Author Topic: Is the stock market too expensive to get back in?  (Read 25272 times)

Blindsquirrel

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Re: Is the stock market too expensive to get back in?
« Reply #50 on: August 07, 2014, 09:39:24 PM »
 Dollar cost averaging only prevents you from buying high and selling low. It does not help much in a secular bear market. You can make a good case for market timing in many mature economy's.  The Nikkei is a great example. Since the late 80s peak they are still down a boatload, even worse on an inflation adjusted basis,  DCA would have gotten creamed but there were a number of great opportunities to make a great yield if you looked at the macro economic data, just saying that the indexes are not the only game in town. http://finance.yahoo.com/echarts?s=%5EN225+Interactive#symbol=%5EN225;range=my.  The US stock market is over valued from a historical perspective and markets follow a neat thing called reversion to the mean. When P/E are very  low with respect to the historical mean, buy stocks with both hands and all available cash, when they are high, use some common sense and think about the yield/price/income you are buying.  We buy index funds every 2 weeks but back off at high valuation times, If stocks get crushed, buy great companies as much as you can, IE Citibank at 97 cents. Many REITS have crushed the SP 500 for 4 years as far as yield  and I wish I had loaded up on them instead of small investments, REITs are now very richly valued. By all means, all cash is horrible with respect to inflation but be a wary, the current bull market is long in the tooth from a historical perspective. In a number of areas, the P/E for rental homes is very, very low.  Just 2 cents worth,

MsRichLife

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Re: Is the stock market too expensive to get back in?
« Reply #51 on: August 07, 2014, 10:41:40 PM »
I'm getting 4% govt guaranteed for up to 12 months, not not losing money if I use 2-3% as inflation.

I'm with you Sparkie. Sitting on Cash (AUD$) for all the same reasons you outlined. Do you read The Daily Reckoning Australia by any chance?

fartface

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Re: Is the stock market too expensive to get back in?
« Reply #52 on: August 08, 2014, 11:57:26 AM »
Yeah, I was in the same boat as you last October. Sold a rental property and netted $200,000 from the sale. Market was nearing the end of a record year in 2013, and I didn't have the stomach to dump it all in the high flying stock market. Instead I decided to put most, or $140,000, of it towards my primary mortgage. Even though I've got a 2.875% interest rate, I was still paying $550/month in interest - now I pay $170/month in interest.

I put another $25,000 into a brokerage account.

Added $11,000 to our ROTHs in October 2013 and then another $11,000 in January of 2014.

Put $3000 (maximum tax benefit in my state) into the kid's 529 and kept the remaining $10K in a "high yield" savings account earning 1%.

"Problem" is... my savings account has ballooned from $10,000 to $50,000 (sold our boat, tax refund, frugality, you know it just adds up once you espouse mustachianism...). And it's still just sitting there earning that lousy 1%.

Now, I don't pay escrow so I'll need my savings to pay property taxes at the end of this year. Fund the 529 again. And want at least $10K set aside for a "new" used car down the road(both our current vehicles are 10 years old).

But here's what I've decided to do. I'm upping my 403b contributions to $17,400 (up from the piddly $10,800 per year I was contributing). This will reduce my net take home pretty significantly; however, I'll use my savings to make up the difference. My 403b has a 'guaranteed' rate of 4.05%. I figure siphoning the money into the 403b and using my savings to pay expenses is the best I can do right now in this overvalued market.

So bottom line. If you've got 500K, I'd pay most or all of the mortgage off - free and clear. Paying down a low interest rate mortgage is probably not what most people would do, but I'm more risk adverse than most. Make sure you have fully funded your ROTH - don't give a shit how high the market is - you ALWAYS do this.  And max out your 401k contributions up to $17,500. Unfortunately, you will probably have to keep close to 20% of your 'stache in a lousy savings account...I don't see any way around it w/your risk tolerance.

Mother Fussbudget

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Re: Is the stock market too expensive to get back in?
« Reply #53 on: August 08, 2014, 01:58:08 PM »
DCA - Dollar Cost Averaging.
An Example: 
The 1st week, I buy $200 worth of WIDGETS @ $100/share - I now own 2 shares - cost=$100/share.
The 2nd week, the price has dropped, I buy $200 worth of WIDGETS @ $50/share - I now own 6 shares - cost=$66.67/share
The 3rd week, price is up again, I buy $200 worth of WIDGETS @ $100/share - I now own 8 shares - cost=$75/share
The 4th week, price is up, I buy $200 worth of WIDGETS @ $200/share - I now own 9 shares - cost=$88.89/share
After a month, I've invested $800 dollars, and own 9 shares of 'WIDGETS' with an average DOLLAR COST of $88.89/share

By buying regular dollar amounts, you 'average' your cost - buying MORE SHARES when the cost is down, and FEWER shares when the cost is up.  Hope this helps. 


Khan

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Re: Is the stock market too expensive to get back in?
« Reply #55 on: April 28, 2017, 08:43:35 PM »
We never knew what Tordo the original poster did(3 year old topic), but this is where IMO it would be best if you stumble upon such a giant lump sum in comparison to your take home and everything else, inaction is the worst action, so even though DCA'ing the investment is historically a worse decision than lump sum, whatever you need to do to get that money to where it needs to be to work for you is what you have to do. An alternative would be to jump in with a diversified portfolio such that a market drop would mean you rebalance heavily from bonds, and you could slowly tweak your diversification over time to what you consider more appropriate.

See lump sum topics:
https://forum.mrmoneymustache.com/investor-alley/going-in-at-all-time-highs/
https://forum.mrmoneymustache.com/investor-alley/nervous-about-investing-a-large-lump-sum/

Vanguard's research:
https://investor.vanguard.com/investing/online-trading/invest-lump-sum

talltexan

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Re: Is the stock market too expensive to get back in?
« Reply #56 on: May 01, 2017, 09:04:50 AM »
It is truly breath-taking how confident everyone on this thread was in late 2013 that the market was overvalued.

SP500 has increased 50% since then. I'm throwing shade, but I own bonds all over the place, and was even over-paying on my mortgage in early 2014. Some of that shade should be thrown at me, too. It's hard to manage your emotions to go 100% stocks with all available money now.

nereo

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Re: Is the stock market too expensive to get back in?
« Reply #57 on: May 01, 2017, 09:23:07 AM »
It is truly breath-taking how confident everyone on this thread was in late 2013 that the market was overvalued.

SP500 has increased 50% since then. I'm throwing shade, but I own bonds all over the place, and was even over-paying on my mortgage in early 2014. Some of that shade should be thrown at me, too. It's hard to manage your emotions to go 100% stocks with all available money now.
I think Charlie Munger was the one who said: The markets can stay irrational longer than an impatient investor can stay solvent.  (paraphrasing)

Even if we're overvalued today, that doesn't mean a crash is imminent or even likely.  Sometimes it takes years for markets to adjust - other times it just goes sideways for awhile until earnings catches up with expectations.  And then of course sometimes markets just crash due to irrational fears when the underlying fundamentals are strong.

Buy and hold, buy and hold...

PizzaSteve

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Re: Is the stock market too expensive to get back in?
« Reply #58 on: May 01, 2017, 02:11:38 PM »
Agreed.  As i posted in the other thread, it is a good habit to think that the market is NEVER overvalued.  It is always a fair value for what the world thinks future profits will be.  What changes is the world, markets react, not the other way around.

So one could say that Charlie might be wrong... that markets actually rationally value an irrational world, one in which turbulent change abounds.
« Last Edit: May 01, 2017, 02:39:25 PM by PizzaSteve »

nereo

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Re: Is the stock market too expensive to get back in?
« Reply #59 on: May 01, 2017, 02:49:26 PM »
Agreed.  As i posted in the other thread, it is a good habit to think that the market is NEVER overvalued.  It is always a fair value for what the world thinks future profits will be.  What changes is the world, markets react, not the other way around.

So Charlie is wrong.  Markets are generally rational, but the world is turbulent and changes abound.
which brings me to another of my favorite quotes:  "In the short run, the market is a voting machine but in the long run, it is a weighing machine" - B. Graham.

sirdoug007

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Re: Is the stock market too expensive to get back in?
« Reply #60 on: May 02, 2017, 08:57:52 AM »
It is truly breath-taking how confident everyone on this thread was in late 2013 that the market was overvalued.

SP500 has increased 50% since then. I'm throwing shade, but I own bonds all over the place, and was even over-paying on my mortgage in early 2014. Some of that shade should be thrown at me, too. It's hard to manage your emotions to go 100% stocks with all available money now.
I think Charlie Munger was the one who said: The markets can stay irrational longer than an impatient investor can stay solvent.  (paraphrasing)

Even if we're overvalued today, that doesn't mean a crash is imminent or even likely.  Sometimes it takes years for markets to adjust - other times it just goes sideways for awhile until earnings catches up with expectations.  And then of course sometimes markets just crash due to irrational fears when the underlying fundamentals are strong.

Buy and hold, buy and hold...

That was John Maynard Keynes, not Munger.  ďThe market can stay irrational longer than you can stay solvent.Ē

There is a story about Keynes' history of stock market speculation that goes with that.  You would think that if anybody could win at speculation it would be one of the greatest economists to ever live.  But markets are not rational over long periods of time.

https://www.maynardkeynes.org/keynes-the-speculator.html

nereo

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Re: Is the stock market too expensive to get back in?
« Reply #61 on: May 02, 2017, 08:59:38 AM »
thanks for the correction and the story, sir doug.

talltexan

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Re: Is the stock market too expensive to get back in?
« Reply #62 on: May 02, 2017, 09:20:18 AM »
Keynes got a lot of bad press when Republicans were organizing their resistance to the ARRA and TARP in 2009. He was probably the closest thing to Leonardo Da Vinci we saw in the 20th century, narrowly beating Whinston Churchill and Kenneth Arrow.

ChpBstrd

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Re: Is the stock market too expensive to get back in?
« Reply #63 on: May 03, 2017, 11:55:29 AM »
There are several ways to reduce market risk while earning over 5% returns.

1) Preferred stock funds are yielding around 6% and will suffer a third to a half less volatility than stocks in a correction, unless it is a 2008 style financial crisis, in which case their performance will approximate the markets. E.g PFF yields 5.7% with a beta of 0.34!

2) Physical real estate in LCOL metro areas. But this is more a business than an investment.

3) REITs in the healthcare sector such as Omega, Sabra, Care Capital Pro, Senior Housing Properties, etc. all yield around 7-8% right now. Omega, my favorite, has a beta of 0.41, yields 7.6%, and is volatile enough for me to sometimes sell calls on for even more income. News flash. Government funding for senior care is not going away any time soon. They're the electorate.

4) Other REITs such as Government Properties (GOV), Starwood (STWD), and Stag Industrial (STAG) yield over 5% but offer less protection from correction (higher betas). Just stay away from retail space!

5) Selling monthly cash-secured puts on SPY can yield 8-12%. This strategy reduces the losses from a flat or bear market because you pocket the premiums in months SPY does not go down, and then when it does go down, you are assigned at a lower cost basis than you would have paid if you bought it outright today. Downside risks are poor execution and the market running away from you (rising faster than you're earning premiums). You also earn your return as short term gains, so do this in an IRA.

Best of all, in a market crash, you know exactly what to do. Exit these investments for small tax-harvested losses and pile into small caps (VB) for the recovery.

BTW, I wouldn't completely exit stocks. These are diversifiers, not entire strategies.

nereo

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Re: Is the stock market too expensive to get back in?
« Reply #64 on: May 03, 2017, 12:46:13 PM »

Best of all, in a market crash, you know exactly what to do. Exit these investments for small tax-harvested losses and pile into small caps (VB) for the recovery.

How did you settle on this strategy?

ChpBstrd

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Re: Is the stock market too expensive to get back in?
« Reply #65 on: May 03, 2017, 02:31:56 PM »

Best of all, in a market crash, you know exactly what to do. Exit these investments for small tax-harvested losses and pile into small caps (VB) for the recovery.

How did you settle on this strategy?

After the sort of big correction one is hedging against, small caps will have fallen further than large caps. They can also be expected to outperform large caps in the long run. Graph VTI (total stock market) or IVV (S&P500) against VB (small caps) through the financial crisis and recovery. Or at various long timeframes.

The underlying assumption is that one's goal is to get back into stocks at a lower price. Thus, I'm advocating setting an AA based partially on valuation/economic metrics. Low values and crap economic metrics are the best times to buy, in hindsight. Today's good economic metrics and high valuations may justify some hedging - maybe years of it.

Note that some of these strategies also beat Japanese-style flat markets.

FireLane

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Re: Is the stock market too expensive to get back in?
« Reply #66 on: May 04, 2017, 04:41:50 PM »
We really need a sticky for this topic....

http://forum.mrmoneymustache.com/investor-alley/stock-market-is-hight-am-i-too-late/
http://forum.mrmoneymustache.com/investor-alley/stock-market-expensive-now-alternatives/
http://forum.mrmoneymustache.com/investor-alley/where-to-put-your-investment-money/
http://forum.mrmoneymustache.com/investor-alley/a-safe-investment-on-the-stock-market/
http://forum.mrmoneymustache.com/investor-alley/long-term-buy-and-hold-timing-the-market-why-is-this-a-no-no/

We should all re-read these excellent market timing threads...

I love this idea. We should have one master thread that links to all the predictions about when the market has topped out, so we can revisit it and chuckle at regular intervals.

Of course, sooner or later someone is going to be right just by chance. But seeing one semi-correct prediction out of a long list of failed calls could still be good evidence for how hard this is to do.

frugalnacho

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Re: Is the stock market too expensive to get back in?
« Reply #67 on: January 24, 2019, 07:13:01 AM »
I'm sure glad I didn't time the market and instead blindly dumped every dollar possible into the stock market.  This thread didn't age well.

nereo

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Re: Is the stock market too expensive to get back in?
« Reply #68 on: January 24, 2019, 07:33:35 AM »
To recap, when this thread was started the SP500 was at 1900, today it is at 2638 (a 38.8% gain in share price).  But wait!  Dividends increases that amount by ~1.9%/year , so it's closer to 45% increase in share value.  (Not inflation adjusted.)

RWD

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Re: Is the stock market too expensive to get back in?
« Reply #69 on: January 24, 2019, 07:35:26 AM »
I know I should leave the money in but do not want to start my investing life at a S&P 500 peak (1900).
I'm sure glad I didn't time the market and instead blindly dumped every dollar possible into the stock market.  This thread didn't age well.

Haha, wow...

Bumperpuff

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Re: Is the stock market too expensive to get back in?
« Reply #70 on: January 24, 2019, 11:56:47 AM »
There's a good article how market timing affects investment returns here:
https://www.schwab.com/resource-center/insights/content/does-market-timing-work

The take-away is that even bad timing is better than sitting on cash, and adding the money right now is has almost the same returns as perfect timing.  There's nuance and the article doesn't show what happens if you hop in and out of the market, but maybe it will set your mind at ease.

dragoncar

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Re: Is the stock market too expensive to get back in?
« Reply #71 on: January 24, 2019, 02:04:09 PM »
There's a good article how market timing affects investment returns here:
https://www.schwab.com/resource-center/insights/content/does-market-timing-work

The take-away is that even bad timing is better than sitting on cash, and adding the money right now is has almost the same returns as perfect timing.  There's nuance and the article doesn't show what happens if you hop in and out of the market, but maybe it will set your mind at ease.

Thatís so counterintuitive Iím going to read the article right now

Ps top is in

JAYSLOL

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Re: Is the stock market too expensive to get back in?
« Reply #72 on: January 24, 2019, 02:18:04 PM »
I'm sure glad I didn't time the market and instead blindly dumped every dollar possible into the stock market.  This thread didn't age well.

Wow, didn't age well indeed.  I really hope that more people see these kinds of threads revived before they go posting threads like this

Eric

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Re: Is the stock market too expensive to get back in?
« Reply #73 on: January 24, 2019, 03:32:50 PM »
I'm sure glad I didn't time the market and instead blindly dumped every dollar possible into the stock market.  This thread didn't age well.

Excellent thread bump!  I love all of these.

dragoncar

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Re: Is the stock market too expensive to get back in?
« Reply #74 on: January 24, 2019, 07:35:44 PM »
There's a good article how market timing affects investment returns here:
https://www.schwab.com/resource-center/insights/content/does-market-timing-work

The take-away is that even bad timing is better than sitting on cash, and adding the money right now is has almost the same returns as perfect timing.  There's nuance and the article doesn't show what happens if you hop in and out of the market, but maybe it will set your mind at ease.

Thatís so counterintuitive Iím going to read the article right now

Ps top is in

OK, when they say "sitting on cash" they mean over a multi-decade horizon.  Not, like, waiting 1-12 months.

Radagast

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Re: Is the stock market too expensive to get back in?
« Reply #75 on: January 24, 2019, 09:47:46 PM »
I'm sure glad I didn't time the market and instead blindly dumped every dollar possible into the stock market.  This thread didn't age well.

Excellent thread bump!  I love all of these.
I'm a fan of the classics too.

vand

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Re: Is the stock market too expensive to get back in?
« Reply #76 on: January 25, 2019, 04:42:53 AM »
There's a good article how market timing affects investment returns here:
https://www.schwab.com/resource-center/insights/content/does-market-timing-work

The take-away is that even bad timing is better than sitting on cash, and adding the money right now is has almost the same returns as perfect timing.  There's nuance and the article doesn't show what happens if you hop in and out of the market, but maybe it will set your mind at ease.

I absolutely hate these type of articles, and I'll explain why.
They are nearly always rolled out when stocks are universally expensive as an argument to just carry on buying regardless.


The type of investor whose mantra is "7% long term performance" and buys at the top of markets is also exactly the type of investor who panics and sells at the bottom of a bear market and then sits on the sidelines licking their wounds as the market rockets back up.  Cost-average buying through a market peak is not an insurmountable problem, but a far worse mistake is dumping your holdings during a bear market.. and it's so easy to do when your portfolio is down 50%... and when you're just been laid off.  You are wayyy past caring about 7% long term. The pain is real and you just want out NOW at any price. Unfortunately this is exactly what a lot of casual investors do.

The hypothetical "Bob the worst market timer" scenario, then is obligated not just to buy his stocks on the day the market peaks... but to also sell his stocks on the day the bear market bottoms.  In light of these parameters, I would now invite you to find the best peak-to-trough performance over a 20 year holding period.


Mississippi Mudstache

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Re: Is the stock market too expensive to get back in?
« Reply #77 on: January 25, 2019, 08:31:24 AM »
There's a good article how market timing affects investment returns here:
https://www.schwab.com/resource-center/insights/content/does-market-timing-work

The take-away is that even bad timing is better than sitting on cash, and adding the money right now is has almost the same returns as perfect timing.  There's nuance and the article doesn't show what happens if you hop in and out of the market, but maybe it will set your mind at ease.

I absolutely hate these type of articles, and I'll explain why.
They are nearly always rolled out when stocks are universally expensive as an argument to just carry on buying regardless.

I love these types of articles, because just carrying on buying regardless when ones perceives that the market is expensive is exactly the correct strategy. You cannot tell when the market is "expensive", as this very thread - originated in 2013 - makes quite clear.

ChpBstrd

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Re: Is the stock market too expensive to get back in?
« Reply #78 on: January 25, 2019, 11:34:58 AM »
Here is a site with a series of market timing games, produced by someone else on this forum. One game picks a random period of stock market history and as time passes you have to decide when to click buy or sell. Meanwhile it shows you the amount by which you outperformed or, more likely, under performed the market. So don't argue on the internet - play the game a few dozen rounds and watch the damage accumulate! It's a rare internet game that teaches a valuable, six-figure skill (which is, not to play it in real life).

https://theinvestorchallenge.com/