Author Topic: Stock Market - should I be concerned?  (Read 35913 times)

Runge

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Re: Stock Market - should I be concerned?
« Reply #100 on: February 15, 2015, 09:56:25 PM »
Forget the method if your brain is inflexible. Consider the concept. Yes, I can't tell what S&P will be in 1 month. I can't tell if S&P will be down tomorrow. But if S&P keeps going down and I can detect it early (to avoid going too deep) but not too early (avoiding normal volatility) , I will be able to make a fat profit instead of a loss. While you had to wait ~3 years to break even your "paper loss" during last crash, anyone who sold near the top even at a slight loss and then entered the market later probably made 25-40% in less than a year.

Ahhh, yes.  The classic "I'll know it when I see it strategy".  I bet you're first person to ever devise something so clever.  There probably isn't even anything written on this subject since it's such a new and innovative idea.  Oh, wait....

http://www.forbes.com/sites/rickferri/2014/06/12/the-problem-with-market-timing/
http://www.marketwatch.com/story/why-market-timing-doesnt-work-2013-10-23
http://www.usatoday.com/story/money/columnist/waggoner/2014/09/25/how-to-ease-market-worries/16218337/
http://www.wsj.com/articles/bad-stock-market-timing-fueled-wealth-disparity-1414355341
http://www.schwab.com/public/schwab/nn/articles/Does-Market-Timing-Work
http://www.kiplinger.com/article/investing/T052-C016-S001-resist-the-folly-of-market-timing.html
http://online.barrons.com/articles/SB50001424052748704836204578354851782592898
http://moneymorning.com/2014/12/11/the-secret-about-market-timing-i-wish-everyone-knew/
http://www.mainstreet.com/article/investors-must-refrain-from-market-timing-to-avoid-pitfalls
http://www.nytimes.com/2014/01/28/your-money/forget-market-timing-and-stick-to-a-balanced-fund.html?_r=0
https://personal.vanguard.com/us/insights/investingtruths/investing-truth-about-emotion

But no.  All of us and all of the experts, we're all wrong.  Everyone else is wrong but you.  Of course.

I came across this today and the first section reminded me of this thread.http://scottberkun.com/essays/40-why-smart-people-defend-bad-ideas/

dungoofed

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Re: Stock Market - should I be concerned?
« Reply #101 on: February 15, 2015, 10:22:25 PM »
I don't know that any of the great value investors - guys like Buffett, Seth Klarman, etc - have ever tried to time the market themselves. Their philosophy is to buy undervalued stocks or other assets when they can. If they can't buy something at what they perceive is an attractive price, then they don't buy anything. The consequence of this is that you will, on average, see guys like Klarman holding significant cash near market tops, not because they are making a macro call, but because they are unable to find things attractive enough to buy. For index investors, this philosophy doesn't make sense. Market timing is making a macro call, which few would argue is a successful strategy.

Interesting. Two points that come to mind:

1) One of the inputs to value investing screeners is usually bond yield so these formulas are not operating in a vacuum. The moment a central bank does something, the formulas have taken it into account.

2) If an index investor has a target percentage in another uncorrelated asset class then they will naturally buy less at the peak as they need to spend more money topping up their underperformer.


hoppy08520

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Re: Stock Market - should I be concerned?
« Reply #102 on: February 16, 2015, 08:06:39 AM »
Did the boss also tell your DH that you should bet on the horse that wins the race?

And that you drive in the lane that is not the one behind the truck that blows up?

And that you shouldn't take a job if the company is going to lay you off in a few months?

Do you see a pattern?

Yes, all good ideas, but the problem is you don't know these in advance.

hoppy08520

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Re: Stock Market - should I be concerned?
« Reply #103 on: February 16, 2015, 08:13:03 AM »
Your husband's boss reminded me of this excellent thread on Bogleheads:
Bogleheads ē View topic - Help: Girlfriend's Dad Believes She Should Time the Market:
Quote
Several weeks later [my girlfriend] mentioned to her Dad that she had begun contributing to her 401k. This is where the problem started. He advised her that she should put 100% of her contributions into the money market and he would tell her when the market was high or low and based on his judgement when it was "low" he will tell her when to move some of money into one of these funds so she didn't buy into the market when it was "high". Basically like many people he believes that he has an idea when the market his high or low and can time the market.
Anyone who knows anything about investing realizes that this dad and your husband's boss are this guy's girlfriend's father are the same guy.

Here's what John Bogle, founder of Vanguard, has said about market timing:
Quote from: John C. Bogle
After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently. I donít even know of anybody who knows anybody who has done it successfully and consistently.
So if Boss guy is smarter than John Bogle, why isn't he running a Wall Street firm from his yacht?

mrshudson

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Re: Stock Market - should I be concerned?
« Reply #104 on: February 17, 2015, 09:25:39 PM »

I look at the Shiller P/E, and according to it, we are high.

Please understand what that the P/E ratio means. A ratio/fraction can be high as a result of two things: a) numerator being high and b) denominator being low. If you do look historically, a lower E in the P/E corresponds to a lower return (look for say, "real earnings" overlay in Indexview). The higher P/E is sometimes as a *result* of E (in the denominator) being lower, rather than being a *cause* of lower return or a predictor of market crash. So yes, a higher than average P/E (frequently as a result of lower than average "E") may be correlated with a lower than average return, but a higher P/E alone is no indicator of a market crash. You need to look into the E in addition to the P/E. And I won't even get into being able to predict the "average shiller p/e" accurately to determine whether we are currently "high".

Sorry if I sound professorial, but this is the third time in the same day I'm encountering the "Shiller P/E is too high, so stocks are overpriced -> MARKER CRASH!", so I felt the compulsive need to clarify. :)



YoungInvestor

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Re: Stock Market - should I be concerned?
« Reply #105 on: February 17, 2015, 10:12:47 PM »

I look at the Shiller P/E, and according to it, we are high.

Please understand what that the P/E ratio means. A ratio/fraction can be high as a result of two things: a) numerator being high and b) denominator being low. If you do look historically, a lower E in the P/E corresponds to a lower return (look for say, "real earnings" overlay in Indexview). The higher P/E is sometimes as a *result* of E (in the denominator) being lower, rather than being a *cause* of lower return or a predictor of market crash. So yes, a higher than average P/E (frequently as a result of lower than average "E") may be correlated with a lower than average return, but a higher P/E alone is no indicator of a market crash. You need to look into the E in addition to the P/E. And I won't even get into being able to predict the "average shiller p/e" accurately to determine whether we are currently "high".

Sorry if I sound professorial, but this is the third time in the same day I'm encountering the "Shiller P/E is too high, so stocks are overpriced -> MARKER CRASH!", so I felt the compulsive need to clarify. :)

P/E is historically high, which does mean that we are paying more money for $1 of profit than we used to, but bond yields are historically low. Shiller P/E doesn't seem so far out of whack with this taken into account.

DavidAnnArbor

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Re: Stock Market - should I be concerned?
« Reply #106 on: February 17, 2015, 10:58:13 PM »
The earnings in the Schiller P/E goes back ten years I believe, which included a very difficult time for company earnings. If we don't undergo a recession by 2020 the Schiller P/E might revert back to a lower number as it no longer includes those poor earnings years of 2008 and 2009.

Terrestrial

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Re: Stock Market - should I be concerned?
« Reply #107 on: February 18, 2015, 08:23:34 AM »
The earnings in the Schiller P/E goes back ten years I believe, which included a very difficult time for company earnings. If we don't undergo a recession by 2020 the Schiller P/E might revert back to a lower number as it no longer includes those poor earnings years of 2008 and 2009.

+1

It's worth looking at it with some context and not a blanket rule, given the inordinately deep and prolonged nature of this more recent recession/stangnant recovery versus what could be considered a more 'normal' economic cycle.

Mighty-Dollar

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Re: Stock Market - should I be concerned?
« Reply #108 on: February 18, 2015, 03:35:29 PM »
Timing the market is a fools game more of often than not. You are more likely to get it wrong. Instead just stay constantly diversified.

Nobody but nobody, has consistently guessed the direction of the bond or stock market over any meaningful length of time." - John Markese, President, American Association of Individual Investors Journal

"There is an overwhelming body of evidence to support the view that believing in the ability of market timers is the equivalent of believing astrologers can predict the future." - Larry Swedroe, Author

"I donít believe in market timing. Iíve been around this business darn near a half-century, and I know I canít do it successfully. In fact, I donít even know anyone who knows anyone who has ever successfully timed the market over the long term." - John Bogle, Founder of The Vanguard Group

jmusic

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Re: Stock Market - should I be concerned?
« Reply #109 on: February 18, 2015, 05:08:15 PM »
Unlikely, as the dividends increase as the market drops...

Actually, I don't think this is true. 

Yes, the "Yield" increases but if you're already invested (and suffering the decline) then YOUR yield should be based on your purchase price, not the current price (which the news outlets would report). 

If you're automatically reinvesting, you'll also buy more shares due to the lower price.