Author Topic: little reminder just how gross the valuation of equities is  (Read 4141 times)

waltworks

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Re: little reminder just how gross the valuation of equities is
« Reply #50 on: November 20, 2020, 07:38:37 AM »
Sounds like a job.

-W

reeshau

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Re: little reminder just how gross the valuation of equities is
« Reply #51 on: November 20, 2020, 07:54:30 AM »
I'm still more optimistic about the outcome for the 2000 retiree. It will almost certainly prove to be a year where a real person pursuing FIRE would have had to deviate from the 4% rule, but I think there is a reasonable chance that simulated retirees will arrive in 2030 with a non-negative final net worth, which would make it a success by the standards 30 year intervals are judged by.

The most recent breakdown I could find is from Go Curry Cracker almost a year ago:
https://www.gocurrycracker.com/how-are-the-2000-and-2008-retirees-doing-4-percent-rule/

But we're one year further and the S&P 500 is up roughly 15% from where it stood when GCC posted those numbers.

I think this year is a perfect example of the deviation from actual practice vs. the model.  How you do this year depends very much on when you take your distributions:  if you took a lump sum at the beginning of the year, fine.  If you wait until the end of the year (to manage cap gains / ACA eligibility) also fine.  If you take your distributions quarterly, or in a breakdown of discipline took them as stocks fell in March or shortly after in April or May, you could do much worse than the model.

This year is dramatic, of course.  But the tactical management of the actual withdrawal strategy can move the needle, for better or for worse.

zoro

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Re: little reminder just how gross the valuation of equities is
« Reply #52 on: November 20, 2020, 08:27:48 AM »
Lol. But my boss is great.  It doesnít take any more time than buying a fund really, and some of them have outperformed the indexís quite significantly over time.
Sounds like a job.

-W

vand

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Re: little reminder just how gross the valuation of equities is
« Reply #53 on: November 21, 2020, 02:03:18 AM »
I'm still more optimistic about the outcome for the 2000 retiree. It will almost certainly prove to be a year where a real person pursuing FIRE would have had to deviate from the 4% rule, but I think there is a reasonable chance that simulated retirees will arrive in 2030 with a non-negative final net worth, which would make it a success by the standards 30 year intervals are judged by.

The most recent breakdown I could find is from Go Curry Cracker almost a year ago:
https://www.gocurrycracker.com/how-are-the-2000-and-2008-retirees-doing-4-percent-rule/

But we're one year further and the S&P 500 is up roughly 15% from where it stood when GCC posted those numbers.

I think this year is a perfect example of the deviation from actual practice vs. the model.  How you do this year depends very much on when you take your distributions:  if you took a lump sum at the beginning of the year, fine.  If you wait until the end of the year (to manage cap gains / ACA eligibility) also fine.  If you take your distributions quarterly, or in a breakdown of discipline took them as stocks fell in March or shortly after in April or May, you could do much worse than the model.

This year is dramatic, of course.  But the tactical management of the actual withdrawal strategy can move the needle, for better or for worse.

I doubt that quarterly or monthly distributions would have left the average FIRE port significantly worse off, simply because of how fast the market bounced back.

Q1 the S&P ended down about 20% from start of year, Q2 we were within about 8% percent of the start of year, Q3 finished a few percent higher, and its looking like Q4 has every chance of finishing higher too.. it would probably amount to a rounding error for most people. And this would be for a 100% TSM allocation, which very few people actually have in practice.

It's long, multi-year declines where you are forced to sell increasing amount of your assets to maintain your cashflow that are the real killer.

vand

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Re: little reminder just how gross the valuation of equities is
« Reply #54 on: November 21, 2020, 02:10:25 AM »
I tend to agree with OP that US stocks are significantly overvalued, but who am I to argue with the market?  Bubble? Possibly, although it can be argued that all bull markets eventually end in a bubble otherwise they wouldn't end.

I'm not a TINA advocate, though. If you think it's expensive then you don't have to buy it.

I tilt my portfolio towards value sectors, so for me I am:

underweight US
underweight fixed income
overweight dev international stocks
overweight emerging markets
overweight real assets & resources

100% VTSAX? I'd rather slit my wrists.

MustacheAndaHalf

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Re: little reminder just how gross the valuation of equities is
« Reply #55 on: November 21, 2020, 02:38:09 AM »
@zoro - You mentioned exiting stocks in 1998 because of valuations.  You later mention investing in equities (and options).  When did you get back into stocks?  What criteria did you use?

hodedofome

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Re: little reminder just how gross the valuation of equities is
« Reply #56 on: November 22, 2020, 10:14:57 AM »
exactly. just wait until stocka and bonds go down at the same time, and this risk parity strategy that Bridgewater et al have been selling to everyone implodes. It will become really interesting, really quickly

Thatís why you stick a 10 month moving average on Rayís strategy. If any asset is trading below its 10 month moving average, you sell that asset and hold cash. Gets you out if everything decides to go down at the same time.

Imanuels

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Re: little reminder just how gross the valuation of equities is
« Reply #57 on: November 23, 2020, 02:20:44 PM »
Is there a reason why you use exactly 10 month moving average? I guess I'm asking becasue my gold crossed 100 day SMA and I'm not sure if I should wait until the 200 day (approx. 10 month) SMA :D.

RainyDay

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Re: little reminder just how gross the valuation of equities is
« Reply #58 on: November 24, 2020, 09:31:45 AM »

I'll add it to the list.

https://forum.mrmoneymustache.com/investor-alley/stock-market-should-i-be-concerned/
3/2015  [2117]
https://forum.mrmoneymustache.com/investor-alley/talk-me-out-of-timing-the-australian-market/
12/2015  [2103]
https://forum.mrmoneymustache.com/ask-a-mustachian/where-to-put-a-large-windfall-with-stock-market-near-all-time-highs/
1/2016  [2013]
https://forum.mrmoneymustache.com/investor-alley/about-to-sell-everything-talk-me-off-the-ledge-(or-push-me-off)-please!/
4/2016 [2073]
https://forum.mrmoneymustache.com/investor-alley/here-it-comes-red-dow/
2/2017  [2280]
https://forum.mrmoneymustache.com/investor-alley/does-anyone-think-we-are-in-a-bubble/
3/2018  [2678]
https://forum.mrmoneymustache.com/investor-alley/when-would-you-get-back-in/
5/2018  [2655]
https://forum.mrmoneymustache.com/investor-alley/investing-in-a-bull-market/
6/2018  [2735]
https://forum.mrmoneymustache.com/investor-alley/moving-to-cash-market-timing-can%27t-believe-it/
10/2018  [2925]
https://forum.mrmoneymustache.com/welcome-to-the-forum/sell-index-funds-now-for-down-payment-during-recession/
2/2019  [2707]
https://forum.mrmoneymustache.com/investor-alley/welp-i'm-going-to-take-a-stab-at-timing-the-market/
4/2019  [2867]
https://forum.mrmoneymustache.com/investor-alley/buy-vtsax-now-while-its-this-high-or-wait-till-a-drop/
https://forum.mrmoneymustache.com/investor-alley/how-concerned-are-you-about-the-everything-bubble/
5/2019  [2924]

https://forum.mrmoneymustache.com/investor-alley/stocks-will-only-return-4-annually-for-next-decade-john-bogle/

@RWD  I don't know how long you've been keeping this list, but I can tell you it makes a difference!  In summer 2019 I discovered MMM and started reading the blog, plus the forums.  I had about $40k in cash to invest but was hedging because "the market was too high!"  When I saw your list showing that it's almost ALWAYS too high, I took the plunge.  Have not regretted it!  At the time, the DOW was around 26,000.

I have no idea how much the $$ has earned in dividends, but I just saw the DOW topped 30,000 a few minutes ago.

So, thank you for keeping this list!  It gave some much-needed perspective.

RWD

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Re: little reminder just how gross the valuation of equities is
« Reply #59 on: November 24, 2020, 11:06:13 AM »
I'll add it to the list.

@RWD  I don't know how long you've been keeping this list, but I can tell you it makes a difference!  In summer 2019 I discovered MMM and started reading the blog, plus the forums.  I had about $40k in cash to invest but was hedging because "the market was too high!"  When I saw your list showing that it's almost ALWAYS too high, I took the plunge.  Have not regretted it!  At the time, the DOW was around 26,000.

I have no idea how much the $$ has earned in dividends, but I just saw the DOW topped 30,000 a few minutes ago.

So, thank you for keeping this list!  It gave some much-needed perspective.

Happy to have helped! In the short-term anything can happen but long-term keeping your assets invested is the winning play.

Scandium

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Re: little reminder just how gross the valuation of equities is
« Reply #60 on: December 03, 2020, 11:03:53 AM »
I still think value timing is a valid approach rather than mindless buying of over priced assets.

You can think that, but that doesn't make it true. And I have seen little evidence that it is (discounting optimal hindsight scenarios and cherry-picked data)