Author Topic: Stock Market Is High - Am I too late?  (Read 18230 times)

hammiehaack

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Stock Market Is High - Am I too late?
« on: May 06, 2014, 11:00:30 AM »
I've just gotten my hands on the MMM website and am learning to be even more badass than I was before. However, since the stock market is so high right now, am I too late to start investing to expect 7% returns in the next nine years before my planned retirment?
« Last Edit: May 06, 2014, 11:02:58 AM by hammiehaack »

Mississippi Mudstache

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Re: Stock Market Is High - Am I too late?
« Reply #1 on: May 06, 2014, 11:11:55 AM »
I guess we'll know nine years from now. Until then, invest. Regularly.

Eric

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Re: Stock Market Is High - Am I too late?
« Reply #2 on: May 06, 2014, 11:13:56 AM »
Yep, you missed the boat.  The stock market is at an all time high and will never go higher.  Ever.  This is a common problem with investing.  Once the markets hit their high, they can never surpass it.  Or can they......

Read this: http://jlcollinsnh.com/2012/04/19/stocks-part-ii-the-market-always-goes-up/

Cheddar Stacker

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Re: Stock Market Is High - Am I too late?
« Reply #3 on: May 06, 2014, 11:22:48 AM »
Welcome to the forum.

The market may lose 20% tomorrow or over the next year or two. In 9 years, it will have returned a 50% profit if history repeats itself.

Don't think about the price now or tomorrow. Get on the train - it will get you to your destination eventually. You don't need to get there next year.

Read the link Eric provided, then you might be able to stop worrying so much.

Ftao93

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Re: Stock Market Is High - Am I too late?
« Reply #4 on: May 06, 2014, 11:26:13 AM »
I think you'll be fine.  Fire away!

hodedofome

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Re: Stock Market Is High - Am I too late?
« Reply #5 on: May 06, 2014, 11:28:36 AM »
Throw it all in, what's the worst that could happen?

foobar

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Re: Stock Market Is High - Am I too late?
« Reply #6 on: May 06, 2014, 11:29:00 AM »
If it makes you feel better, the S&P 500 is still about 30% off its peak in 2000 in real terms.

And here is the big question: What if you only get 4% returns for the next 9 years. What would you do differently? There are not many alternatives to stock market investing that will beat inflation long term. If you want a second job, you can be a landlord. After that the pickings get real slim.

I've just gotten my hands on the MMM website and am learning to be even more badass than I was before. However, since the stock market is so high right now, am I too late to start investing to expect 7% returns in the next nine years before my planned retirment?

dragoncar

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Re: Stock Market Is High - Am I too late?
« Reply #7 on: May 06, 2014, 11:33:56 AM »
Can't tell how many of the responses are sarcasm.  Real answer is -- if you are just starting out, it's probably a good idea to make regular contributions to investments.  That said, your fear isn't totally off base and you should go into it with a full understanding of the risk.  I do think Eric's jlcollins link does a good job explaining this.

forward

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Re: Stock Market Is High - Am I too late?
« Reply #8 on: May 06, 2014, 12:59:08 PM »
Can't tell how many of the responses are sarcasm.  Real answer is -- if you are just starting out, it's probably a good idea to make regular contributions to investments.  That said, your fear isn't totally off base and you should go into it with a full understanding of the risk.  I do think Eric's jlcollins link does a good job explaining this.

I second this sentiment.  Yes, there is real risk to investing, you have to become comfortable with that risk.  The market has done well the last few years and the last 18 months especially.  Some people are fickle and don't recall what it feels like to loose significant amounts of money in the market and thus interpret the recent data as there is no where to go but up.  Invest, but do it wisely and don't invest in things you don't understand.

hammiehaack

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Re: Stock Market Is High - Am I too late?
« Reply #9 on: May 06, 2014, 01:17:05 PM »
Thanks everyone. I do plan to ride the stock market out, but sometimes I need the badasses of the MMM forum to hold my hand. :)

I am 100 percent invested in an index fund that tracks the S & P 500 through my organization's 457 plan. It is a John Hancock fund and I am not everly pleased with the fees or the "advisor"....but....blah blah blah you know the rest.

My organization also offers a great pension plan that is over 100 percent funded. I'll be riding pretty good with a combo of the two in nine years.

Mr Mark

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Re: Stock Market Is High - Am I too late?
« Reply #10 on: May 06, 2014, 02:24:24 PM »

There really is no free ride. If you want on average returns above inflation over long term, equities. But with reward comes risk, and volatility.

There are a few ways to hedge these risks, but at the expense of probable long term (think 30 years +) rewards.
1. Have some % in bonds. The larger the %, the smoother the ride.

Having say 4 or 5 years withdrawals in bonds allows you to live post big equity drop without selling at the bottom, plus the act of rebalancing the ratio will hopefully tend you towards buying low and accumulating high.

2. Diversify beyond pure sp500
typically think of adding a %
- international stock
- broader market
- real estate (owning, renting, REITs)
- commodities
- super tulips (ie gold)

But sitting on the sidelines without a plan, esp wrt asset allocation, is THE rookie error, resulting in a tendancy to buy high, sell low, and then staying in cash until just before the next dip,  (repeat)




Dr. Doom

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Re: Stock Market Is High - Am I too late?
« Reply #11 on: May 06, 2014, 02:31:47 PM »

Note: jlcollinsnh's site has been up/down lately due to technical issues, check out the webcache version from Feb 2014 so you can access the content anyways. 

http://web.archive.org/web/20140208003432/http://jlcollinsnh.com/2012/04/19/stocks-part-ii-the-market-always-goes-up/


kyleaaa

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Re: Stock Market Is High - Am I too late?
« Reply #12 on: May 06, 2014, 02:46:55 PM »
I've got some stock in a bridge-building company I'll sell ya.

wtjbatman

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Re: Stock Market Is High - Am I too late?
« Reply #13 on: May 06, 2014, 06:31:26 PM »
Thanks everyone. I do plan to ride the stock market out, but sometimes I need the badasses of the MMM forum to hold my hand. :)

I am 100 percent invested in an index fund that tracks the S & P 500 through my organization's 457 plan. It is a John Hancock fund and I am not everly pleased with the fees or the "advisor"....but....blah blah blah you know the rest.

My organization also offers a great pension plan that is over 100 percent funded. I'll be riding pretty good with a combo of the two in nine years.

I don't know the details of your pension, but if you combine investments over the next 9 years with a well funded pension plan, you'll be sitting prettier than the majority of people here on MMM. I wouldn't worry too much.

Mr. Frugalwoods

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Re: Stock Market Is High - Am I too late?
« Reply #14 on: May 06, 2014, 06:40:56 PM »
It's tough, right?  Mentally jumping into a market like this can make you hold your breath and close your eyes!

I'm weird, so who knows if this will help you.  But every year I do the math and game out what a significant (20-30%) downturn in the market would mean for my finances and my FIRE goals.  It's comforting to me that while it would mean a lot of money "lost", it wouldn't actually delay FIRE by that much.  And I'd enjoy working all the more knowing I was dollar cost averaging into a cheaper market.

So just get moving.  Diversify and do what you can to spread out risk.   But remember, if you aren't invested then you are losing money every month to inflation.

bobmarley9993

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Re: Stock Market Is High - Am I too late?
« Reply #15 on: May 06, 2014, 08:23:29 PM »
Emerging markets arent particularly high right now.  Reits are down as well.  Diversify.

hobbes1

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Re: Stock Market Is High - Am I too late?
« Reply #16 on: May 07, 2014, 06:05:54 AM »
As noted, a good plan in general is having some diversification in your investments. As far as bonds go, I would recommend keeping regular contributions there (some ideas to consider: VWEHX, FNMIX, FLBAX, VBISX if nontaxable acct, VWAHX if taxable account). Some feel the bond market is set to fall ( where price (NAV) declines which in turn results in yield rising) but I feel that if you have a long-ish horizon before needing the money, you will just continue to buy more shares as the prices fall (dollar cost avg) and benefit from the rising yields. Monthly dividends (interest payments) can be set to reinvest and that's DCA all by itself.
  As far as stocks, SP500 index is a good choice and maybe consider VGSIX (reit), FSIVX and if you really want to diversify more, you can check out Vanguard small/mid cap index funds too.

HTH!


Dr. Doom

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Re: Stock Market Is High - Am I too late?
« Reply #17 on: May 07, 2014, 06:25:00 AM »
I'm weird, so who knows if this will help you.  But every year I do the math and game out what a significant (20-30%) downturn in the market would mean for my finances and my FIRE goals.  It's comforting to me that while it would mean a lot of money "lost", it wouldn't actually delay FIRE by that much.  And I'd enjoy working all the more knowing I was dollar cost averaging into a cheaper market.

I do something similar.  I think this is a healthy thing to do because it allows you to visualize and anticipate one of the worst-case outcomes for the year and accept it in advance.  That way, if (when?) it actually happens, it's easier to cope, steel your nerves, and continue down the same path.  You'll be more mentally ready for it. 

Because there will be bad years, and you'll need to shrug them off soldier through.

hammiehaack

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Re: Stock Market Is High - Am I too late?
« Reply #18 on: May 07, 2014, 10:52:17 AM »
Just checked out your blog, Dr. Doom. Nice.

Kriegsspiel

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Re: Stock Market Is High - Am I too late?
« Reply #19 on: May 07, 2014, 11:04:42 AM »

There really is no free ride. If you want on average returns above inflation over long term, equities. But with reward comes risk, and volatility.

There are a few ways to hedge these risks, but at the expense of probable long term (think 30 years +) rewards.
1. Have some % in bonds. The larger the %, the smoother the ride.

Having say 4 or 5 years withdrawals in bonds allows you to live post big equity drop without selling at the bottom, plus the act of rebalancing the ratio will hopefully tend you towards buying low and accumulating high.

2. Diversify beyond pure sp500
typically think of adding a %
- international stock
- broader market
- real estate (owning, renting, REITs)
- commodities
- super tulips (ie gold)

But sitting on the sidelines without a plan, esp wrt asset allocation, is THE rookie error, resulting in a tendancy to buy high, sell low, and then staying in cash until just before the next dip,  (repeat)

Word.

dodojojo

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Re: Stock Market Is High - Am I too late?
« Reply #20 on: May 07, 2014, 11:55:37 AM »
Quote
Having say 4 or 5 years withdrawals in bonds allows you to live post big equity drop without selling at the bottom, plus the act of rebalancing the ratio will hopefully tend you towards buying low and accumulating high.

My investments max out at the 401K/IRA limits.  I have a few thousand I could and probably should invest insteading of it sitting in a savings account.  The advice I have seen is that tax-sheltered accounts are best for bonds.  Something to do with taxation on investment gains generated by bond funds?  If that's the case, would tax-exempt bonds be the way to go if I want to invest beyond the 22.5K retirement limit? 

I have 18 months worth of living expenses in savings--I know it's better to invest a good portion of that but am afraid I'll be caught out in a market crash and be hard up for cash.  I just started a Roth account this year so I guess I could access the 5K principle in an emergency.  But 5K isn't going to last very long for the next market downturn or unemployment period.

msilenus

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Re: Stock Market Is High - Am I too late?
« Reply #21 on: May 07, 2014, 02:03:40 PM »
If it makes you feel better, the S&P 500 is still about 30% off its peak in 2000 in real terms.

This made me do a double-take, and then I realized that you're probably thinking in terms of raw index price.  That's the wrong way to think of it.  Since the 2000 peak, the earnings backing up the price have gone up.  As a result, the PE of the S&P 500 is still well under 1/3 of what it was in 2000.

http://www.multpl.com/

IMO, the stock market is currently on the high side of normal.

hodedofome

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Re: Stock Market Is High - Am I too late?
« Reply #22 on: May 07, 2014, 03:42:21 PM »
If it makes you feel better, the S&P 500 is still about 30% off its peak in 2000 in real terms.

This made me do a double-take, and then I realized that you're probably thinking in terms of raw index price.  That's the wrong way to think of it.  Since the 2000 peak, the earnings backing up the price have gone up.  As a result, the PE of the S&P 500 is still well under 1/3 of what it was in 2000.

http://www.multpl.com/

IMO, the stock market is currently on the high side of normal.

I think he means the index, in inflation-adjusted terms, is still below it's 2000 peak. http://www.multpl.com/s-p-500-price/

clifp

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Re: Stock Market Is High - Am I too late?
« Reply #23 on: May 07, 2014, 05:57:24 PM »

Note: jlcollinsnh's site has been up/down lately due to technical issues, check out the webcache version from Feb 2014 so you can access the content anyways. 

http://web.archive.org/web/20140208003432/http://jlcollinsnh.com/2012/04/19/stocks-part-ii-the-market-always-goes-up/

In general I agree with his sentiment and the wisdom of being invested in stock for the long term.    But it is worth noting the stock market can take a very long time to go up. This a chart of the Japanese Nikkei 225.  The person who bought in in 1986 or so is still waiting 28 years latter to get back to even.  This chart doesn't include dividends or inflation which have been low in Japan for the last 30 years so they roughly balance out.




wtjbatman

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Re: Stock Market Is High - Am I too late?
« Reply #24 on: May 07, 2014, 07:25:46 PM »
Good thing we're not Japan then.

frugalecon

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Re: Stock Market Is High - Am I too late?
« Reply #25 on: May 07, 2014, 07:39:52 PM »

Note: jlcollinsnh's site has been up/down lately due to technical issues, check out the webcache version from Feb 2014 so you can access the content anyways. 

http://web.archive.org/web/20140208003432/http://jlcollinsnh.com/2012/04/19/stocks-part-ii-the-market-always-goes-up/

In general I agree with his sentiment and the wisdom of being invested in stock for the long term.    But it is worth noting the stock market can take a very long time to go up. This a chart of the Japanese Nikkei 225.  The person who bought in in 1986 or so is still waiting 28 years latter to get back to even.  This chart doesn't include dividends or inflation which have been low in Japan for the last 30 years so they roughly balance out.



Jeremy Grantham and company are more bearish than the typical MMM reader, but they do have some interesting observations on investing when there is a risk of bubbles.  See http://www.gmo.com/websitecontent/GMO_QtlyLetter_1Q14_FullVersion.pdf

They don't recommend avoiding stocks, just being mindful of how to use allocation to minimize risk. For Mustachians facing 40 years or more of living on investment income, the chances that a black swan event will paddle onto the scene at some point seems high.

hodedofome

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Re: Stock Market Is High - Am I too late?
« Reply #26 on: May 08, 2014, 08:22:23 AM »
Good thing we're not Japan then.

IMO Japan's issue is a decreasing population, and Japanese stocks were insanely overvalued in the late '80s. The US got pretty overvalued in the late '90s and we subsequently saw 10+ years of no returns and 2 nasty bear markets, however it wasn't near as overvalued as Japan was. The US could easily end up like Japan if our population stopped growing however.
« Last Edit: May 08, 2014, 10:53:44 AM by hodedofome »

MooseOutFront

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Re: Stock Market Is High - Am I too late?
« Reply #27 on: May 08, 2014, 08:48:27 AM »
OP, I think one important consideration is that the returns over the next 9 years aren't all that relevant to your FIRE objectives.  Your savings rate is by far and away what's important there, obviously.  The 30 years following the next 9 years?  Yeah, then you'll need those 5% inflation adjusted returns to sustain a 4% withdrawal rate.  Roughly.  By then today's "market highs" will likely not seem very relevant.

foobar

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Re: Stock Market Is High - Am I too late?
« Reply #28 on: May 08, 2014, 10:39:03 AM »
Between 1966 and 1983, the S&p 500 had 0% real return.  From 2000-2014 you made 1%.  Not as bad as japan but pretty lethal.   The interesting part here is that after a decade and a half of underperformance people are projecting poor future performance. Is that because of recency bias (i.e. last 10 years were bad, the next 10 will be also) or because conditions are bad. Check back in 10 years.

Good thing we're not Japan then.

IMO Japan's issue is a decreasing population, and Japanese stocks were insanely overvalued in the late '80s. The US got pretty overvalued in the late '90s and we subsequently saw 10+ years of no returns and 2 nasty bear markets, however it wasn't near as overvalued as Japan was. The US could easily end up like Japan in our population stopped growing however.

BFGirl

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Re: Stock Market Is High - Am I too late?
« Reply #29 on: May 08, 2014, 10:48:41 AM »
Good thing we're not Japan then.

IMO Japan's issue is a decreasing population, and Japanese stocks were insanely overvalued in the late '80s. The US got pretty overvalued in the late '90s and we subsequently saw 10+ years of no returns and 2 nasty bear markets, however it wasn't near as overvalued as Japan was. The US could easily end up like Japan in our population stopped growing however.

on the internet today:  http://finance.yahoo.com/news/fear-economic-blow-births-drop-162123871.html

hodedofome

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Re: Stock Market Is High - Am I too late?
« Reply #30 on: May 08, 2014, 10:58:57 AM »
Between 1966 and 1983, the S&p 500 had 0% real return.  From 2000-2014 you made 1%.  Not as bad as japan but pretty lethal.   The interesting part here is that after a decade and a half of underperformance people are projecting poor future performance. Is that because of recency bias (i.e. last 10 years were bad, the next 10 will be also) or because conditions are bad. Check back in 10 years.

Good thing we're not Japan then.

IMO Japan's issue is a decreasing population, and Japanese stocks were insanely overvalued in the late '80s. The US got pretty overvalued in the late '90s and we subsequently saw 10+ years of no returns and 2 nasty bear markets, however it wasn't near as overvalued as Japan was. The US could easily end up like Japan in our population stopped growing however.

Ultimately I am a trend follower and I don't have any positions based on my predictions. It's nice to talk about expected future returns at a cocktail party but I'd never place a trade based on a future prediction. I'm reactive, not predictive (though I have opinions all the time). If markets go up, I'll be buying, if they go down, I'll be selling. Come what may.

TomTX

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Re: Stock Market Is High - Am I too late?
« Reply #31 on: May 08, 2014, 08:10:54 PM »
Good thing we're not Japan then.

You know, that was the answer I got from a guy when I told him (on another forum) a few years ago that house prices in the US could, and likely would crash.  Within a year, they did. Today that's conventional wisdom - not many years ago, it was heresy.

bobmarley9993

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Re: Stock Market Is High - Am I too late?
« Reply #32 on: May 08, 2014, 08:16:48 PM »
Between 1966 and 1983, the S&p 500 had 0% real return.  From 2000-2014 you made 1%.  Not as bad as japan but pretty lethal.   The interesting part here is that after a decade and a half of underperformance people are projecting poor future performance. Is that because of recency bias (i.e. last 10 years were bad, the next 10 will be also) or because conditions are bad. Check back in 10 years.

Good thing we're not Japan then.

IMO Japan's issue is a decreasing population, and Japanese stocks were insanely overvalued in the late '80s. The US got pretty overvalued in the late '90s and we subsequently saw 10+ years of no returns and 2 nasty bear markets, however it wasn't near as overvalued as Japan was. The US could easily end up like Japan in our population stopped growing however.

It's not recency bias, not for everyone making the predictions.  Most are using the shiller ratio.  Not sure I believe it but they are certainly using long-term data to predict future results.  Many making the predictions (Jeremy Grantham) were predicting decent returns several years ago when the past 10 year results were horrible.  Now that the market has come up, they are switching from bullish to more cautious.
« Last Edit: May 08, 2014, 08:20:07 PM by bobmarley9993 »

msilenus

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Re: Stock Market Is High - Am I too late?
« Reply #33 on: May 08, 2014, 11:29:07 PM »
Bob,

That's interesting.  Is there any reason why advocates of the Shiller ratio like going back 10 years?  I've been looking at the simple one year multiple to assess stock market cost.  It's not obvious to me why looking back farther would be useful, so I'd be very curious to learn why people do.

dragoncar

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Re: Stock Market Is High - Am I too late?
« Reply #34 on: May 09, 2014, 12:02:58 AM »
Good thing we're not Japan then.

You know, that was the answer I got from a guy when I told him (on another forum) a few years ago that house prices in the US could, and likely would crash.  Within a year, they did. Today that's conventional wisdom - not many years ago, it was heresy.

Good thing I don't live in Detroit!

msilenus

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Re: Stock Market Is High - Am I too late?
« Reply #35 on: May 09, 2014, 12:47:17 AM »
Bob,

That's interesting.  Is there any reason why advocates of the Shiller ratio like going back 10 years?  I've been looking at the simple one year multiple to assess stock market cost.  It's not obvious to me why looking back farther would be useful, so I'd be very curious to learn why people do.

Nevermind.  I looked it up myself.  Looks like witchcraft and sorcery to me.  It's probably overfitting.  They're just trying to weight the PE ratio so that it respond with such volatility to earnings crashes.  Here's my answer to that: just don't sweat earnings crashes.

Today, I suspect PE10 is leading these folks astray.  It's averaging in the tail end of a relatively shitty economic expansion, the second-worst financial crash in a century (which is categorically different from a normal business cycle recession) and an abnormally long recovery spanning half a decade and counting.  This is just a different kind of animal from a normal business cycle, so a metric designed to control for business cycles is probably a bad tool to be wielding here.

Current PE is 18.72.  That's high, but bonds aren't doing much to compete as a sink for wealth, and we still have an output gap and moderate unemployment to grow into, so maybe the implied current 5.x% return isn't unfair.  Expecting low returns (low growth) going forward mostly because earnings were bad for more years than normal starting in 2009 seems about as savvy as splitting open a goat so we can read its entrails under these conditions.  To me, anyway.
« Last Edit: May 09, 2014, 12:49:20 AM by msilenus »

soccerluvof4

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Re: Stock Market Is High - Am I too late?
« Reply #36 on: May 09, 2014, 05:13:52 AM »
Good thing we're not Japan then.

IMO Japan's issue is a decreasing population, and Japanese stocks were insanely overvalued in the late '80s. The US got pretty overvalued in the late '90s and we subsequently saw 10+ years of no returns and 2 nasty bear markets, however it wasn't near as overvalued as Japan was. The US could easily end up like Japan if our population stopped growing however.



And there are signs of that happening no?  The younger generations are having fewer kids? waiting longer to have them. (well at least younger than me). And the older Generation seems to be telling them more and more wait, don't get in debt etc.. Perhaps I am wrong but it feels/appears that way. The strong imbalance of the younger generation and the baby boomers as well. I don't have charts or stats on that but Seems there could be alot of headwinds coming much like Japan.

As far as the market being high...no doubt. Personally I feel i have enough in the market but would be slightly (and am) a little bit higher in cash levels than normal though I continue to make contributions I just build my cash stashe higher and spread the contributions out further. Maybe wrong but lets me sleep at night.

WillPen

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Re: Stock Market Is High - Am I too late?
« Reply #37 on: May 09, 2014, 07:34:20 AM »
The market is high but you can check out the average PE ratio of the S&P 500 as a bench mark.

http://www.multpl.com/

Right now it's 18.72. Supposedly the average is 16.5, though that page says it's 15.51. You can see the stock market bubbles and subsequent crashes.

Here is an MMM post on the subject: http://www.mrmoneymustache.com/2011/06/09/how-to-tell-when-the-stock-market-is-on-sale/

I agree with everyone else on this thread though. At the end of the day 20 or 30 years from now it won't make much of a difference that you invested some money in the market in May of 2014. Your best bet is to do it early and often because at the end of the day it's going to go up.


hodedofome

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Re: Stock Market Is High - Am I too late?
« Reply #38 on: May 09, 2014, 07:57:43 AM »
Good thing we're not Japan then.

IMO Japan's issue is a decreasing population, and Japanese stocks were insanely overvalued in the late '80s. The US got pretty overvalued in the late '90s and we subsequently saw 10+ years of no returns and 2 nasty bear markets, however it wasn't near as overvalued as Japan was. The US could easily end up like Japan if our population stopped growing however.



And there are signs of that happening no?  The younger generations are having fewer kids? waiting longer to have them. (well at least younger than me). And the older Generation seems to be telling them more and more wait, don't get in debt etc.. Perhaps I am wrong but it feels/appears that way. The strong imbalance of the younger generation and the baby boomers as well. I don't have charts or stats on that but Seems there could be alot of headwinds coming much like Japan.

As far as the market being high...no doubt. Personally I feel i have enough in the market but would be slightly (and am) a little bit higher in cash levels than normal though I continue to make contributions I just build my cash stashe higher and spread the contributions out further. Maybe wrong but lets me sleep at night.

Harry Dent is a sensationalist but he's got some decent research into demographic trends if you wanted to look into it. I agree with you that population growth in the US is definitely slowing down, although it wouldn't take but an act of Congress to let in more people and reverse that trend. I actually believe we're gonna see peak global population in our lifetimes, and that will be a very interesting time to be an investor for sure.

msilenus: I use the CAPE ratio as a guide but I don't make trading decisions off of it. It's something that was first proposed by Benjamin Graham (take an average P/E of 5-10 years to smooth it out) so it's stood the test of time. IMO taking an average of several valuation methods (like CAPE, market cap to GNP (Buffett's choice), Q-Ratio) is probably a more robust method. I believe Doug Short keeps a chart on his site of the averages. There's also this method, which is very interesting (I also love his blog in general, wish I knew who it was) http://philosophicaleconomics.wordpress.com/2013/12/20/the-single-greatest-predictor-of-future-stock-market-returns/
« Last Edit: May 09, 2014, 08:00:18 AM by hodedofome »

SDREMNGR

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Re: Stock Market Is High - Am I too late?
« Reply #39 on: May 09, 2014, 08:53:44 AM »
A study just came out and I wish I could remember who wrote it, but the basic gist is that a great majority of "investors" lose to the market return due to 2 basic reasons. 

1 is trading cost.  The higher the fees, be it mutual fund load or trading costs of $7 added up as you dance in and out of individual stocks, the fees add up.  A lot in most instances. A 1 percent difference over 30 years or so can mean  you end up with almost half of what you might have depending on your market return assumptions.

2 is that the stock market has an upward bias. The market has an average real return of 7% or so.  This means that any time you take your money out of the market in order to time it, the market will statistically have gone up.  Some people took money out in 2001 or 2002 AFTER the market crash and then never put it back in.  Now they are crying.  Some people again never put their money back in after the 2008 crash.  They are also crying.   Basically, people are stupid and emotional investors who take money out in a down market and have no rule based reason to get back in, will miss out on up markets.  So if you are not a brilliant investor with nerves of steel who can boldly buy stocks or real estate when everyone thinks you are crazy, you are better off buying and holding.

Yes it would be better if you could time the market and skip out on the down market periods.  And it would be better if I got laid by a new super model every night (barring STD concerns) but it's really really hard to do consistently.  You may skip out on one bear market but then miss 2 bull markets.  Given the upward bias of market in a growing population like U.S., you are better off on buying and holding, unless you are better than most investors.  And if you are here, reading this post, you are probably not.
« Last Edit: May 09, 2014, 08:55:58 AM by SDREMNGR »

SDREMNGR

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Re: Stock Market Is High - Am I too late?
« Reply #40 on: May 09, 2014, 08:59:23 AM »
On the flip side,  you must have the ego of God, to sell out when everyone thinks buying in is the best and easiest decision ever.  So I'd say that right now isn't the time to sell out precisely because enough people are worried about the market and. Good number of people have not yet reinvested their money from having taken it out in 2009/10.  If you are one of those people and you are deciding to put money back into stocks, please let me know.  Really.  That's when I'll be heading for the exits.

hammiehaack

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Re: Stock Market Is High - Am I too late?
« Reply #41 on: May 09, 2014, 09:45:29 AM »
OP here,

Thanks MMM peeps. You make all of this crazy make sense.
I'll be fine.
I think.
I hope.

Like I stated earlier in this thread, I will have a lovely over 100 percent funded pension that will be availabe to me in nine years when I turn the ripe old age of 55. I have no debt besides a $105,000 mortage on a house worth $220,000 something. The mortgage will be paid or the house will be sold before retirement. 55 isn't exactly early retirement, but there is now a light at the end of the tunnel. I am not a large wage earner so I have saved, but not near to the levels of many others. I'll have a couple hundred thousand or so in my 457b at retirement if I keep saving at my current levels. Chump change to some, but fun money for me as I plan to live off of pension and just use this stash for extras or emergencies.
« Last Edit: May 09, 2014, 09:48:16 AM by hammiehaack »

hodedofome

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Re: Stock Market Is High - Am I too late?
« Reply #42 on: May 09, 2014, 10:15:18 AM »
55 is early retirement for most of the world. This website is just a small sample of folks and doesn't represent the population as a whole:)

If your pension actually pays for your retirement (and is actually funded and won't run out of money....!), that's a piece of mind that most folks will never have. Consider yourself lucky.

hammiehaack

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Re: Stock Market Is High - Am I too late?
« Reply #43 on: May 09, 2014, 10:43:24 AM »
Believe me I've checked and checked and checked again into the pension fund. I have read audit reports, actuarial reports, you name it. The pension is over 100 percent funded. I work for a local a government type agency which is part of a municipal state-wide non-profit pension system. Each individual municipal plan is funded separately. Some are doing better than others. Ours is doing great due a lot to the fact that it is a small agency that has been around for over 40 years and not too many people are or will be drawing from the pension which has a ten year vesting period.

And yes I consider myself damn lucky. But I also have made good financial decisions to go along with it.

DoctorOctagon

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Re: Stock Market Is High - Am I too late?
« Reply #44 on: May 09, 2014, 12:48:21 PM »
There is no way to predict future returns based upon past technical performance of the market.  Trend analysis is 10,000,000% pure bullshit.

Stocks are still reasonably valued if you look at how much you are paying per share for a company's earnings, on average.   Buy in 5% per month if you want to decrease risk.  Buy a couple different total return index funds that track the S&P 500, Dow, or Russell 2000, or buy conglomerates that historically annihilate the stock market over 20-year periods like Berkshire-Hathaway.

hodedofome

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Re: Stock Market Is High - Am I too late?
« Reply #45 on: May 09, 2014, 12:55:21 PM »
There is no way to predict future returns based upon past technical performance of the market.  Trend analysis is 10,000,000% pure bullshit.

So all the research on momentum is totally bogus? Nobody can predict anything 5 years from now, but the research shows that past 1-12 month returns has good predictability for the next few months.

warfreak2

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Re: Stock Market Is High - Am I too late?
« Reply #46 on: May 09, 2014, 01:10:18 PM »
[citation needed]

hodedofome

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Re: Stock Market Is High - Am I too late?
« Reply #47 on: May 09, 2014, 01:35:33 PM »

foobar

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Re: Stock Market Is High - Am I too late?
« Reply #48 on: May 09, 2014, 01:44:32 PM »
I have found that splitting open a goat is a pretty good predicator of what will be for dinner that night:)

PE10 will work well until it doesn't.  But lets talk about our high 25.3. Should I be worried?   Jan 1, 1996 was 24.76. Does that mean we have 4 great years before a correction? Or is it like Jan 2004 (27.65) where we only have ~3.5 years? Or is it like Jan 1, 2007 when the wheels are coming off in 6 months. There has been a general inflation of PE10s since 1980. Is that a sign the market is overvalued or a sign that something has changed? I sure as heck don't know.


Bob,

That's interesting.  Is there any reason why advocates of the Shiller ratio like going back 10 years?  I've been looking at the simple one year multiple to assess stock market cost.  It's not obvious to me why looking back farther would be useful, so I'd be very curious to learn why people do.

Nevermind.  I looked it up myself.  Looks like witchcraft and sorcery to me.  It's probably overfitting.  They're just trying to weight the PE ratio so that it respond with such volatility to earnings crashes.  Here's my answer to that: just don't sweat earnings crashes.

Today, I suspect PE10 is leading these folks astray.  It's averaging in the tail end of a relatively shitty economic expansion, the second-worst financial crash in a century (which is categorically different from a normal business cycle recession) and an abnormally long recovery spanning half a decade and counting.  This is just a different kind of animal from a normal business cycle, so a metric designed to control for business cycles is probably a bad tool to be wielding here.

Current PE is 18.72.  That's high, but bonds aren't doing much to compete as a sink for wealth, and we still have an output gap and moderate unemployment to grow into, so maybe the implied current 5.x% return isn't unfair.  Expecting low returns (low growth) going forward mostly because earnings were bad for more years than normal starting in 2009 seems about as savvy as splitting open a goat so we can read its entrails under these conditions.  To me, anyway.

hodedofome

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Re: Stock Market Is High - Am I too late?
« Reply #49 on: May 09, 2014, 02:59:28 PM »
I have found that splitting open a goat is a pretty good predicator of what will be for dinner that night:)

PE10 will work well until it doesn't.  But lets talk about our high 25.3. Should I be worried?   Jan 1, 1996 was 24.76. Does that mean we have 4 great years before a correction? Or is it like Jan 2004 (27.65) where we only have ~3.5 years? Or is it like Jan 1, 2007 when the wheels are coming off in 6 months. There has been a general inflation of PE10s since 1980. Is that a sign the market is overvalued or a sign that something has changed? I sure as heck don't know.

Here's a pretty good thesis for why the CAPE has been higher for a long time http://philosophicaleconomics.wordpress.com/2013/12/13/shiller/

I like what Meb Faber has been saying about CAPE ratios for the US. Some disagree with the magnitude of how expensive the US market is, however we can all agree that stocks are valued higher than past averages. This isn't to say stocks can't go higher. However, the 'active' investor would do well to look internationally where we can all agree valuations are much cheaper and 'expected' returns are higher.
http://mebfaber.com/2014/01/24/market-outlook-2014/
http://mebfaber.com/2014/01/30/what-does-siegels-nipa-pe-say-about-the-stock-market/
http://mebfaber.com/2014/04/15/a-spectrum-of-possibilities-probabilities/