.  In both cases we KNOW that's coming, we just have no idea which of the doomsday prophets will be correct or when it will happen. 

So yes, when the next crash comes I might have to sell some of my VTSAX when it's down - way down.  But because I didn't freak out when I started investing in the early 2000s when the tech bubble burst and I didn't change anything when my investments plummeted in 2008-2009, I'm now in a position where I DGAF what the markets do next.  I know I can't predict it.  But I also know I have enough that even if there's a major crash I can still live on the savings I built up ignoring all the people who said there was a bubble - even when they were right.

It's easy for those people who have had the fortune and patience to have ridden a 10 year bull market to suggest to others do the same thing, but it's not 2009 any more, or even 2014 or 2017.

Just to be clear, I am NOT against cost averaging over a long period; I do largely agree that monthly buying the market should be a part of of most people's strategy and do so myself, but only a part; asset allocation is also hugely important.  If you are fine with mediocre (possibly negative real) returns then I don't have a problem with you being fully 100% invested in the market, but if not and you want your money to work harder than 2% then you should probably exercise some caution and have some cash on the side - it makes sense if the spread between the risk-free rate of return vs the expected market return is as low as it is right now.

Vand, Iím ok with 2% or negative returns compared to trying to time the market .  Just keep on accumulating for the next boom.   Long term markets are the opposite of gravity. What goes down must go up (in the long term).  Iím 100% confident I will outperform > 95% of market timers/swing traders over 10 years plus.  I definitely have no interest in trying to be in the 5% who are lucky/ďskilledĒ to outperform.

you don't really understand what I'm saying, do you? My point is that Asset Allocation matters. Hugely. The investing universe does not start and end with VSTAX. As I have alluded to, there are other markets out there right now that are depressed and therefore offer the chance of a higher expected future return. Maybe you should go and read up about them so they form a part of circle of competence rather than thinking the best and only way is all-in, all-of-the-time, and anyone who disagrees is a clueless "market timer".
Title: Re: How concerned are you about the Everything Bubble?
Post by: thd7t on May 10, 2019, 06:40:58 AM

Laserjet3051's post is an excellent one. The reason everyone's bullish about their own prospects right now is the same reason why stocks are richly priced; employment is high, income is growing, they have spare cash to be buying stocks, and they see things getting better for them in the next few years. Conversely, in a downturn everything works in reverse.  The stock market, economy, and peoples' individual circumstances are not separate things. People tend to sell low because they have little choice.. they become forced sellers. When you have no income, or much reduced income, losing sleep because you're worried about being foreclosed, this creates FEAR. Buying cheap stocks is probably the last thing on your mind.

I don't think "everyone's bullish" right now because the good times are rolling, we've forgotten the past, or we think things are "getting better" (financially, I assume you mean).  I fully expect a major market pullback soon - like 30% plus.  However, I expected that in 2018, with CAPE moving well into the 30s.  And 2017 with the threat of nuclear war, Mueller getting started, and one of the longest bull markets on record.  And 2016 with Trump being elected, the Brexit vote, etc.  And 2015...
However, because I stuck to my IPS and just kept buying, I am now at a point where even if the markets drop 50% I'll still never need to work again.  Ok, if they drop 70% I'll be properly freaked out.  But 50%?  meh. 

The point is, I've learned I'm spectacularly bad at predicting what the markets are going to do and if I'd listened to my fears I wouldn't be FIREd right now because I'd still be waiting to buy the dip.  It's absolutely true that someone is going to come to these boards with excellent reasons why we should all get out now and start hoarding cash, and everything is going to crash right after they say that.  That's a 100% guarantee.  Just like it's a guarantee that someone's going to pick the Powerball numbers in an upcoming drawing.  In both cases we KNOW that's coming, we just have no idea which of the doomsday prophets will be correct or when it will happen. 

So yes, when the next crash comes I might have to sell some of my VTSAX when it's down - way down.  But because I didn't freak out when I started investing in the early 2000s when the tech bubble burst and I didn't change anything when my investments plummeted in 2008-2009, I'm now in a position where I DGAF what the markets do next.  I know I can't predict it.  But I also know I have enough that even if there's a major crash I can still live on the savings I built up ignoring all the people who said there was a bubble - even when they were right.

It's easy for those people who have had the fortune and patience to have ridden a 10 year bull market to suggest to others do the same thing, but it's not 2009 any more, or even 2014 or 2017.

Just to be clear, I am NOT against cost averaging over a long period; I do largely agree that monthly buying the market should be a part of of most people's strategy and do so myself, but only a part; asset allocation is also hugely important.  If you are fine with mediocre (possibly negative real) returns then I don't have a problem with you being fully 100% invested in the market, but if not and you want your money to work harder than 2% then you should probably exercise some caution and have some cash on the side - it makes sense if the spread between the risk-free rate of return vs the expected market return is as low as it is right now.

Vand, Iím ok with 2% or negative returns compared to trying to time the market .  Just keep on accumulating for the next boom.   Long term markets are the opposite of gravity. What goes down must go up (in the long term).  Iím 100% confident I will outperform > 95% of market timers/swing traders over 10 years plus.  I definitely have no interest in trying to be in the 5% who are lucky/ďskilledĒ to outperform.

you don't really understand what I'm saying, do you? My point is that Asset Allocation matters. Hugely. The investing universe does not start and end with VSTAX. As I have alluded to, there are other markets out there right now that are depressed and therefore offer the chance of a higher expected future return. Maybe you should go and read up about them so they form a part of circle of competence rather than thinking the best and only way is all-in, all-of-the-time, and anyone who disagrees is a clueless "market timer".
Vand, I definitely agree that asset allocation matters hugely, but I think that where we diverge is that I don't think that asset allocation should be a function of what I think the market will do.  It's why I disagree with the "Everything Bubble" element of this discussion.
Title: Re: How concerned are you about the Everything Bubble?
Post by: habanero on May 10, 2019, 06:55:52 AM
If you at the height of the .com boom in year 2000 started saving a fixed sum pr. month in an SPX total return fund, contribution  increasing by 2.5% per year to assume nominal saving rising with inflation. Assuming short-term money market investments paid 1 month US treasury bill rates and interest was reinvested every month. The equities-position would "permanently" be outperforming from early 2011 onwards. Today your net worth would be ~2.5 times as high as the most defensive investment possible. 

This is ignoring tax effects etc which generally favor equities, and fees - but the point is basically only that it can take a very long time to recover after heights (this period includes 2 major bear markets). But even up to before the 2008-2009 crisies, equities were not that much ahead (roughly 20% total over 8 years). So timing does matter. A lot. But it's hard to time. And now interest rates are much lower than at the start of the century as well.

If you get a 50% drop in equities, its basically back to break-even vs 1m government returns over 20 years. Then rinse and repeat - maybe.
Title: Re: How concerned are you about the Everything Bubble?
Post by: Valvore on May 10, 2019, 10:28:26 AM
Really quick back on topic comment:

The only reason an "everything bubble" would scare you is if you think you could lose your job and not have enough money to float you until you find another one. Similarly if you're FIRE and don't follow the 4% SWR. (From what I've read over time I believe if you hit half of your initial FIRE number, you're in trouble and will need to adjust your WR or add to Stache)

The market doesn't matter. What matters is how I'm funding my expenses and is that funding sustainable (ie. from a job or from my stache). At least that's what I tell myself now that I'm down 2% in the last two days haha, still makes me grumble but I don't change what I'm doing. (Plus its pay day so I have another $1K getting invested today at discount!)
Title: Re: How concerned are you about the Everything Bubble?
Post by: BicycleB on May 10, 2019, 10:49:30 AM
Really quick back on topic comment:

The only reason an "everything bubble" would scare you is if you think you could lose your job and not have enough money to float you until you find another one. Similarly if you're FIRE and don't follow the 4% SWR. (From what I've read over time I believe if you hit half of your initial FIRE number, you're in trouble and will need to adjust your WR or add to Stache)

The market doesn't matter. What matters is how I'm funding my expenses and is that funding sustainable (ie. from a job or from my stache). At least that's what I tell myself now that I'm down 2% in the last two days haha, still makes me grumble but I don't change what I'm doing. (Plus its pay day so I have another $1K getting invested today at discount!)

FIREd, no job.

Biggest portion of portfolio is real estate, hard to even calculate 4% though I'm right at the edge of it as far as I can tell; who knows what the future brings. Pondering sale of property, which would result in financial assets predominating.

Fwiw, most of the comments appear on topic in that one person's "timing" is another person's "asset allocation" because both viewpoints influence which investments you choose and how you choose them. To me the idea of an "everything bubble" is one way of approaching the question of how to best allocate capital in an era with historically low interest rates and arguably weird asset values. Very much appreciating the discussion so far.

I agree that if you're in the accumulation phase with a high savings rate and good job/career, any "everything bubble" should mean little to you. Congrats on your progress!!
Title: Re: How concerned are you about the Everything Bubble?
Post by: frugledoc on May 10, 2019, 11:10:23 AM

Laserjet3051's post is an excellent one. The reason everyone's bullish about their own prospects right now is the same reason why stocks are richly priced; employment is high, income is growing, they have spare cash to be buying stocks, and they see things getting better for them in the next few years. Conversely, in a downturn everything works in reverse.  The stock market, economy, and peoples' individual circumstances are not separate things. People tend to sell low because they have little choice.. they become forced sellers. When you have no income, or much reduced income, losing sleep because you're worried about being foreclosed, this creates FEAR. Buying cheap stocks is probably the last thing on your mind.

I don't think "everyone's bullish" right now because the good times are rolling, we've forgotten the past, or we think things are "getting better" (financially, I assume you mean).  I fully expect a major market pullback soon - like 30% plus.  However, I expected that in 2018, with CAPE moving well into the 30s.  And 2017 with the threat of nuclear war, Mueller getting started, and one of the longest bull markets on record.  And 2016 with Trump being elected, the Brexit vote, etc.  And 2015...
However, because I stuck to my IPS and just kept buying, I am now at a point where even if the markets drop 50% I'll still never need to work again.  Ok, if they drop 70% I'll be properly freaked out.  But 50%?  meh. 

The point is, I've learned I'm spectacularly bad at predicting what the markets are going to do and if I'd listened to my fears I wouldn't be FIREd right now because I'd still be waiting to buy the dip.  It's absolutely true that someone is going to come to these boards with excellent reasons why we should all get out now and start hoarding cash, and everything is going to crash right after they say that.  That's a 100% guarantee.  Just like it's a guarantee that someone's going to pick the Powerball numbers in an upcoming drawing.  In both cases we KNOW that's coming, we just have no idea which of the doomsday prophets will be correct or when it will happen. 

So yes, when the next crash comes I might have to sell some of my VTSAX when it's down - way down.  But because I didn't freak out when I started investing in the early 2000s when the tech bubble burst and I didn't change anything when my investments plummeted in 2008-2009, I'm now in a position where I DGAF what the markets do next.  I know I can't predict it.  But I also know I have enough that even if there's a major crash I can still live on the savings I built up ignoring all the people who said there was a bubble - even when they were right.

It's easy for those people who have had the fortune and patience to have ridden a 10 year bull market to suggest to others do the same thing, but it's not 2009 any more, or even 2014 or 2017.

Just to be clear, I am NOT against cost averaging over a long period; I do largely agree that monthly buying the market should be a part of of most people's strategy and do so myself, but only a part; asset allocation is also hugely important.  If you are fine with mediocre (possibly negative real) returns then I don't have a problem with you being fully 100% invested in the market, but if not and you want your money to work harder than 2% then you should probably exercise some caution and have some cash on the side - it makes sense if the spread between the risk-free rate of return vs the expected market return is as low as it is right now.

Vand, Iím ok with 2% or negative returns compared to trying to time the market .  Just keep on accumulating for the next boom.   Long term markets are the opposite of gravity. What goes down must go up (in the long term).  Iím 100% confident I will outperform > 95% of market timers/swing traders over 10 years plus.  I definitely have no interest in trying to be in the 5% who are lucky/ďskilledĒ to outperform.

you don't really understand what I'm saying, do you? My point is that Asset Allocation matters. Hugely. The investing universe does not start and end with VSTAX. As I have alluded to, there are other markets out there right now that are depressed and therefore offer the chance of a higher expected future return. Maybe you should go and read up about them so they form a part of circle of competence rather than thinking the best and only way is all-in, all-of-the-time, and anyone who disagrees is a clueless "market timer".

I invest in vanguard all world so I hold all the major markets.

I didnít say you were clueless, although I did think it :)
Title: Re: How concerned are you about the Everything Bubble?
Post by: ChpBstrd on May 10, 2019, 11:56:20 AM
Really quick back on topic comment:

The only reason an "everything bubble" would scare you is if you think you could lose your job and not have enough money to float you until you find another one. Similarly if you're FIRE and don't follow the 4% SWR. (From what I've read over time I believe if you hit half of your initial FIRE number, you're in trouble and will need to adjust your WR or add to Stache)

The market doesn't matter. What matters is how I'm funding my expenses and is that funding sustainable (ie. from a job or from my stache). At least that's what I tell myself now that I'm down 2% in the last two days haha, still makes me grumble but I don't change what I'm doing. (Plus its pay day so I have another $1K getting invested today at discount!)

Market prices do matter to retirees. For a retiree applying the 4% rule, the plan is to sell approximately 0.75% of the shares in oneís portfolio every 3 months (the remainder of their income would come from dividends and interest). If market prices tank, they will have to sell more than the budgeted number of shares to cover the same expenses. Every quarter one sells more shares than is sustainable, the risk of exhausting oneís savings increases.

Additionally, one is most likely to reach oneís ďFIRE numberĒ at a market peak, not at a low or average level. This simple dynamic means oneís actual odds of outliving an X% WR are probably a lot less than those modeled in the Trinity study, which simply assumed an equal number of retirements occurring each year.

For more detail on this risk, see
https://earlyretirementnow.com/2017/01/18/the-ultimate-guide-to-safe-withdrawal-rates-part-6-a-2000-2016-case-study/
Title: Re: How concerned are you about the Everything Bubble?
Post by: maizefolk on May 10, 2019, 12:01:52 PM
Additionally, one is most likely to reach oneís ďFIRE numberĒ at a market peak, not at a low or average level. This simple dynamic means oneís actual odds of outliving an X% WR are probably a lot less than those modeled in the Trinity study, which simply assumed an equal number of retirements occurring each year.

For more detail on this risk, see
https://earlyretirementnow.com/2017/01/18/the-ultimate-guide-to-safe-withdrawal-rates-part-6-a-2000-2016-case-study/

This effect really does exist but that website somewhat overstates it. I really liked @gerardc's work on this a couple of years ago here on the forum (and not just because he actually shows his code so it's possible to sanity check the assumptions). 

https://forum.mrmoneymustache.com/welcome-to-the-forum/cfiresim-severely-overestimates-success-rates-for-mustachians/msg1625362/#msg1625362
Title: Re: How concerned are you about the Everything Bubble?
Post by: FIRE 20/20 on May 10, 2019, 12:12:10 PM
<snip>
It's easy for those people who have had the fortune and patience to have ridden a 10 year bull market to suggest to others do the same thing, but it's not 2009 any more, or even 2014 or 2017.
<snip>

I would doubt than many or most of us who are FIREd now got in just in 2009.  I started investing in the late 90s, just in time to "lose" what at the time felt like a lot of money in the markets during the dot com crash.  That wasn't easy.  I had multiple 6 figures in 2007/2008 when the SHTF - and I was also briefly unemployed during the worst of it.  That really wasn't easy.  But I kept plugging away, ignoring the markets as best I could and stuck to the plan.  It's possible that 2019 is going to be far worse than 1999/2000 or 2007/2008, but if so I suspect I'll be more worried about how to survive a nuclear winter or a global pandemic than market performance. 
Title: Re: How concerned are you about the Everything Bubble?
Post by: ChpBstrd on May 10, 2019, 12:36:16 PM
Additionally, one is most likely to reach oneís ďFIRE numberĒ at a market peak, not at a low or average level. This simple dynamic means oneís actual odds of outliving an X% WR are probably a lot less than those modeled in the Trinity study, which simply assumed an equal number of retirements occurring each year.

For more detail on this risk, see
https://earlyretirementnow.com/2017/01/18/the-ultimate-guide-to-safe-withdrawal-rates-part-6-a-2000-2016-case-study/

This effect really does exist but that website somewhat overstates it. I really liked @gerardc's work on this a couple of years ago here on the forum (and not just because he actually shows his code so it's possible to sanity check the assumptions). 

https://forum.mrmoneymustache.com/welcome-to-the-forum/cfiresim-severely-overestimates-success-rates-for-mustachians/msg1625362/#msg1625362

It exists for those who retire at high market valuations (ask the year 2000 early retirement cohort). However the risk is nil for those who manage to retire at normal to low valuations (e.g 1993, 2011...).

To judge whether the risk applies would require a judgement about whether valuations were high. This judgement may sound like market timing, but is more like value investing. Still I think the ambiguity of making such an estimate of risk magnitude is another reason we should be setting our ďFIRE numberĒ based on earnings and cash flows being greater than expenses instead of saying weíre FI the day our market value exceeds 25x expenses. Earnings and FCF are more stable than market prices, and offer better predictive value about an assetís future returns. This approach might help us decide whether to go OMY despite having an account value > 25x expenses, or to retire with a smaller equities portfolio after a crash.
Title: Re: How concerned are you about the Everything Bubble?
Post by: maizefolk on May 10, 2019, 12:40:41 PM
I think we may have miscommunication. When I say ďthe effectĒ I mean the clustering of people hitting their FIRE numbers during market run ups (and so disproportionately retiring in years with bad sequence of returns risk). For someone saving 50% or more of their income there just isnít that much clustering to begin with (See gerardcís post linked above).

Now if you are only saving 10-20% per year, THEN I agree it is an effect folks need to be conscious of and worry about, because at super low savings rates like those market returns have a much bigger influence on when you hit your FIRE number and hence on your actual odds of failure.
Title: Re: How concerned are you about the Everything Bubble?
Post by: Valvore on May 10, 2019, 12:45:44 PM
Really quick back on topic comment:

The only reason an "everything bubble" would scare you is if you think you could lose your job and not have enough money to float you until you find another one. Similarly if you're FIRE and don't follow the 4% SWR. (From what I've read over time I believe if you hit half of your initial FIRE number, you're in trouble and will need to adjust your WR or add to Stache)

The market doesn't matter. What matters is how I'm funding my expenses and is that funding sustainable (ie. from a job or from my stache). At least that's what I tell myself now that I'm down 2% in the last two days haha, still makes me grumble but I don't change what I'm doing. (Plus its pay day so I have another $1K getting invested today at discount!)

Market prices do matter to retirees. For a retiree applying the 4% rule, the plan is to sell approximately 0.75% of the shares in oneís portfolio every 3 months (the remainder of their income would come from dividends and interest). If market prices tank, they will have to sell more than the budgeted number of shares to cover the same expenses. Every quarter one sells more shares than is sustainable, the risk of exhausting oneís savings increases.

Additionally, one is most likely to reach oneís ďFIRE numberĒ at a market peak, not at a low or average level. This simple dynamic means oneís actual odds of outliving an X% WR are probably a lot less than those modeled in the Trinity study, which simply assumed an equal number of retirements occurring each year.

For more detail on this risk, see
https://earlyretirementnow.com/2017/01/18/the-ultimate-guide-to-safe-withdrawal-rates-part-6-a-2000-2016-case-study/

Yes, retiree would have to sell more shares in a down year(s) but that is the point of using the safe withdrawal method. Because even though you are selling more stock/shares those shares will rise in price eventually and above where they were when you initially purchased. When FIRE'd peeps start pulling from their stache, they can't expect that it will always go up every year. It may even drop to almost have of the initial FIRE number, but what the Trinity study tells us is that your stache will recover and sustain your for 30 years (as long as it doesn't drop below a certain threshold).

Obviously all of this does depend on the type of shares invested and AA. If you are 100% in bonds and using 4% SWR, it ain't going to work for your.
Title: Re: How concerned are you about the Everything Bubble?
Post by: habanero on May 10, 2019, 12:52:47 PM
I guess the new unknown is what happens long term if equity markets go down the drain AND bonds yields are very low like they are now. Its not like you have a bond portfolio yielding 5-6-7% to cushion. The last factor is a major concern pointed out by our sovereign wealth fund (~70/30 + some pocket change in real estate). But then again, there are always potential sources of income and the odd windfall from inheritance etc.
Title: Re: How concerned are you about the Everything Bubble?
Post by: PDXTabs on May 10, 2019, 02:51:37 PM
I guess the new unknown is what happens long term if equity markets go down the drain AND bonds yields are very low like they are now.

If you just retired having bond yields go up (prices go down) while equity prices also go down seem like the worst case for an average investor to me? Very few people buy individual bonds and then hold them until they mature to get their capital back.
Title: Re: How concerned are you about the Everything Bubble?
Post by: Classical_Liberal on May 10, 2019, 04:19:43 PM
Question: How do you think an investor should distinguish between "a few big stocks have an overly high value" vs "a few big stocks are correctly valued at a high price because they have established a valuable position in the economy"?

It just depends on your investment philosophy; do you believe in paying top dollar today for the expectation of high future earnings (growth investing), or are you looking for something that has been around for a while and proven, has good solid cashflows, and selling at a reasonable price and will provide a known, steady expected return (value investing)?

Right now the market is willing to pay high premium for the promise of growth, but market history has shown that this is often a mistake and such lofty future expectations are unlikely to be met.  The problems with growth investing are that

1. tomorrow's growth and higher earnings are far from guaranteed. This is simply the free market at work; excess profit provides an economic signal for other companies to move into that space and compete for those customers. They bring new idea and new ways of doing things that usurp the original, so it becomes difficult for today's leading companies to always remain ahead of competition. History has shown this to be the case; look at any number of companies from GE, IBM, Microsoft, Ericsson, Intel that mature and then eventually fall behind the next new innovator. Apple & Amazon are world leaders today, they probably won't be 20 years from now.

Therefore, if you bet on growth stocks, you are betting against the long term economic forces of & profit signalling, supply & demand that are constantly churning away

Not only do profits tend to be normalized within industries, but also between industries. If one industry is loss making, firms will cease to operate in that industry and move to one where there are excess profits. These isalso self evident just looking at an individual level; you bring your particular set of skills to the market and there are market forces at work that mean you will get paid roughly similar if you work for a oil producer, software developer, or fashion retailer (ok, maybe not great examples, but my point is that it's your skills that primarily determine your wages, not the industry you work in).


2. Investors tend to get much more excited about growth and therefore overpay more than they do for steady value, and of course this is reflected in the price premium built into the share price of these stocks. If and when those target start getting missed (they always do, eventually, see point above) the revision of expectations can be savage, much more so than just a boring value stock missing earnings, which of course also happens

I would add to this that economic cycles matter as well.  Growth investments tend to perform much better with economic tailwinds, whereas investors tend to look for value in headwinds. So focusing an AA more on growth makes a ton of sense in early to mid accumulation, as one approaches the end of accumulation SOR matters much more, so value is a better bet to try and stabilize a portfolio for any potential downturn.

What is hard to predict is the beginning and end of economic cycles.  What is easier to predict is when you want to retire.  Since both have a material impact on your investing, it's best to focus on the one you have the most control over/ data on. 

I do NOT think altering portfolio allocations based on personal situation is analogous with market timing.  That's just smart, you're acting on known information (ex you are retiring in one year).  This is why the link to @gerardc  is important.  People are more likely to retire towards end of a tailwind phase, they have had better recent returns and more money.  This makes my argument even stronger.

tldr;  My theory is that an investor of above average competence (most here) would benefit from an elastic asset allocation of different types of equities, bonds and cash if 90+% of this elasticity is based on personal circumstances as opposed to educated guessing on market cycle or valuations.
Title: Re: How concerned are you about the Everything Bubble?
Post by: Telecaster on May 10, 2019, 04:26:49 PM
Define risky.  Since 1999 stocks have returned 218%

If a "risky" time means more than doubling your money...it doesn't sound all that risky. 
Well, following the 4% rule with 100% Total US in 1999 and you'd be over half depleted in real terms only 20 years in.  Someone who bond tented at 60/40 is looking a whole lot better.  So "risk" is more than total returns, 218% doesn't mean jack to that person.   

Advocating a very high equity allocation, no matter goals, no matter valuations, is a poor policy.  It works great for someone who retires at 30 with income from real estate rentals and side gigs that cover expenses (why this person even needs 25X in backup is a better question).  It also works great for a 25 year old who DCA's 50% of their income and doesn't plan to FIRE for more than a decade.  It probably isn't the best idea for someone with CAPE>30 who's planning to FIRE soon with no additional income sources.  But to each their own.

In this case, Crankaddict is just starting investing.  He's not in withdrawal phase.   The claim was that 80% stocks was too risky.  Perhaps that's correct if you are withdrawal phase, but not if you are just starting out.   
Title: Re: How concerned are you about the Everything Bubble?
Post by: Radagast on May 10, 2019, 09:46:45 PM
I am skeptical equities are in a bubble.
      Jan 1 '00   May 10 '19   % Less
P/E      29.0          21.8          25%
P/E10  43.8          30.4          31%
P/Div   82.0          52.4          36%
P/B      5.05          3.38          33%

For earnings, accounting standards for earnings changed in 2001 and things would look less expensive than they do by the olden standards (so I understand, no first hand knowledge)
For PE10, it will magically be forced down over the next year as the recession clears out, so things are even less expensive than above by this metric
For dividends, as many companies apparently buy stock instead of paying them, I guess this measure is also less expensive than it looks
For book value, I imagine that many of the largest names are able to make a lot of money with a smaller amount of assets, so this is also not as expensive as it looks
For all, if many companies now buy their own shares instead of paying dividends, wouldn't this make the price appear higher relative to fundamentals than it would? The P side would be larger and the denominator the same. Another metric that could be giving a false impression of a bubble.
Put together and things are maybe at 60% of their value in 2000. Going by the numbers, the US could be at the place where a bubble could start, but it is not in one yet. It did feel just a little bubbly in January 2018 but that is old history now.

Non-US: From what I read equities in the rest of the world are even less in a bubble by those metrics.
Bonds: It will turn out to be a bubble if it pops. If it doesn't pop, it wasn't a bubble. If inflation goes to 0 for the next 30 years bonds will not have turned out to be in a bubble. If it goes to 10% they will.
Real Estate: Many locations, hard to say. Locally there are genuinely too few houses and apartments relative to the number of people who want them. No houses were built from 2007-2014 here. Result: not a single person remained in the house building business. Next result: when people wanted to buy houses again there was nobody to make them. Next next result: house prices are very high now.
Gold: As if we knew. But seems within the historical real range.
Others: ?
Title: Re: How concerned are you about the Everything Bubble?
Post by: Radagast on May 10, 2019, 09:54:49 PM
If not and you want your money to work harder than 2% then you should probably exercise some caution and have some cash on the side - it makes sense if the spread between the risk-free rate of return vs the expected market return is as low as it is right now.
I was all agreeing with you until here. So people who are afraid their money may grow as little as 2% should guarantee it grows not more than 2%.... right....

But yeah balanced allocations are ok. 50% World Stock Index, 50% Permanent Portfolio seems as good an allocation as any.
Title: Re: How concerned are you about the Everything Bubble?
Post by: DavidAnnArbor on May 12, 2019, 09:03:20 PM
If the stock market does decline during the first phase of one's retirement then simply lower the withdrawal rate.
GoCurryCracker has a blog post about living in some interesting countries where living expenses are very low.
Title: Re: How concerned are you about the Everything Bubble?
Post by: vand on May 13, 2019, 03:20:51 AM
If not and you want your money to work harder than 2% then you should probably exercise some caution and have some cash on the side - it makes sense if the spread between the risk-free rate of return vs the expected market return is as low as it is right now.
I was all agreeing with you until here. So people who are afraid their money may grow as little as 2% should guarantee it grows not more than 2%.... right....

But yeah balanced allocations are ok. 50% World Stock Index, 50% Permanent Portfolio seems as good an allocation as any.

It's hard to make the case of anyone being "afraid" of a 2% real return. It's a real increase in wealth. Nobody should be afraid of a tomorrow that is materially better for them than today.

Maybe 2% isn't an acceptable return discounted to the present to make it a worthwhile investment, but that decision is not driven by fear.

50% stocks/ 50%PP is still 62.5% overall equity allocation. Maybe that's OK for some, but its still a historically aggressive AA. I can't say if it's right or wrong for anyone but myself, because in my view Investing and personal finance is much less about following what someone else says or chasing the highest possible return, it about doing your own research and determining your own risk/reward profile, and knowing your own sleep-easy point.