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Learning, Sharing, and Teaching => Investor Alley => Topic started by: Tordo on May 26, 2014, 06:30:56 PM

Title: Is the stock market too expensive to get back in?
Post by: Tordo on May 26, 2014, 06:30:56 PM
Is it the right time to get into the stock market or it is too expensive? If decided to wait for a correction (~10% down), what would be an alternative investment option until then?

After a relocation package and a home sale + previous savings I reached 500k. Got into the Vanguard 500 fund a month or so ago but got scared due to the apparent high cost and pulled out. I know I should leave the money in but do not want to start my investing life at a S&P 500 peak (1900).

On a side note, I'm planning to reach FI in 6 years but no rush (for now).

Comments?
Thanks in advance!!!
Tordo

Title: Re: Is the stock market too expensive to get back in?
Post by: nereo on May 26, 2014, 06:37:50 PM
what you are talking about is "market timing".  If you've got a multi-year horizon and you want to invest go ahead and invest it.
The market could go down 10% (or more), or it could go up another 10%+ before dropping significantly.  no one knows for sure.
It's time that's your biggest asset.  If you keep waiting you are squandering your biggest asset.  Dollar-Cost-Average (DCA) if that makes you feel better, putting a set amount in every week for the next few months. 

EDIT:  If you're worried about investing "at a S&P 500 peak" consider this: about half of all years during the last century have seen a new SP500 peak.  Why?  Because the market goes up!  If history is any guide there will be another dozen+ years where there's a new peak set over the next two decades.
Title: Re: Is the stock market too expensive to get back in?
Post by: wtjbatman on May 26, 2014, 07:24:08 PM
You are probably ok to invest now. Over time, the market trends upwards. Who knows when the next correction will be. 6 months? A year? Several years?

If you insist on waiting for a market correction, don't let your money sit in a regular savings account. It will just lose value over time. At the very least, put your money into a CD. Preferably one with small penalties for withdrawing early, since you said you will invest once the market has a 10% correction.

In the end I would still advise you to just put the money into the market now. But it's your stash!
Title: Re: Is the stock market too expensive to get back in?
Post by: innerscorecard on May 26, 2014, 08:16:58 PM
Don't time the market. The hot money - especially individual investors who try to time the market -  always suffers. Anyways, the market is still in what Buffett recently called a "zone of reasonableness." It's not a bad time to invest, if your time horizon is long enough.
Title: Re: Is the stock market too expensive to get back in?
Post by: SDREMNGR on May 26, 2014, 10:04:09 PM
Yes it is overpriced.  But so is pretty much everything right now.  So unless you have a better plan, diversify in the stock, bond, gold, real estate, or whatever you think is a balanced portfolio.  Unfortunately,  so many asset classes are highly correlated so it is very tempting to time markets.  In fact I'm still waiting for signals to bail.  I'm twitchy as well but these are the times to hold on until your signals tell you to bail.  So far the economic growth has bailed out the high valuations and it may continue to but at the first real sign of a slowdown, I believe the stock market will come down 30%+.  Maybe it may happen despite all the cheap money from Fed and ECB.  In the end, who knows.  But it's your money and you should educate yourself on it and do what you want.  Better to sleep well at nights.
Title: Re: Is the stock market too expensive to get back in?
Post by: Ottawa on May 27, 2014, 05:32:02 AM
Is the stock market too expensive to get back in?

Yes!!  If I were you I wouldn't invest in the market - better to just keep working.

;-)
Title: Re: Is the stock market too expensive to get back in?
Post by: hybrid on May 27, 2014, 05:58:44 AM
Don't time the market. The hot money - especially individual investors who try to time the market -  always suffers. Anyways, the market is still in what Buffett recently called a "zone of reasonableness." It's not a bad time to invest, if your time horizon is long enough.

There are still plenty of quality stocks where the P/E is lower than 18 and pay a good dividend. You should be able to get into a blue chip fund that focuses more on current value and pays good dividends (Ford, Hawaii Electric) than one that is based on a very bright future value (Amazon, Facebook).

Note that while everyone above is right about stocks recovering it should be noted that the Nasdaq Composite is STILL 20% off it's 90s tech boom high. Cisco ($24.52) was at 80 at one time after all. If you are going to get back in, there are more conservative ways to do it. Not all stocks are in a bubble, though some surely are,
Title: Re: Is the stock market too expensive to get back in?
Post by: nereo on May 27, 2014, 07:53:56 AM
veryone above is right about stocks recovering it should be noted that the Nasdaq Composite is STILL 20% off it's 90s tech boom high. Cisco ($24.52) was at 80 at one time after all. If you are going to get back in, there are more conservative ways to do it. Not all stocks are in a bubble, though some surely are,
sure - but be careful about comparing nominal closing prices without factoring in dividends.  The share price of the nasdaq 100 composite still hasn't hit the absolute peak seen in the 1990s, but if you factor in the dividends, had you held during this entire time period oyu would still come out ahead.
Title: Re: Is the stock market too expensive to get back in?
Post by: Ottawa on May 27, 2014, 08:08:21 AM
Seriously though - one must disregard commentary spewed by the pundits on a daily basis.  The only reason we still hear them is because people actually listen to them!  Sort of a digression from the OP...but also related:

First read:
1) http://canadiancouchpotato.com/2012/04/13/why-daily-market-commentary-is-a-joke/ (http://canadiancouchpotato.com/2012/04/13/why-daily-market-commentary-is-a-joke/)

Then read this:
2) http://canadiancouchpotato.com/2014/05/27/how-one-investor-found-inner-peace/ (http://canadiancouchpotato.com/2014/05/27/how-one-investor-found-inner-peace/)
Title: Re: Is the stock market too expensive to get back in?
Post by: Franklin on May 27, 2014, 08:32:20 AM
Quote
Is it the right time to get into the stock market or it is too expensive?

I'm assuming that when you ask if "the stock market" is too expensive you are referring to a broad market index.  Otherwise it's like asking "are cars too expensive?" Well, which car are you talking about? What features are you looking for? What do you consider a good value?  How long do you plan on owning it?

If you time the market blindly you are just asking to be taken advantage of.  Others will steal your money.  But if you know the type of company you want to invest in, the type of growth it should have displayed, the quality of its management team, and the durability of its brand, then there is no time like the present to start averaging in.  Good luck!
Title: Re: Is the stock market too expensive to get back in?
Post by: dragoncar on May 27, 2014, 12:46:32 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/
Title: Re: Is the stock market too expensive to get back in?
Post by: nereo on May 27, 2014, 12:52:16 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/
agreed.  Maybe arebelspy can do this?  Dunno...
Title: Re: Is the stock market too expensive to get back in?
Post by: waltworks on May 27, 2014, 12:56:01 PM
Yes, sticky the topic for god's sake. This is a daily thread practically.

And yet, I am responding to it....

-W
Title: Re: Is the stock market too expensive to get back in?
Post by: rmendpara on May 27, 2014, 01:24:12 PM
Tordo, Rather than try to time the market, which is a fool's errand by the way, just do what helps you sleep at night.

If you don't feel comfortable investing everything right now, then don't. Simple as that. Whether you are leaving money on the table or not doesn't really matter if it's too risky for your nerves

Personally, I don't believe anyone can accurately time the market overall. If I were in your situation, I would choose a target asset allocation for the year 2016, and then start putting in money on a weekly/monthly basis (maybe ~$5k/week?). If you see markets selling off, then accelerate your investments to $6-7k/week, and if markets take off upward, then maybe slow down to $3-4k/week.

This way, you don't win big or lose big, but also don't end up standing on the sidelines waiting to play.
Title: Re: Is the stock market too expensive to get back in?
Post by: nereo on May 27, 2014, 01:50:35 PM
Yes, sticky the topic for god's sake. This is a daily thread practically.

And yet, I am responding to it....

-W
AFter my next paycheck I will have about $300 that I want to invest, but with the SP500 breaking 1900 I'm worried about overvaluation, so I'm wondering if I should put it all in at once, or put in $30 a day for the next two business weeks.  any thoughts appreciated.
(j/k)
Title: Re: Is the stock market too expensive to get back in?
Post by: KS on May 27, 2014, 01:59:45 PM
Agree about the sticky!

For the OP: when I discovered this blog (think it was mid-Oct 2012 sometime) it finally got me motivated to set up my IRA in addition to the 401(k) investing I was already doing. The amount I put in was obviously a lot smaller than what it sounds like you have on hand now, but still it felt like a lot for a lump sum and I went through your same worries. Ultimately I decided to just dump it in and be done with it. Aside from a little slide immediately after the election that made me hold my breath a bit (which now looks like a pretty small blip on the market graphs) it's been a lot of up since then and I'm glad I didn't wait! Of course it can go the other way too, but that will always be the case so I'd recommend listening to all the wise folks here and DCA if you like but don't try and time it.
Title: Re: Is the stock market too expensive to get back in?
Post by: waltworks on May 27, 2014, 02:22:16 PM
Just stick it in there, man. Biggest mistake is usually waiting, and spreading out the contents of ONE paycheck over 2 weeks? Waste of time. Stick in all you can/want to *every* 2 weeks and you are dollar cost averaging like a boss.

-W

Yes, sticky the topic for god's sake. This is a daily thread practically.

And yet, I am responding to it....

-W
AFter my next paycheck I will have about $300 that I want to invest, but with the SP500 breaking 1900 I'm worried about overvaluation, so I'm wondering if I should put it all in at once, or put in $30 a day for the next two business weeks.  any thoughts appreciated.
(j/k)
Title: Re: Is the stock market too expensive to get back in?
Post by: thepokercab on May 27, 2014, 02:25:34 PM
Just stick it in there, man. Biggest mistake is usually waiting, and spreading out the contents of ONE paycheck over 2 weeks? Waste of time. Stick in all you can/want to *every* 2 weeks and you are dollar cost averaging like a boss.

-W

Yes, sticky the topic for god's sake. This is a daily thread practically.

And yet, I am responding to it....

-W
AFter my next paycheck I will have about $300 that I want to invest, but with the SP500 breaking 1900 I'm worried about overvaluation, so I'm wondering if I should put it all in at once, or put in $30 a day for the next two business weeks.  any thoughts appreciated.
(j/k)

I think he was joking but solid advice nonetheless. 
Title: Re: Is the stock market too expensive to get back in?
Post by: ArbitraryGuy on May 27, 2014, 03:32:37 PM
"Is the stock market too expensive to get back in?"

I don't know.  And neither does anyone else.  I do know that trying to time the market, more likely than not, leads may a poor soul to financial ruin, so all the better to embrace ignorance and adopt a buy-and-hold strategy of purchasing low-cost, diversified index funds every month. 

At least, that's what I know.
Title: Re: Is the stock market too expensive to get back in?
Post by: nereo on May 27, 2014, 04:25:22 PM
Just stick it in there, man. Biggest mistake is usually waiting, and spreading out the contents of ONE paycheck over 2 weeks? Waste of time. Stick in all you can/want to *every* 2 weeks and you are dollar cost averaging like a boss.

-W

Yes, sticky the topic for god's sake. This is a daily thread practically.

And yet, I am responding to it....

-W
AFter my next paycheck I will have about $300 that I want to invest, but with the SP500 breaking 1900 I'm worried about overvaluation, so I'm wondering if I should put it all in at once, or put in $30 a day for the next two business weeks.  any thoughts appreciated.
(j/k)

I think he was joking but solid advice nonetheless.
yes.  it was a (poor) joke, which is why I put the "(j/k)" in there.. but humor can't go through sometiems.
Title: Re: Is the stock market too expensive to get back in?
Post by: Will on May 27, 2014, 04:38:52 PM
I noticed too that the topic is "Is the stock market too expensive to get back in?"

It implies that the OP was in and decided to get out at some point.
Title: Re: Is the stock market too expensive to get back in?
Post by: matchewed on May 27, 2014, 05:12:53 PM
I noticed too that the topic is "Is the stock market too expensive to get back in?"

It implies that the OP was in and decided to get out at some point.

Yeah the OP said it right in their post.

Is it the right time to get into the stock market or it is too expensive? If decided to wait for a correction (~10% down), what would be an alternative investment option until then?

After a relocation package and a home sale + previous savings I reached 500k. Got into the Vanguard 500 fund a month or so ago but got scared due to the apparent high cost and pulled out. I know I should leave the money in but do not want to start my investing life at a S&P 500 peak (1900).

On a side note, I'm planning to reach FI in 6 years but no rush (for now).

Comments?
Thanks in advance!!!
Tordo
Title: Re: Is the stock market too expensive to get back in?
Post by: William on May 27, 2014, 05:20:42 PM
Dollar cost average...  Don't try to time the market.  You won't win.  Unless you can predict the future.  Can you predict the future?  If so, you'll get rich without worrying about this thread.
Title: Re: Is the stock market too expensive to get back in?
Post by: Will on May 27, 2014, 05:43:27 PM
I noticed too that the topic is "Is the stock market too expensive to get back in?"

It implies that the OP was in and decided to get out at some point.

Yeah the OP said it right in their post.

Is it the right time to get into the stock market or it is too expensive? If decided to wait for a correction (~10% down), what would be an alternative investment option until then?

After a relocation package and a home sale + previous savings I reached 500k. Got into the Vanguard 500 fund a month or so ago but got scared due to the apparent high cost and pulled out. I know I should leave the money in but do not want to start my investing life at a S&P 500 peak (1900).

On a side note, I'm planning to reach FI in 6 years but no rush (for now).

Comments?
Thanks in advance!!!
Tordo

Oh yeah.  Dur! 
Title: Re: Is the stock market too expensive to get back in?
Post by: matchewed on May 27, 2014, 05:46:54 PM
Oh yeah.  Dur!

;)
Title: Re: Is the stock market too expensive to get back in?
Post by: Will on May 27, 2014, 06:04:45 PM
I am sure I read that originally, but in the days since forgot.  Half a million dollars into and out of the market in less than a month.  Somebody needs an investment policy statement.
Title: Re: Is the stock market too expensive to get back in?
Post by: arebelspy on May 28, 2014, 09:20:14 AM
We really need a sticky for this topic....

The best part about a sticky like that is how hilarious it looks when there is a crash.

(E.g. picture a similar sticky created on Bogleheads or E-R.org in 2007.)

:D
Title: Re: Is the stock market too expensive to get back in?
Post by: libertarian4321 on May 31, 2014, 01:58:46 AM
Is it the right time to get into the stock market or it is too expensive? If decided to wait for a correction (~10% down), what would be an alternative investment option until then?

After a relocation package and a home sale + previous savings I reached 500k. Got into the Vanguard 500 fund a month or so ago but got scared due to the apparent high cost and pulled out. I know I should leave the money in but do not want to start my investing life at a S&P 500 peak (1900).

On a side note, I'm planning to reach FI in 6 years but no rush (for now).

Comments?
Thanks in advance!!!
Tordo

I first started investing in early 1987.  Yeah, that's right, I started investing right at the peak of the market.

I got HAMMERED (on paper) 10 months later (Black Monday).

But I left my money in and kept investing regularly.

I kept investing through the Gulf War, the Russian crisis ('91?), the asian stock crash ('97?), the "millenium" panic, 9-11, the bursting of the tech bubble, the 2007-2008 "collapse" and probably a dozen smaller "panics."

You know what, that little "blip" in 1987 doesn't seem like all that big a deal now (though everyone, at the time, thought the world was coming to an end).  Hell, even the big "collapse" of 2008 doesn't seem like a big deal anymore.

I just keep chugging along, investing regularly, never trying to "time" the market.

If you fuss over every $50 you invest, you will fail.  You'll invest high and sell low.  I see people do it all the time.

Invest your money over time. Dollar cost average.  Don't obsess.  Don't panic.  Don't screw with it.

30 years from now, you won't even remember if the market was "high" or "low" when you started investing in 2014.

Will the next panic be next week, next month, next year, or 3 years from now?  I have no idea, but I know for sure that people go berserk every so often.  When the idiots go into full panic, it's the best time to sit back, pop open a cold one, and do nothing.

At this point, I greet every "crisis" with a "whatever" and just keep chugging along, making my regular investments in the market.
Title: Re: Is the stock market too expensive to get back in?
Post by: RapmasterD on May 31, 2014, 09:16:51 PM
I'm with libertarian shabbadabbadooba. I had $18,000 in 1987 and lost 1/3 of it simply because I panicked and sold. Lesson learned nearly 30 years ago.
Title: Re: Is the stock market too expensive to get back in?
Post by: Dollarbill49 on June 01, 2014, 12:47:04 PM
Have no fears.  20-25 years from now, you'll look back at the market levels today and think we've gone up quite a bit since that forum post on MMM.

I would dollar cost average over 6 months or so if that makes you more comfortable.

Good luck!
Title: Re: Is the stock market too expensive to get back in?
Post by: Sparkie on June 01, 2014, 04:33:00 PM
I'm in a similar boat as the OP sitting on $400k cash. Luckily Im at least getting 4% on it, but I want to obviously deploy it properly.

No one can predict what will happen. Staying the course, DCA, etc, have all been sound strategies in the past. But for me, i sleep better at night waiting for the correction. I won't try to time the market once in, but there's enough reasons for me to wait for a pull back, or at least DCA slowly over a longer period than 'normal'

Normalcy bias is a risk. Just because the US market has continued to rise over decades, doesn't mean it will continue to bounce back. Look at Japan for example. The S&P 500 is only just higher than it was in 2007, and 2000.

The circumstances that caused the 2007 crash haven't been resolved, just papered over with loose monetary policy. The real economy doesn't match the stock market rise. Inflation adjusted wages are the same as 40 years ago. The banks are now bigger, taking on the same risks as before, interest rates are being held artificially low etc etc.

There may be a crash and it might not go lower than if I got in now, because it might not happen for months or years. But that's ok. For every expert that'll tell you things are booming, there's another that'll tell you it's not. I'm happier to forgo some upside to minimise the downside risk. For now. All you can do is assess the facts and make a decision you can live with. You won't know who was right until after the fact, but that's life. Make your choices and live with the consequences
Title: Re: Is the stock market too expensive to get back in?
Post by: RapmasterD on June 01, 2014, 04:51:19 PM
Have no fears.  20-25 years from now, you'll look back at the market levels today and think we've gone up quite a bit since that forum post on MMM.

I would dollar cost average over 6 months or so if that makes you more comfortable.

Good luck!

I agree 100%. And Sparkie, you may want to consider this for your 400K as well. Or chunk out 8 monthly purchases of 50k each. In essence, go long on what's returned the most for decades. Go short on emotion and hyperbole. It will not serve you.
Title: Re: Is the stock market too expensive to get back in?
Post by: Sparkie on June 01, 2014, 05:17:25 PM
And Sparkie, you may want to consider this for your 400K as well. Or chunk out 8 monthly purchases of 50k each. In essence, go long on what's returned the most for decades. Go short on emotion and hyperbole. It will not serve you.

I already did consider it, and have decided to wait a while. No hyperbole from me. Just how I see it. Just because you disagree doesn't make it hyperbole. I may be wrong- who knows. Do I back my own judgement and live with the consequences, or go with RapmasterD off the Internet?
Title: Re: Is the stock market too expensive to get back in?
Post by: rmendpara on June 01, 2014, 06:31:51 PM
And Sparkie, you may want to consider this for your 400K as well. Or chunk out 8 monthly purchases of 50k each. In essence, go long on what's returned the most for decades. Go short on emotion and hyperbole. It will not serve you.

I already did consider it, and have decided to wait a while. No hyperbole from me. Just how I see it. Just because you disagree doesn't make it hyperbole. I may be wrong- who knows. Do I back my own judgement and live with the consequences, or go with RapmasterD off the Internet?

Based on history, we are more likely to see a rough market based on some event (maybe a real slowdown in China?). Personally, I think Europe is still at a bottom, and will have a long and slow climb because they have a lot of things to work through in order to return to growth. The US has been growing, but not as a whole. One sector is growing (mostly tech) while others are struggling... it's more of a rebalancing in the US than anything else in terms of what will be the growth engine.

Regardless, I agree with your point, you should wait for a correction. However, you should identify now what you consider to be a correction and valuation level that is attractive to you to prevent making an emotional decision (e.g. "If the Dow reaches 15,500, I'll start putting in money. And if the Dow reaches 14,500, I'll dump the rest.") This way, you don't listen too much to the news and people's feelings on CNBC and make a smart decision based on what makes you feel comfortable.
Title: Re: Is the stock market too expensive to get back in?
Post by: Blindsquirrel on June 01, 2014, 06:46:34 PM
   Here is a good link for you to look at, http://www.advisorperspectives.com/dshort/updates/PE-Ratios-and-Market-Valuation.php  for a good perspective on valuation of the S&P500. We buy continually in our 401k's the index funds. After tax cash has been plowed into rental real estate as the P/E there is about 5-6ish or a tad lower in our area. In the end, your call but dollar cost ave reduces your chance of only buying high. From a historical perspective it is a tad expensive, in 20 years the blips will not matter much at all. An decent play is also good dividend payers as their yield lowers the beta. ie, SDY as a fund or your PG, APPL, XOM, BP type stocks if you are into single stocks.
Title: Re: Is the stock market too expensive to get back in?
Post by: Sparkie on June 01, 2014, 06:47:58 PM
Based on history, we are more likely to see a rough market based on some event (maybe a real slowdown in China?). Personally, I think Europe is still at a bottom, and will have a long and slow climb because they have a lot of things to work through in order to return to growth. The US has been growing, but not as a whole. One sector is growing (mostly tech) while others are struggling... it's more of a rebalancing in the US than anything else in terms of what will be the growth engine.

Regardless, I agree with your point, you should wait for a correction. However, you should identify now what you consider to be a correction and valuation level that is attractive to you to prevent making an emotional decision (e.g. "If the Dow reaches 15,500, I'll start putting in money. And if the Dow reaches 14,500, I'll dump the rest.") This way, you don't listen too much to the news and people's feelings on CNBC and make a smart decision based on what makes you feel comfortable.

I think what you say is prudent. I don't want to get caught trying to time the bottom.

I have $250k already in the market so its not like I'll totally miss out if I'm wrong. But the same people who like to quote history - 7% historical returns, and the market always rises, tend to ignore the bits that show bull markets usually run for 5 years and then correct, and that interest rates aren't usually this heavily manipulated forcing people to chase yield etc. 

The US is, in my view nearer the top of a run up than the bottom. Interest rates are near the low end of history than the high end.  This bull market is based on the belief that the Fed has your back in terms of risk, rather than a booming economy. US budgetary spending requires foreign investment that is drying up, leaving the Govt to buy its own bonds, essentially printing money to pay the bills.

I hate not being invested, and am a set and forget type of investor. I can get 4% govt guaranteed on cash. That's better than inflation and maintains my principle. Chasing another 3% or so isn't worth it to me right now.
Title: Re: Is the stock market too expensive to get back in?
Post by: Sparkie on June 01, 2014, 06:54:06 PM
   Here is a good link for you to look at, http://www.advisorperspectives.com/dshort/updates/PE-Ratios-and-Market-Valuation.php  for a good perspective on valuation of the S&P500. We buy continually in our 401k's the index funds. After tax cash has been plowed into rental real estate as the P/E there is about 5-6ish or a tad lower in our area. In the end, your call but dollar cost ave reduces your chance of only buying high. From a historical perspective it is a tad expensive, in 20 years the blips will not matter much at all. An decent play is also good dividend payers as their yield lowers the beta. ie, SDY as a fund or your PG, APPL, XOM, BP type stocks if you are into single stocks.

I wish real estate was an option in my town but the yields are terrible - generally<3% and the opportunity for capital appreciation has gone in my view. The median price in Melbourne is 650k. But I like property because I can control it a bit.

I'll be wanting dividend payers when I get in. Just takes away the mental volatility for me in terms of stock prices etc. I'm happy to wait, however unpopular that is :)
Title: Re: Is the stock market too expensive to get back in?
Post by: RapmasterD on June 01, 2014, 09:45:04 PM
Based on history, we are more likely to see a rough market based on some event (maybe a real slowdown in China?). Personally, I think Europe is still at a bottom, and will have a long and slow climb because they have a lot of things to work through in order to return to growth. The US has been growing, but not as a whole. One sector is growing (mostly tech) while others are struggling... it's more of a rebalancing in the US than anything else in terms of what will be the growth engine.

Regardless, I agree with your point, you should wait for a correction. However, you should identify now what you consider to be a correction and valuation level that is attractive to you to prevent making an emotional decision (e.g. "If the Dow reaches 15,500, I'll start putting in money. And if the Dow reaches 14,500, I'll dump the rest.") This way, you don't listen too much to the news and people's feelings on CNBC and make a smart decision based on what makes you feel comfortable.

I think what you say is prudent. I don't want to get caught trying to time the bottom.

I have $250k already in the market so its not like I'll totally miss out if I'm wrong. But the same people who like to quote history - 7% historical returns, and the market always rises, tend to ignore the bits that show bull markets usually run for 5 years and then correct, and that interest rates aren't usually this heavily manipulated forcing people to chase yield etc. 

The US is, in my view nearer the top of a run up than the bottom. Interest rates are near the low end of history than the high end.  This bull market is based on the belief that the Fed has your back in terms of risk, rather than a booming economy. US budgetary spending requires foreign investment that is drying up, leaving the Govt to buy its own bonds, essentially printing money to pay the bills.

I hate not being invested, and am a set and forget type of investor. I can get 4% govt guaranteed on cash. That's better than inflation and maintains my principle. Chasing another 3% or so isn't worth it to me right now.

"I think."

"My view."

"I hate..."

Whatever....
Title: Re: Is the stock market too expensive to get back in?
Post by: Sparkie on June 01, 2014, 09:57:18 PM

"I think."

"My view."

"I hate..."

Whatever....

Yeah, you're right. Thinking for yourself is over rated.

I guess someone told you once being a dick makes you all Gangsta or something. It doesn't. Just makes you a dick.
Title: Re: Is the stock market too expensive to get back in?
Post by: butchmonkey on June 02, 2014, 12:05:02 AM

   Here is a good link for you to look at, http://www.advisorperspectives.com/dshort/updates/PE-Ratios-and-Market-Valuation.php  for a good perspective on valuation of the S&P500. We buy continually in our 401k's the index funds. After tax cash has been plowed into rental real estate as the P/E there is about 5-6ish or a tad lower in our area. In the end, your call but dollar cost ave reduces your chance of only buying high. From a historical perspective it is a tad expensive, in 20 years the blips will not matter much at all. An decent play is also good dividend payers as their yield lowers the beta. ie, SDY as a fund or your PG, APPL, XOM, BP type stocks if you are into single stocks.

I wish real estate was an option in my town but the yields are terrible - generally<3% and the opportunity for capital appreciation has gone in my view. The median price in Melbourne is 650k. But I like property because I can control it a bit.

I'll be wanting dividend payers when I get in. Just takes away the mental volatility for me in terms of stock prices etc. I'm happy to wait, however unpopular that is :)

Sparkie,

There is nothing wrong with paying attention to valuations.

The important thing is to have a plan and stick to it.

So if you don't want to invest in stock at times like these, define what it is that makes you uncomfortable and create a rule for yourself.

as an example you could use the Schiller P/E ratio to determine your allocation of stocks and bonds: the higher the P/E ratio the lower your allocation to stocks.

Just don't fly by the seat of your pants. That's a loser's strategy.

All of your reservations about putting money in stock right now could've been well stated 1 year ago and of course the stockmarket did great last year.




Sent from my iPhone using Tapatalk
Title: Re: Is the stock market too expensive to get back in?
Post by: hodedofome on June 02, 2014, 08:28:29 AM
I think what you say is prudent. I don't want to get caught trying to time the bottom.

I have $250k already in the market so its not like I'll totally miss out if I'm wrong. But the same people who like to quote history - 7% historical returns, and the market always rises, tend to ignore the bits that show bull markets usually run for 5 years and then correct, and that interest rates aren't usually this heavily manipulated forcing people to chase yield etc. 

The US is, in my view nearer the top of a run up than the bottom. Interest rates are near the low end of history than the high end.  This bull market is based on the belief that the Fed has your back in terms of risk, rather than a booming economy. US budgetary spending requires foreign investment that is drying up, leaving the Govt to buy its own bonds, essentially printing money to pay the bills.

I hate not being invested, and am a set and forget type of investor. I can get 4% govt guaranteed on cash. That's better than inflation and maintains my principle. Chasing another 3% or so isn't worth it to me right now.

Just a thought to what you've said here. You've listed a lot of downside risks to the economy and implicitly the stock market (and I don't necessarily disagree with the risks you've provided). However, it's good to consider the upside risks as well. What if the market climbs a wall of worry and never has more than a 10% correction for years? IMO a good plan considers both possibilities.
Title: Re: Is the stock market too expensive to get back in?
Post by: matchewed on June 02, 2014, 08:35:28 AM
I think what you say is prudent. I don't want to get caught trying to time the bottom.

I have $250k already in the market so its not like I'll totally miss out if I'm wrong. But the same people who like to quote history - 7% historical returns, and the market always rises, tend to ignore the bits that show bull markets usually run for 5 years and then correct, and that interest rates aren't usually this heavily manipulated forcing people to chase yield etc. 

The US is, in my view nearer the top of a run up than the bottom. Interest rates are near the low end of history than the high end.  This bull market is based on the belief that the Fed has your back in terms of risk, rather than a booming economy. US budgetary spending requires foreign investment that is drying up, leaving the Govt to buy its own bonds, essentially printing money to pay the bills.

I hate not being invested, and am a set and forget type of investor. I can get 4% govt guaranteed on cash. That's better than inflation and maintains my principle. Chasing another 3% or so isn't worth it to me right now.

Bolded for emphasis is my edit.

The things I bolded don't agree with what you've said. I see no problem with people setting up conditions which would cause them to buy or sell. Then the conditions dictate their actions. You are not demonstrating that sort of resolve here. You are also not demonstrating your set and forget style of investing. You've decidedly not forgotten and are pulling money on a decision based off of observation and guess work. That's fine if you're cool with those risks. But don't label yourself as an ice cream lover and spit out Ben and Jerry's when you taste it.
Title: Re: Is the stock market too expensive to get back in?
Post by: Sparkie on June 02, 2014, 04:01:35 PM
I don't really see the point in repeating myself over and over. I didn't start the thread. I wasn't looking for advice. I initially commented to the OP that I'd wait, and gave some reasons. I don't really need those reasons validated by anyone else, although I appreciate most people are trying to be helpful.

I didn't pull money from the market; it wasn't in it. I'm not trying to time the market in the sense that I'll be in and out of it. I don't even want to get in at the bottom per se. I think the markets, which currently bear little resemblance to the underlying economy are due a correction, so I'm waiting, because I think it will be sizeable. 

If I'm wrong, I'm ok with that too. The downside risk outweighs the upside.  Every time you want to buy a stock/etf, someone else wants to sell it. They think the opposite to you. Surely the buyer isn't always right?

I'll leave it at that. Can't believe the OP makes one post and we're all running with it while s/he is long gone.
Title: Re: Is the stock market too expensive to get back in?
Post by: RapmasterD on June 02, 2014, 09:26:26 PM

"I think."

"My view."

"I hate..."

Whatever....


I guess someone told you once being a dick makes you all Gangsta or something. It doesn't. Just makes you a dick.

Now you're getting somewhere. When it comes to investing, particularly with all the options available to individual investors these days, thinking for yourself IS over-rated, particularly when said 'thinking' is based on emotions and fears versus price charts. Pick your AA and whatever you do, don't "think."

Of course we will enter another bear market...and younger investors will witness many of them, but there is nothing factual to indicate when that will happen or how severe they will be.

Your posts seem to indicate that with a sum of money ($400K) it is somehow better for it to sit in cash, an asset class guaranteed to lose money over time, versus investing it over time in the asset class guaranteed to provide a higher return. I apologize if I offended you, but I think CASH invested in US dollars is a bad place to park any more than a minimum 'rainy day fund,' unless you have a short term need for a pot of cash for a home downpayment, etc.

You may want to consider basing more of your thinking on data and facts, and less on emotion. Case in point: in one of your posts, you write, "the downside risk outweighs the upside." Says who? And based on what facts?

Finally, I guess you now know what the "D" in RapMasterD stands for. XXOO
Title: Re: Is the stock market too expensive to get back in?
Post by: Sparkie on June 02, 2014, 10:01:06 PM

"I think."

"My view."

"I hate..."

Whatever....


I guess someone told you once being a dick makes you all Gangsta or something. It doesn't. Just makes you a dick.

Now you're getting somewhere. When it comes to investing, particularly with all the options available to individual investors these days, thinking for yourself IS over-rated, particularly when said 'thinking' is based on emotions and fears versus price charts. Pick your AA and whatever you do, don't "think."

Of course we will enter another bear market...and younger investors will witness many of them, but there is nothing factual to indicate when that will happen or how severe they will be.

Your posts seem to indicate that with a sum of money ($400K) it is somehow better for it to sit in cash, an asset class guaranteed to lose money over time, versus investing it over time in the asset class guaranteed to provide a higher return. I apologize if I offended you, but I think CASH invested in US dollars is a bad place to park any more than a minimum 'rainy day fund,' unless you have a short term need for a pot of cash for a home downpayment, etc.

You may want to consider basing more of your thinking on data and facts, and less on emotion. Case in point: in one of your posts, you write, "the downside risk outweighs the upside." Says who? And based on what facts?

Finally, I guess you now know what the "D" in RapMasterD stands for. XXOO

I'm getting 4% govt guaranteed for up to 12 months, not not losing money if I use 2-3% as inflation.

Fair play for taking the dick thing on the chin. Not literally of course. Not that there's anything wrong with that.  :)


Title: Re: Is the stock market too expensive to get back in?
Post by: AMustachianMurse on June 02, 2014, 10:49:19 PM
Tordo, Rather than try to time the market, which is a fool's errand by the way, just do what helps you sleep at night.

If you don't feel comfortable investing everything right now, then don't. Simple as that. Whether you are leaving money on the table or not doesn't really matter if it's too risky for your nerves

Personally, I don't believe anyone can accurately time the market overall. If I were in your situation, I would choose a target asset allocation for the year 2016, and then start putting in money on a weekly/monthly basis (maybe ~$5k/week?). If you see markets selling off, then accelerate your investments to $6-7k/week, and if markets take off upward, then maybe slow down to $3-4k/week.

This way, you don't win big or lose big, but also don't end up standing on the sidelines waiting to play.

What do you do that you have $5k disposable income every week.  and also...do you want a mentee?  I make a mean cup of coffee and am very good at googling things.  /s.  but...also kind of serious
Title: Re: Is the stock market too expensive to get back in?
Post by: YoungInvestor on August 02, 2014, 08:04:39 PM

"I think."

"My view."

"I hate..."

Whatever....


I guess someone told you once being a dick makes you all Gangsta or something. It doesn't. Just makes you a dick.

Now you're getting somewhere. When it comes to investing, particularly with all the options available to individual investors these days, thinking for yourself IS over-rated, particularly when said 'thinking' is based on emotions and fears versus price charts. Pick your AA and whatever you do, don't "think."

Of course we will enter another bear market...and younger investors will witness many of them, but there is nothing factual to indicate when that will happen or how severe they will be.

Your posts seem to indicate that with a sum of money ($400K) it is somehow better for it to sit in cash, an asset class guaranteed to lose money over time, versus investing it over time in the asset class guaranteed to provide a higher return. I apologize if I offended you, but I think CASH invested in US dollars is a bad place to park any more than a minimum 'rainy day fund,' unless you have a short term need for a pot of cash for a home downpayment, etc.

You may want to consider basing more of your thinking on data and facts, and less on emotion. Case in point: in one of your posts, you write, "the downside risk outweighs the upside." Says who? And based on what facts?

Finally, I guess you now know what the "D" in RapMasterD stands for. XXOO

Thinking for yourself may include using data to draw the conclusion that, right now, the index does not seem to be a good investment.

For someone with statistical modelling/time series knowledge and general economic knowledge, attempting to "time" the market isn't necessarily a loser's game. I'm not saying this is the OP's situation, but let's diss the whole idea.
Title: Re: Is the stock market too expensive to get back in?
Post by: vivophoenix on August 04, 2014, 08:27:39 AM
i may have missed it in this thread, or i may be bumbling into high water, but what is DCA? I found this blog about four months ago and immediately started selecting my own allocations for my 401k and then opened an IRA an put that in  an index fund. then i read about springy  debt and put part of my emergency fund in cash, part in bonds and part in index funds. now im trying to learn more
Title: Re: Is the stock market too expensive to get back in?
Post by: Scandium on August 04, 2014, 08:48:21 AM
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/

Yes please a sticky! Or immediately consolidate all these threads into one giant "market timers anonymous" topic..

Sticky could look like this:
Is the market too expensive?
yes/no/maybe/who knows. You should go 100%: S&P/cash/gold/guns and canned food

Or my favorite: rainfall futures:
http://www.cmegroup.com/trading/weather/files/rainfall-futures-and-options.pdf
Title: Re: Is the stock market too expensive to get back in?
Post by: Jags4186 on August 04, 2014, 09:04:04 AM
i may have missed it in this thread, or i may be bumbling into high water, but what is DCA? I found this blog about four months ago and immediately started selecting my own allocations for my 401k and then opened an IRA an put that in  an index fund. then i read about springy  debt and put part of my emergency fund in cash, part in bonds and part in index funds. now im trying to learn more

DCA is dollar cost averaging.

The theory is if you have $12,000 to invest, you invest $1000 a month every month for a year to "average" your money into the market vs. plunking it in all at once.

The numbers tell us lump sum investing will get you ahead (i.e. investing $12,000 on January 1, vs $1000 January 1, February 1, etc. etc.).   This is because in general the market goes up so you want your money in the market as long as possible.  In reality when initially investing DCA will be better for you in a down year and worse for you in an up year.  If you're just getting started and you have a lump of cash to invest, I don't think it's necessarily the worse thing for you to do.

If you are just starting out and have no money you are effectively DCAing simply because you will be investing a portion of your paycheck every week/month.
Title: Re: Is the stock market too expensive to get back in?
Post by: Blindsquirrel 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,
Title: Re: Is the stock market too expensive to get back in?
Post by: MsRichLife 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?
Title: Re: Is the stock market too expensive to get back in?
Post by: fartface 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.
Title: Re: Is the stock market too expensive to get back in?
Post by: Mother Fussbudget 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. 
Title: Re: Is the stock market too expensive to get back in?
Post by: Eric on April 28, 2017, 04:26:49 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...
Title: Re: Is the stock market too expensive to get back in?
Post by: Khan 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
Title: Re: Is the stock market too expensive to get back in?
Post by: talltexan 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.
Title: Re: Is the stock market too expensive to get back in?
Post by: nereo 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...
Title: Re: Is the stock market too expensive to get back in?
Post by: PizzaSteve 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.
Title: Re: Is the stock market too expensive to get back in?
Post by: nereo 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.
Title: Re: Is the stock market too expensive to get back in?
Post by: sirdoug007 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
Title: Re: Is the stock market too expensive to get back in?
Post by: nereo on May 02, 2017, 08:59:38 AM
thanks for the correction and the story, sir doug.
Title: Re: Is the stock market too expensive to get back in?
Post by: talltexan 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.
Title: Re: Is the stock market too expensive to get back in?
Post by: ChpBstrd 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.
Title: Re: Is the stock market too expensive to get back in?
Post by: nereo 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?
Title: Re: Is the stock market too expensive to get back in?
Post by: ChpBstrd 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.
Title: Re: Is the stock market too expensive to get back in?
Post by: FireLane 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.
Title: Re: Is the stock market too expensive to get back in?
Post by: frugalnacho 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.
Title: Re: Is the stock market too expensive to get back in?
Post by: nereo 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.)
Title: Re: Is the stock market too expensive to get back in?
Post by: RWD 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...
Title: Re: Is the stock market too expensive to get back in?
Post by: Bumperpuff 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.
Title: Re: Is the stock market too expensive to get back in?
Post by: dragoncar 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
Title: Re: Is the stock market too expensive to get back in?
Post by: JAYSLOL 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
Title: Re: Is the stock market too expensive to get back in?
Post by: Eric 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.
Title: Re: Is the stock market too expensive to get back in?
Post by: dragoncar 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.
Title: Re: Is the stock market too expensive to get back in?
Post by: Radagast 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.
Title: Re: Is the stock market too expensive to get back in?
Post by: vand 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.

Title: Re: Is the stock market too expensive to get back in?
Post by: Mississippi Mudstache 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.
Title: Re: Is the stock market too expensive to get back in?
Post by: ChpBstrd 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/ (https://theinvestorchallenge.com/)