Why I am reducing mkt exposure+have been since 2015.

[MasterStache]

What I am advocating for is waiting for the right time to buy with whatever cash you have accumulated.

I typically wait until the 3rd full moon of the 13 month that falls on the 1st Wednesday before Hanukah at precisely 11:38PM. Or whenever I have the money, which is usually easier.

[RedmondStash]

This is what the largest actively managed mutual fund has to say about it if anyone cares. Im sure what they are thinking and doing will effect your stock prices significantly.
https://www.americanfunds.com/individual/insights/investment-insights/china-volatility-not-2008.html

Our financial planner had us in American Funds for 10+ years, and over that span, on average, they underperformed the market by about 2% (a little better in bad years, a lot worse in good years), which is why a) we fired our financial planner, and b) we no longer own American Funds.

The bottom line is that you have to find the level of risk that you personally feel comfortable with. Someone who's gung-ho about lots of risk isn't going to convince someone more cautious to adopt their style, and vice versa.

[FINate]

The bottom line is that you have to find the level of risk that you personally feel comfortable with. Someone who's gung-ho about lots of risk isn't going to convince someone more cautious to adopt their style, and vice versa.

Good point, a meta-comment on this thread. If you find you're spending a lot of time/effort attempting to time the market, especially to limit losses on the downside, then you may be more risk adverse than you think.  Consider setting up your portfolio to be a bit more conservative.

[soupcxan]

if I want to have a 10% return on my money, I can't pay more than $10 for $1 of earnings. 

Ok so where do you put your money while you wait years/decades for PE ratios to get to your level of fair value?

[fattest_foot]

I'm pretty much with Cougar on this one.  However, I will agree that DCA over the long-term, like 30, 40, or 50 years, will provide a good return for the average investor.  Do that if you can.  You guys are right, it's probably the easiest and most stress free way to invest.  DCA over a shorter, say 10 year, period may not prove to work so well because you might DCA into a 10 year period of over-valuation which will hurt your future returns.  Aren't most people on this forum trying to retire in the next 10 years or so and live off their investments?  That only gives a relatively short window for DCA.

You mentioned this a few times, and I just wanted to address it.

Even if you're looking to retire in 10 years like a lot of us are, that doesn't mean you're not in the market still for the next 50+ years.

If I buy in an overpriced market (say I invested the last of my money in December at about 2000, and then I retired January 1st), I shouldn't really care what the market does unless it's going to drop to like 1000 (in which case I either go back to work or pare down my withdrawal significantly). In 30 years when the market is at 5000, it doesn't matter.

That's what the 4% rule is all about.

[Keith123]

if I want to have a 10% return on my money, I can't pay more than $10 for $1 of earnings. 

Ok so where do you put your money while you wait years/decades for PE ratios to get to your level of fair value?

I've stated this before.  I suggest looking for undervalued sector ETFs within an overvalued market.  I bought 2k of VDE, Vanguard's energy sector ETF, this morning and 7k last week.  It is undervalued in my opinion and will likely pay good returns over the long term if you buy at today's prices.  If there are no undervalued sectors and the market is overvalued, I would simply wait and accumulate cash until an opportunity presents itself.     

[Keith123]

What I am advocating for is waiting for the right time to buy with whatever cash you have accumulated.

I typically wait until the 3rd full moon of the 13 month that falls on the 1st Wednesday before Hanukah at precisely 11:38PM. Or whenever I have the money, which is usually easier.

Ok.  I'm getting quite tired of trying to communicate this.  Here goes another effort though.  The S&P is just an aggregate of businesses.  Agreed?  Ok.  Do you believe in the ability to evaluate and estimate a business' future return based on a purchase price, historical data, present information, etc.?  If you say yes, then you should also believe that you can come up with an educated forecast for future returns for the S&P based on it's current price.  If you say no, then we simply have a a difference of opinion that cannot be bridged.  We fundamentally disagree on investing.  It's seems that you believe that no one can value anything.  For that reason, you will invest in everything, all the time - which is crazy in my opinion.  Why not buy when from a fundamental perspective, you are positioned to have good returns?  I really think the only difference between me and most everyone else on this forum comes down to this. 

I assume, if you use this strategy, that most of the mustashians are investing on the assumption that the market does not, over the long term, correlate to earnings.  I will admit that your strategy will win if the market goes high, and stays high forever. 

Think about it.  Right now, VTI is at a 17 TTM p/e I believe.  That p/e indicates an expected return of 5.9% annually if earnings stay the same.  Let's ignore growth, compounding, and other variables that will complicate this for now.    If VTI had a p/e of 25 TTM, the implied return be 4%.  I know this is simplistic but humor me.  Isn't there a point where you wouldn't be buying based on the implied future returns? 

I know these measures are going to get attacked again but what the hell.  The Shiller p/e is 23 right now (implied return of 4.3%).  Corporate profit margins, which appear to be very mean-reverting, are at record highs (10% vs historical average of 6.5%).  This probably means that the S&P's earnings are inflated right now and will come down over time.  You're investing into a current market that is seems likely to return very little to you over the long-term.  You can lock in 1.9% in a 10yr treasury right now if you want 10 years of low returns safely.  I'm looking for 7% or 8% returns over the long-term, at minimum.  Obviously, I could be very wrong as to the direction the market goes from here.  That isn't what I am concerned with and you shouldn't be either if you are a buy and hold investor.  What you need to do is not pay too much for future earnings.  If you believe that the market correlates to earnings over the long-term, you're returns suffer when you pay too much. 

[NoStacheOhio]

So do you care about increased risk because you're concentrating in your low price sectors? That's not much better than stock picking.

[Keith123]

I'm pretty much with Cougar on this one.  However, I will agree that DCA over the long-term, like 30, 40, or 50 years, will provide a good return for the average investor.  Do that if you can.  You guys are right, it's probably the easiest and most stress free way to invest.  DCA over a shorter, say 10 year, period may not prove to work so well because you might DCA into a 10 year period of over-valuation which will hurt your future returns.  Aren't most people on this forum trying to retire in the next 10 years or so and live off their investments?  That only gives a relatively short window for DCA.

You mentioned this a few times, and I just wanted to address it.

Even if you're looking to retire in 10 years like a lot of us are, that doesn't mean you're not in the market still for the next 50+ years.

If I buy in an overpriced market (say I invested the last of my money in December at about 2000, and then I retired January 1st), I shouldn't really care what the market does unless it's going to drop to like 1000 (in which case I either go back to work or pare down my withdrawal significantly). In 30 years when the market is at 5000, it doesn't matter.

That's what the 4% rule is all about.

You're right, we shouldn't care what the market does.  We should care how our earnings do relative to the price we paid for them, which I believe correlates to stock performance over long enough periods of time.  This is why I don't want to pay too much for future earnings.  Especially when I think even the current earnings are inflated and unsustainable due to much higher than average corporate profit margins.   
 

[Keith123]

So do you care about increased risk because you're concentrating in your low price sectors? That's not much better than stock picking.

I do.  A lot.  But it's not nearly as bad as stock picking.  VDE has 146 stocks in it with a 66% concentration among the top 10 holdings.  The concentration bothers me.  Stock picking to me is much riskier though.  By buying a whole sector ETF like VDE, if a bunch of companies in the index go under, it'll hurt, but the loss will most likely be absorbed as a gain by another company in the index.  If Chevron goes bankrupt, Exxon will benefit - that's the rough idea.  Unless the sector never recovers.  Then I lose.  What's way riskier is trying to pick the winners in a beat up sector where bankruptcies are a real threat.  A macro bet on a sector is much safer than individual stock picking. 

[soupcxan]

if I want to have a 10% return on my money, I can't pay more than $10 for $1 of earnings. 

Ok so where do you put your money while you wait years/decades for PE ratios to get to your level of fair value?

I've stated this before.  I suggest looking for undervalued sector ETFs within an overvalued market.  I bought 2k of VDE, Vanguard's energy sector ETF, this morning and 7k last week.  It is undervalued in my opinion and will likely pay good returns over the long term if you buy at today's prices.  If there are no undervalued sectors and the market is overvalued, I would simply wait and accumulate cash until an opportunity presents itself.   

Ok - then what is your edge to identify over/under-valued sectors versus all the other people out there? Are you smarter? Do you have better information? Do you have a better system? Something else? What is the secret sauce?

[mrpercentage]

This is what the largest actively managed mutual fund has to say about it if anyone cares. Im sure what they are thinking and doing will effect your stock prices significantly.
https://www.americanfunds.com/individual/insights/investment-insights/china-volatility-not-2008.html

Our financial planner had us in American Funds for 10+ years, and over that span, on average, they underperformed the market by about 2% (a little better in bad years, a lot worse in good years), which is why a) we fired our financial planner, and b) we no longer own American Funds.

The bottom line is that you have to find the level of risk that you personally feel comfortable with. Someone who's gung-ho about lots of risk isn't going to convince someone more cautious to adopt their style, and vice versa.

High fees and loads have nothing to do with the ability for picking stocks or their grip on the market. Doesn't it make sense then to listen to what the big money says? You never have to guess with Vanguard because they don't do anything at all. Most of the market doesn't do that. Take a look at some of the smallest holdings of Growth Fund of America. This is the kind of stuff they might sell or the amounts they might buy on a moments notice

[NoraLenderbee]

the markets are going to continue to decline,

Now you tell me. Why didn't you say something when the Dow was at 18,000?

[Keith123]

if I want to have a 10% return on my money, I can't pay more than $10 for $1 of earnings. 

Ok so where do you put your money while you wait years/decades for PE ratios to get to your level of fair value?

I've stated this before.  I suggest looking for undervalued sector ETFs within an overvalued market.  I bought 2k of VDE, Vanguard's energy sector ETF, this morning and 7k last week.  It is undervalued in my opinion and will likely pay good returns over the long term if you buy at today's prices.  If there are no undervalued sectors and the market is overvalued, I would simply wait and accumulate cash until an opportunity presents itself.   

Ok - then what is your edge to identify over/under-valued sectors versus all the other people out there? Are you smarter? Do you have better information? Do you have a better system? Something else? What is the secret sauce?

I'm not smarter.  I don't have better information.  If fundamentals imply a good enough return, buy.  If they don't, you don't have to sell what you have, just don't add new money.   Personally, I want a 7% return or greater for the long term because that is the average inflation-adjusted, dividends included annual return for the stock market over it's history.  I don't think that is possible based on the fundamentals of the overall market right now.  If you want a 3% or 4% return over the long-term, then buying the market right now seems ok.  It depends on the return you want.

VDE has a 22 TTM PE right now in the middle of an energy crash.  As is, this implies a return of 4.6%.  However, I believe the last 12 months of earnings are not representative of what earnings will be in the future.  They are obviously depressed.  I expect them to be higher in the future which will push the pe back down into my comfortable range of 15 to 17 or lower which should safely give me a ~7% return or better, maybe much better, long term. 

[frugledoc]

Or oil may never recover and oil companies continue to underperform.  It's a gamble, might pay off, might not.  I can't  be bothered contemplating these things so I'll stick with my all world tracker which has the market share of oil companies in it.

[fattest_foot]

Ok.  I'm getting quite tired of trying to communicate this.  Here goes another effort though.  The S&P is just an aggregate of businesses.  Agreed?  Ok.  Do you believe in the ability to evaluate and estimate a business' future return based on a purchase price, historical data, present information, etc.?  If you say yes, then you should also believe that you can come up with an educated forecast for future returns for the S&P based on it's current price.  If you say no, then we simply have a a difference of opinion that cannot be bridged.  We fundamentally disagree on investing.  It's seems that you believe that no one can value anything.  For that reason, you will invest in everything, all the time - which is crazy in my opinion.  Why not buy when from a fundamental perspective, you are positioned to have good returns?  I really think the only difference between me and most everyone else on this forum comes down to this. 

I'm curious what your educational background is?

The reason I ask this, is that the efficient market hypothesis is something taught in most business schools (maybe only finance, not sure). There are hundreds of analysts that cover the various business sectors whose entire job is to know everything there is to know about a sector. They're going to have the advantage of knowing way more than you ever could. And because of that knowledge, that will get priced into the current value of that sector. This means that the current price should be factoring everything you, as a lay person, think might happen.

The only way to "beat" that is to either have insider information (which gives you an advantage for a specific company, or a limited set of companies), or to be tracking a sector that is so obscure that no financial institution is going to bother have an analyst working it (or in one so small that there are maybe 1-2 overworked analysts who can't possibly process it all).

The reason people invest in a "portfolio" is to eliminate "market risk." Market risk is the stuff we can't control; oil prices decimating the economy, the Fed changing interest rates, wars, legislative changes, etc. Once that is gone, our basket of investments (the portfolio) then evens out everything else. The "risk" of one company going bankrupt is offset by the company that exceeds projections by 500%. The reason many of us choose a broad index fund that mimics the S&P is that it basically eliminates all market risk, and provides minimal equity risk (the risk that the stock market implodes).

What you're trying to do is incorporate more risk into your portfolio. You think you can beat the full time analysts. Maybe you'll find something that can beat them out, but my money would be on the financial firms.

[Aphalite]

Keith, you have a lot of good knowledge and appear to think very rationally, so I think it's a shame that people immediately write you off, but I do think you're missing a few key pieces of assumptions in your analysis.

1. A lot of the posters making this point, and it's true - you can't account for all of the factors that influence market pricing. Many people have tried to fit things into a pretty equation, and it just doesn't work. You know this to an extent becuase you have your own business, vacancy is never what it's underwritten as, nor is maintenance/repairs. Well, for real estate, there's a lot less variables than the stock market because psychology and emotion doesn't come into play daily. The illiquidity of real estate helps in this regard because you can focus on the underlying cash flow. Another example is the profit margin point you are bringing up - what makes you think it will revert to the mean? And if it will, what makes you think the mean of 6.5% is correct? Businesses should be getting more and more efficient now (hence not a lot of companies are valued by P/B anymore) due to stealing good business processes/practices and rise of technology, and if the government starts deficit spending again, or if savings rates decrease, the private sector will benefit - are you saying that you will be able to predict both?

2. In your analysis, you seem to repeatedly harp on "today's" conditions. That demonstrates a real estate investor's line of thinking. Unless if you buy at a severe discount, real estate has capped potential. Buying a piece of real estate at a decent cap rate (let's say 10%) or at a fair price, is different than buying a piece of business at a fair price (let's use your example of 15.5 PE). Although the underlying earnings is higher on real estate, rents (and subsequently, total price) increase extremely slowly, historically at the rate of inflation, whereas the best businesses grow earnings at a rate that handily beats inflation. So to say "ignoring growth" isn't a fair, apples to apples, comparison. There's a reason that stocks have trounced treasuries so handily for 30 years even though long term treasury rates handily beat the earning yield of sp500 at the end of a lot of fiscal years (you can do a comparison using http://www.multpl.com/10-year-treasury-rate/table/by-year and calculating the earnings yield for SP500 from the same site).

3. Opportunity cost matters, and this is a reason why the Shiller PE's usefulness can be overstate, imo. By measuring Shiller PE as an absolute measure of expensiveness, you assume that alternative investments are always yielding the same amount. But logically, if Treasury notes are paying 10%, stocks *must* then be priced at 10 PE or less for it to be a fair deal, after accounting for the effects of growth and inflation. Currently, with ten year treasuries paying 2%, a 5% earnings yield on stocks is a pretty good sized premium (plus the 5% earnings can grow 7-10% at even the largest companies). You already mentioned this, so I'm confused as to why you haven't made the connection between low treasury rates and why an "inflated" Shiller PE can make sense. You can always invest in real estate, but again, you're probably capped in today's environment to ~8% cap rate, which can grow at 1-2% with inflation (not much inflation right now). Real estate though, has the advantage of structure, since in the US, you can leverage with fixed debt. The other perfectly good option if you are patient is to hold cash, and pick up assets once they become reasonably priced to you (either through a crash in pricing, or through stagnating pricing until earnings catch up)

EDIT: It's also odd to me that you say: "VDE has a 22 TTM PE right now in the middle of an energy crash.  As is, this implies a return of 4.6%.  However, I believe the last 12 months of earnings are not representative of what earnings will be in the future.  They are obviously depressed.  I expect them to be higher in the future which will push the pe back down into my comfortable range of 15 to 17 or lower which should safely give me a ~7% return or better, maybe much better, long term." but accept Shiller PE as a definitive measure, when PE10 includes 08-09, dramatically and temporarily reduced earnings for the entire US

For all of these reasons, the many factors governing the stock market, the growth component in stocks, and opportunity cost of "risk free" treasuries, I think the stock market isn't too overpriced currently. I do think that there are spots in the market that are making it seem that way, such as a lot of the consumer staples and (worst offender) start up tech/social network companies. Energy seems to be undervalued, as well as some financials (investor wariness still) and older tech. But overall, the market seems to be fairly priced.

In the end, I think you are very knowledgeable, but have some misunderstandings about how macro predictions actually affect the market - there's a lot of knowledge out there tho, and life experience is the best of all, since you seem to have a pretty good underlying economic engine (real estate business), I would say that my only advice to you is not to over do it, be conservative in how large your bets are and you should be fine

[Aphalite]

The reason I ask this, is that the efficient market hypothesis is something taught in most business schools (maybe only finance, not sure). There are hundreds of analysts that cover the various business sectors whose entire job is to know everything there is to know about a sector. They're going to have the advantage of knowing way more than you ever could. And because of that knowledge, that will get priced into the current value of that sector. This means that the current price should be factoring everything you, as a lay person, think might happen.

<...>

What you're trying to do is incorporate more risk into your portfolio. You think you can beat the full time analysts. Maybe you'll find something that can beat them out, but my money would be on the financial firms.

EMH is garbage that suffers from physics envy and a lack of understanding of human psychology. Equating buying in a different proportion than a preset number of stocks in the proportion picked by humans (SP500) or by other investors (market cap, with human psychology factor) as risk is misunderstanding that price does not equal value.

[Keith123]

Or oil may never recover and oil companies continue to underperform.  It's a gamble, might pay off, might not.  I can't  be bothered contemplating these things so I'll stick with my all world tracker which has the market share of oil companies in it.

You very well might be right.  I'm more optimistic about oil by looking at the history of the cycles though.  I know that history doesn't predict the future, but I have trouble thinking "this time is different".  I doubt oil is going back to $100 ever again, but it's very hard for me to buy the $30 forever argument.  I'm buying VDE with oil at $30 and under as long as I can. 

[Keith123]

Ok.  I'm getting quite tired of trying to communicate this.  Here goes another effort though.  The S&P is just an aggregate of businesses.  Agreed?  Ok.  Do you believe in the ability to evaluate and estimate a business' future return based on a purchase price, historical data, present information, etc.?  If you say yes, then you should also believe that you can come up with an educated forecast for future returns for the S&P based on it's current price.  If you say no, then we simply have a a difference of opinion that cannot be bridged.  We fundamentally disagree on investing.  It's seems that you believe that no one can value anything.  For that reason, you will invest in everything, all the time - which is crazy in my opinion.  Why not buy when from a fundamental perspective, you are positioned to have good returns?  I really think the only difference between me and most everyone else on this forum comes down to this. 

I'm curious what your educational background is?

The reason I ask this, is that the efficient market hypothesis is something taught in most business schools (maybe only finance, not sure). There are hundreds of analysts that cover the various business sectors whose entire job is to know everything there is to know about a sector. They're going to have the advantage of knowing way more than you ever could. And because of that knowledge, that will get priced into the current value of that sector. This means that the current price should be factoring everything you, as a lay person, think might happen.

The only way to "beat" that is to either have insider information (which gives you an advantage for a specific company, or a limited set of companies), or to be tracking a sector that is so obscure that no financial institution is going to bother have an analyst working it (or in one so small that there are maybe 1-2 overworked analysts who can't possibly process it all).

The reason people invest in a "portfolio" is to eliminate "market risk." Market risk is the stuff we can't control; oil prices decimating the economy, the Fed changing interest rates, wars, legislative changes, etc. Once that is gone, our basket of investments (the portfolio) then evens out everything else. The "risk" of one company going bankrupt is offset by the company that exceeds projections by 500%. The reason many of us choose a broad index fund that mimics the S&P is that it basically eliminates all market risk, and provides minimal equity risk (the risk that the stock market implodes).

What you're trying to do is incorporate more risk into your portfolio. You think you can beat the full time analysts. Maybe you'll find something that can beat them out, but my money would be on the financial firms.

You got me.  I graduated from Babson College in 2005.  I understand everything you are saying.  The one big advantage I believe I have is I don't report to investors and no one can make me sell.  This is a bigger advantage than you may think.  When financial firms under-perform or the market in general tanks, people pull money from those funds and those firms are forced to sell equity positions that they might not otherwise want to.  Very few firms tell their investors they can't have their money back if they want it.  When herd selling and panic mentality sets in, things get undervalued.  This is not a function of collective knowledge reflected in the market.  It's plain panic selling that has no fundamental reason a lot of the time.  Maybe that's why I'm drawn to crashes (housing, now energy).  They seem to present the most opportunity to me on a fundamental level. 

[ender]

Why is it that so many people assume the market can only go two directions, up or down? It can also go sideways, as it did last year. Sure the market is down 8% or so right now but we had a correction last year as well. Unless you have a crystal ball, we might very well be back to break even by the middle of the year. It's a lot of fear selling right now anyway. If oil prices start turning around and people get a feeling of relief you may see the media start latching on to positive economic data and the next thing you know everyone is buying. Who knows? The point is, taking your money in an out of the market at times like these almost inevitably means you catch some of the down side before getting out and miss some of the upside before getting back in, and those two combined are enough to kill a portfolio's return. At least Keith123 is letting his invested money ride where it is.

I'm rolling over a large portion of our net worth into Vanguard and Fidelity is apparently mailing me the check (not Vanguard, seriously man) and apparently it'll take like 2 weeks to do it - the market can drop (not go up) during that time plz.

:)

[Keith123]

Keith, you have a lot of good knowledge and appear to think very rationally, so I think it's a shame that people immediately write you off, but I do think you're missing a few key pieces of assumptions in your analysis.

1. A lot of the posters making this point, and it's true - you can't account for all of the factors that influence market pricing. Many people have tried to fit things into a pretty equation, and it just doesn't work. You know this to an extent becuase you have your own business, vacancy is never what it's underwritten as, nor is maintenance/repairs. Well, for real estate, there's a lot less variables than the stock market because psychology and emotion doesn't come into play daily. The illiquidity of real estate helps in this regard because you can focus on the underlying cash flow. Another example is the profit margin point you are bringing up - what makes you think it will revert to the mean? And if it will, what makes you think the mean of 6.5% is correct? Businesses should be getting more and more efficient now (hence not a lot of companies are valued by P/B anymore) due to stealing good business processes/practices and rise of technology, and if the government starts deficit spending again, or if savings rates decrease, the private sector will benefit - are you saying that you will be able to predict both?

2. In your analysis, you seem to repeatedly harp on "today's" conditions. That demonstrates a real estate investor's line of thinking. Unless if you buy at a severe discount, real estate has capped potential. Buying a piece of real estate at a decent cap rate (let's say 10%) or at a fair price, is different than buying a piece of business at a fair price (let's use your example of 15.5 PE). Although the underlying earnings is higher on real estate, rents (and subsequently, total price) increase extremely slowly, historically at the rate of inflation, whereas the best businesses grow earnings at a rate that handily beats inflation. So to say "ignoring growth" isn't a fair, apples to apples, comparison. There's a reason that stocks have trounced treasuries so handily for 30 years even though long term treasury rates handily beat the earning yield of sp500 at the end of a lot of fiscal years (you can do a comparison using http://www.multpl.com/10-year-treasury-rate/table/by-year and calculating the earnings yield for SP500 from the same site).

3. Opportunity cost matters, and this is a reason why the Shiller PE's usefulness can be overstate, imo. By measuring Shiller PE as an absolute measure of expensiveness, you assume that alternative investments are always yielding the same amount. But logically, if Treasury notes are paying 10%, stocks *must* then be priced at 10 PE or less for it to be a fair deal, after accounting for the effects of growth and inflation. Currently, with ten year treasuries paying 2%, a 5% earnings yield on stocks is a pretty good sized premium (plus the 5% earnings can grow 7-10% at even the largest companies). You already mentioned this, so I'm confused as to why you haven't made the connection between low treasury rates and why an "inflated" Shiller PE can make sense. You can always invest in real estate, but again, you're probably capped in today's environment to ~8% cap rate, which can grow at 1-2% with inflation (not much inflation right now). Real estate though, has the advantage of structure, since in the US, you can leverage with fixed debt. The other perfectly good option if you are patient is to hold cash, and pick up assets once they become reasonably priced to you (either through a crash in pricing, or through stagnating pricing until earnings catch up)

EDIT: It's also odd to me that you say: "VDE has a 22 TTM PE right now in the middle of an energy crash.  As is, this implies a return of 4.6%.  However, I believe the last 12 months of earnings are not representative of what earnings will be in the future.  They are obviously depressed.  I expect them to be higher in the future which will push the pe back down into my comfortable range of 15 to 17 or lower which should safely give me a ~7% return or better, maybe much better, long term." but accept Shiller PE as a definitive measure, when PE10 includes 08-09, dramatically and temporarily reduced earnings for the entire US

For all of these reasons, the many factors governing the stock market, the growth component in stocks, and opportunity cost of "risk free" treasuries, I think the stock market isn't too overpriced currently. I do think that there are spots in the market that are making it seem that way, such as a lot of the consumer staples and (worst offender) start up tech/social network companies. Energy seems to be undervalued, as well as some financials (investor wariness still) and older tech. But overall, the market seems to be fairly priced.

In the end, I think you are very knowledgeable, but have some misunderstandings about how macro predictions actually affect the market - there's a lot of knowledge out there tho, and life experience is the best of all, since you seem to have a pretty good underlying economic engine (real estate business), I would say that my only advice to you is not to over do it, be conservative in how large your bets are and you should be fine

I really appreciate your points.  You made them well.  I'll try to address as much as I can.

1.  I'll agree that real estate investing does not translate well to stocks.  I was using real estate to illustrate fundamental analysis, which seems to fall by the wayside on this forum.  I don't know if the current corporate profit margins are sustainable.  But looking at the past 65 years, it seems to be a very, very mean-reverting stat.  Maybe the trend will be higher in the future.  But a jump from an average of 6.5% over a 65 year period to a new norm of 10% doesn't seem plausible.  That just doesn't seem realistic to me.   

2.  I didn't ignore growth in the comparison out of ignorance.  It was to illustrate fundamental analysis in a simple fashion.   While I realize the best businesses grow earnings at much higher rates than inflation, when you are buying whole market index funds, I look to this:  "According to economist Robert Shiller, earnings per share on the S&P 500 grew at a 3.8% annualized rate between 1874 and 2004 (inflation-adjusted growth rate was 1.7%). Since 1980, the most bullish period in U.S. stock market history, real earnings growth according to Shiller, has been 2.6%."  Not a lot of earnings growth over the long-term picture.  I don't bank on a ton of above inflation growth going forward with whole market ETFs. 

3.  This is a good point that I have failed to mention.  I am aware that the low interest rate environment in recent history has pushed more money into the market with investors looking for better returns than in regular stuff like CD's, savings accounts, T-bills, etc.  That's great, but the more money that goes into the market, the lower the expected returns are.  I hope the Fed is as committed to raising rates over time as they say they are.  This should bring the market down for better returns as people return to traditional "safe" investments.   

In regards to the EDIT, you have another good point.  I suppose I just think 08/09 earnings didn't affect the shiller PE as much as the past 12 months of earnings affected the energy sector.  The entire time frame for the TTM PE for the energy industry is depressed as opposed to just 20% of the time that the shiller PE was depressed.

Thank you for the advice and critique.  I'll need it I'm sure.  Best of luck. 

[DavidAnnArbor]

Many large companies have monopoly like qualities, so I think it's perfectly understandable why many have profit margins of 10%

[Keith123]

Many large companies have monopoly like qualities, so I think it's perfectly understandable why many have profit margins of 10%

Many probably have much higher than that.  We are talking about the whole market's average corporate profit margin though, not just a company here or there.  You don't think monopolyish companies existed in the past when average profit margins were 6.5%?  Standard Oil, US Steel, etc.?

[mrpercentage]

Or oil may never recover and oil companies continue to underperform.  It's a gamble, might pay off, might not.  I can't  be bothered contemplating these things so I'll stick with my all world tracker which has the market share of oil companies in it.

Sticking to a plan works but there are reasons why I think this conclusion is not the best.

When you own the index you own everything. If everything is generally going up you will go up a lot. The flip side is when everything goes down you will go down a lot. When large amounts of companies (say in the oil sector) go out of business-- you owned that too and that is zero. Its not a 40% loss of 0.2% of your portfolio its a 100% loss of whatever portion of your index. Think of your GPA. Its better to bomb one test then take a zero. 3 A's and 1 zero is 67%. Thats not quite an F, but a D is a fail. Meanwhile 3 B's and one 50% is a solid C grade. This is why active funds beat index on spans of 30 years. Don't believe me then look at the long term record with dividends reinvested in Growth fund of America. Sure VTI beat most funds in a 7 year bull market but I think the bear is going to tear that crap up. Just the community college opinion of a guy who's life wasn't stable enough for ivy league.

Now why you are wrong on Oil. Gas was $4 a gallon for how long? Why is that? Because it takes a lot of time to start things up. When you shut down 1,500 rigs and fire their employees-- the employees and experts say screw this, I have to eat, and they get a different job in a different field, and it will take years to bring that stuff on line again. Years. Meanwhile how many oil companies have filled for bankruptcy lately? How many will? You think they are just going to fire that up? Not a chance in hell. It's not that they won't want to. The profit will be obscene enough to attract it. They can't bring it online that fast. They just can't. That's why the US has to be involved in regulating its own oil prices by adjusting oil imports like the fed adjusts interest rates. We NEED United States production high.

[wwweb]

Keith, I'm also impressed by your subject knowledge and willingness to engage a fairly hostile audience. With that said, I still disagree with you.

If you buy a business for $10 that earns $1 per year, you will have a 10% return.  So...if I want to have a 10% return on my money, I can't pay more than $10 for $1 of earnings.  Now, we have to agree on an assumption to move forward from here.  That assumption is:  The stock market value, over the long-term, will correlate to earnings performance.

This is a huge oversimplification - the future prospects of the business matter at least as much as the current / average earnings. A business that earned 10% last year (i.e. PE of 10), and loses money this year and every year thereafter will not give provide a 10% return. Similarly, a business with a PE of 20 which grows earnings at 50% per year will return significantly more than the5% implied by its PE ratio. As you're likely aware given your background, the value of a business depends heavily on its future earnings. The problem is that these future factors are incredibly difficult to predict and can remain irrational for decades - certain valuation measures have been above their long term average since 1990.

Basically, if the overall market grows earnings, the market price will go up.  If the overall market earnings shrink, so will the market price.  This movement establishes long-term trends, ratios, benchmarks, etc.  If you don't believe that, there isn't any point in discussion.

I agree that there is historical correlation between certain valuation metrics and market returns (Shiller). I think it is extremely risky to sell everything based on these valuation metrics, especially when they are only slightly outside of historical norms. You are then betting the farm on a correlation in past data. Imagine for a moment that there are long term social forces forces which very slowly reduce the average rate of return. The long term Shiller PE might tend to have a slight upward slope*. I don't claim that this is reality, but it is conceivable.  In this case, an investor might sell based on high valuations and miss out on years of returns waiting for valuations to return to their historical (flat) average which they never will. The problem here is that we have less than 100 years of historical data to base correlations on. There may be long term trends which you are not accounting for that render your entire thesis moot. I would rather have the guaranteed market return (which historically has been more than enough to quickly retire) than try to do a little better and risk significantly under performing.

Let me leave you with a personal story. I spent seven years value investing based on the Buffet/Graham model. I put in several hours a week analyzing markets and reading earnings reports. After expending a huge amount of effort on the project... I had exactly matched the market returns for the period while incurring a moderate tax bill.  In effect all those hours of analyzing were completely wasted. I wish you the best in your investing endeavors and hope sincerely that it is more worthwhile for you than it was for me.

*see some of William Bernstein's writings on the very long term return on equities. I don't know if he is correct, but he proposes that valuation metrics should increase very slowly with time.

[DavidAnnArbor]

Many large companies have monopoly like qualities, so I think it's perfectly understandable why many have profit margins of 10%

Many probably have much higher than that.  We are talking about the whole market's average corporate profit margin though, not just a company here or there.  You don't think monopolyish companies existed in the past when average profit margins were 6.5%?  Standard Oil, US Steel, etc.?

I keep reading that economists believe there has been so much consolidation is many industries that are leading to these monopolies, more so than in the past. The federal government has refused to stop these monopolies from forming.

[faramund]

I'll give you a personal example, not stock related.  My family has been in real estate for almost 40 years.  We have a small real estate brokerage.  Around 2005 and 2006, my father, with 30 years of real estate experience, told me that housing was going to crash.  He knew that prices were unsustainable and that mortgages were being given out like candy.  I was 22 or 23 back then and wanted to buy a house badly.  He told me over and over again to wait for the right time.  This was painful for me as I watched housing prices keep rising for the next several years.  Well, we obviously know what happened to the housing market.  In 2009 I bought a 3-unit for myself (for 122k) and 4 other single family houses that I flipped and sold for good profits shortly after.  That 3-unit is now worth 250k and I plan on holding it forever.  I also bought 2 condos to rent out in the past year that I plan on holding forever because while the housing market isn't cheap, its fair in my opinion.  I don't mind buying during fair or cheap periods.  So yeah, if I would have bought it for 300k in 2008, its rough value around then, I wouldn't have lost much money by now and I could have collected rent the entire time.  But, because I waited for the right buying period, my returns are much, much greater.  I hope this provides some perspective.

My whole point is don't buy or sell when it is obvious that the market is expensive.  Expensive markets can get even more expensive for very, very long periods of time so stay in with what you already have in the market.  Just don't add until it's fairly priced again.  And I'll say it once again, this current market is very, very obviously expensive.  When even John Bogle thinks the market is going to give poor returns for the near future, it's hard to argue with.  http://www.marketwatch.com/story/john-bogle-says-you-wont-make-much-money-from-stocks-2015-11-05

Think about this period - it was a period when the general consensus was very strong that buying houses was a very good thing to do. That's a key bubble indicator, in contrast, I'd say the general consensus at the moment is that shares are a bad idea. I avoided buying shares in the years up to 2008 for the same reason you avoided buying real estate, it smelt like a bubble. So I don't think its impossible to avoid buying in bubbles. But if we're in a bubble now, its the most abnormal one that I know of.

[AdrianC]

The reason I ask this, is that the efficient market hypothesis is something taught in most business schools (maybe only finance, not sure). There are hundreds of analysts that cover the various business sectors whose entire job is to know everything there is to know about a sector. They're going to have the advantage of knowing way more than you ever could. And because of that knowledge, that will get priced into the current value of that sector. This means that the current price should be factoring everything you, as a lay person, think might happen.

<...>

What you're trying to do is incorporate more risk into your portfolio. You think you can beat the full time analysts. Maybe you'll find something that can beat them out, but my money would be on the financial firms.

EMH is garbage that suffers from physics envy and a lack of understanding of human psychology. Equating buying in a different proportion than a preset number of stocks in the proportion picked by humans (SP500) or by other investors (market cap, with human psychology factor) as risk is misunderstanding that price does not equal value.

+1

The voice of reason.

[faramund]

The reason I ask this, is that the efficient market hypothesis is something taught in most business schools (maybe only finance, not sure). There are hundreds of analysts that cover the various business sectors whose entire job is to know everything there is to know about a sector. They're going to have the advantage of knowing way more than you ever could. And because of that knowledge, that will get priced into the current value of that sector. This means that the current price should be factoring everything you, as a lay person, think might happen.

<...>

What you're trying to do is incorporate more risk into your portfolio. You think you can beat the full time analysts. Maybe you'll find something that can beat them out, but my money would be on the financial firms.

EMH is garbage that suffers from physics envy and a lack of understanding of human psychology. Equating buying in a different proportion than a preset number of stocks in the proportion picked by humans (SP500) or by other investors (market cap, with human psychology factor) as risk is misunderstanding that price does not equal value.

+1

The voice of reason.

EMH isn't garbage, its just oversold. All the people who first presented EMH showed, was that when new information is announced, say an interest rate hike, the start of a war, whatever, that it is almost immediately (i.e. efficiently) reflected in the price.

Some people have extrapolated that to say that the price of a share, immediately reflects the market consensus of what its worth - this is what I believe, which is why I think its damn hard to beat the stock market, but I also think the consensus can be wrong.

The strongest form of EMH is that the market always correctly reflects the price of things - which is where I'd join with others, and say garbage!

[sol]

The strongest form of EMH is that the market always correctly reflects the price of things - which is where I'd join with others, and say garbage!

Wait, so you're saying that the market doesn't accurately reflect the price of things?

Did you maybe mean to say "value" instead of "price"?  Because I think it's pretty tautologically obvious that it correctly reflects the price, since it's the price that makes the market.  There was a buyer and a seller, they agreed on a price, that's the price it sold for, that's what it costs right at that moment.  You can argue about whether the price was too high or too low, but it was definitely "the price" in every sense of the word.

[faramund]

The strongest form of EMH is that the market always correctly reflects the price of things - which is where I'd join with others, and say garbage!

Wait, so you're saying that the market doesn't accurately reflect the price of things?

Did you maybe mean to say "value" instead of "price"?  Because I think it's pretty tautologically obvious that it correctly reflects the price, since it's the price that makes the market.  There was a buyer and a seller, they agreed on a price, that's the price it sold for, that's what it costs right at that moment.  You can argue about whether the price was too high or too low, but it was definitely "the price" in every sense of the word.

Yup, you're correct - bad me.

[sol]

The strongest form of EMH is that the market always correctly reflects the price of things - which is where I'd join with others, and say garbage!

Wait, so you're saying that the market doesn't accurately reflect the price of things?

Did you maybe mean to say "value" instead of "price"?  Because I think it's pretty tautologically obvious that it correctly reflects the price, since it's the price that makes the market.  There was a buyer and a seller, they agreed on a price, that's the price it sold for, that's what it costs right at that moment.  You can argue about whether the price was too high or too low, but it was definitely "the price" in every sense of the word.

Yup, you're correct - bad me.

Okay, in that case we're now arguing about the potential difference between an investment's price and its value.  I define price as the dollar figure that the investment trades for on the open market, which I think is easy to determine.  I define value as the intrinsic worth of that investment as measured in what you should pay for its future cashflows, which is harder to know ahead of time since we never know if any particular investment is going to do well or do poorly.

Are price and value correlated in any way?  EMH suggests that a whole bunch of people arguing about the value will eventually settle on a price, and that price IS the value as determined by everyone on all sides of the trade.  It's what everyone agrees is the correct amount to pay for those future cashflows, using some assumptions about what those cashflows will be and what alternative investments could be made instead.  If you believe the value is higher than the price the market has set, then you are in disagreement with everyone else who has agreed on a value, and decided to trade it at that price.

Maybe you're right and they're all wrong?  That happens sometimes, particularly when fear grips the market and people fail to see a good value right in front of them because their expectations for future cashflows have been depressed.  I think it also happens frequently when people start buying investments based on what they expect future buyers will pay for the same investment, rather than based on the cashflow they're actually buying, but at that point we might as well be trading football cards instead of fractional ownership shares in profitable businesses.

I don't think the EMH is garbage.  I think it's misapplied frequently, I think it has spawned an undeservedly religious following in some circles, and I think market timers like to shit on it to justify their own delusions of superiority.  But under all of that I think it's a sound idea, because all it says is that the value of the investment is hard to know but the market is a tool for letting everyone vote on what they think it should be, and then they make that the price.  As long as people are rational and informed, that should work out as well as can be reasonably expected, for everyone, absent a working crystal ball.

[faramund]

The strongest form of EMH is that the market always correctly reflects the price of things - which is where I'd join with others, and say garbage!

Wait, so you're saying that the market doesn't accurately reflect the price of things?

Did you maybe mean to say "value" instead of "price"?  Because I think it's pretty tautologically obvious that it correctly reflects the price, since it's the price that makes the market.  There was a buyer and a seller, they agreed on a price, that's the price it sold for, that's what it costs right at that moment.  You can argue about whether the price was too high or too low, but it was definitely "the price" in every sense of the word.

Yup, you're correct - bad me.

Okay, in that case we're now arguing about the potential difference between an investment's price and its value.  I define price as the dollar figure that the investment trades for on the open market, which I think is easy to determine.  I define value as the intrinsic worth of that investment as measured in what you should pay for its future cashflows, which is harder to know ahead of time since we never know if any particular investment is going to do well or do poorly.

Are price and value correlated in any way?  EMH suggests that a whole bunch of people arguing about the value will eventually settle on a price, and that price IS the value as determined by everyone on all sides of the trade.  It's what everyone agrees is the correct amount to pay for those future cashflows, using some assumptions about what those cashflows will be and what alternative investments could be made instead.  If you believe the value is higher than the price the market has set, then you are in disagreement with everyone else who has agreed on a value, and decided to trade it at that price.

Maybe you're right and they're all wrong?  That happens sometimes, particularly when fear grips the market and people fail to see a good value right in front of them because their expectations for future cashflows have been depressed.  I think it also happens frequently when people start buying investments based on what they expect future buyers will pay for the same investment, rather than based on the cashflow they're actually buying, but at that point we might as well be trading football cards instead of fractional ownership shares in profitable businesses.

I don't think the EMH is garbage.  I think it's misapplied frequently, I think it has spawned an undeservedly religious following in some circles, and I think market timers like to shit on it to justify their own delusions of superiority.  But under all of that I think it's a sound idea, because all it says is that the value of the investment is hard to know but the market is a tool for letting everyone vote on what they think it should be, and then they make that the price.  As long as people are rational and informed, that should work out as well as can be reasonably expected, for everyone, absent a working crystal ball.

I actually think we are very close to agreement, i.e. of the three EMH levels

1) when new information is announced, say an interest rate hike, the start of a war, whatever, that it is almost immediately (i.e. efficiently) reflected in the price.

it sounds like you agree with this, as do I

2) Some people have extrapolated that to say that the price of a share, immediately reflects the market consensus of what its worth

I assume this is as far as you go, which is the same as me

3)The strongest form of EMH is that the market always correctly reflects the 'true value' of things

It sounds you don't think 3 always holds, which is also the same as me.

[mrpercentage]

I think EMH is a sort of philosophical Ativan.

A lot of the stress goes away when you know you are buying and selling at the right price. Of course a company is only worth what the market will pay for it right now until it is proven more valuable to ignorant and scholar alike. If you buy enough and are diversified enough the ignorance will pay off eventually, because the market knows what is right-- and it goes up. Is that the theory in a nutshell?

If so I don't see much of a difference between that and speculation that pays off eventually.

If the world was 100% index a company would carry a general market value right into bankruptcy. It would go from a market PE to zero in a second. Am I oversimplifying?

If all EMH says is that the market knows exactly what it will pay for a company-- I say duhhhhhh

[faramund]

EMH certainly says that you can't use public information quickly enough to beat the market.

So, if you hear sanctions are being reapplied to Iran, you go ... oh that means oil will go up, I should buy oil, its too late.. its already gone up.

[FINate]

I don't think the markets are perfectly efficient. They are, however, sufficiently efficient that the difference between value and price is not generally worth my effort to exploit.

[mrpercentage]

So you can't use public information, so everything is speculation then right-- because the market already knows and it does what it wants.

Well I can't make the market do what I want, but I did suspect-- and have been saying for a long time (long trollers be my witness) that Ford would do well on earnings, that is would increase sales, but the market didn't budge.. it didn't move.. it didn't care.. it said China dude. Numbers came back from China good. Market still doesn't care. I think the whole damn market is speculating in index funds. Forget Fords numbers because auto with be down because of X, X, and X. Market says Ford go down (Ford beats earnings) Market says Ford go down (Ford has recording smashing month) market says Ford go down (Ford pays special dividend on top of a 4.5% dividend because they are responsible enough not to expanding beyond their means) Market says screw you Ford Im buying Vanguard.

Seriously dude. That is how I see it.

[MustacheAndaHalf]

Maybe we need an "efficient high-frequency trading" theory of markets.  I read a book (Flash Boys? Dark Pools?) that mentioned the time between a news event and a trade reflecting that news is measured in milliseconds.  And only that first trade captures the opportunity from the news.  Even if that's extreme, it certainly makes sense that high-frequency traders with automated parsing of news feeds trade well in advance of any individual investor.  So under this "EHFT" theory, you don't trade on news because you know a high-frequency trader already did.

[faramund]

So you can't use public information, so everything is speculation then right-- because the market already knows and it does what it wants.

Well I can't make the market do what I want, but I did suspect-- and have been saying for a long time (long trollers be my witness) that Ford would do well on earnings, that is would increase sales, but the market didn't budge.. it didn't move.. it didn't care.. it said China dude. Numbers came back from China good. Market still doesn't care. I think the whole damn market is speculating in index funds. Forget Fords numbers because auto with be down because of X, X, and X. Market says Ford go down (Ford beats earnings) Market says Ford go down (Ford has recording smashing month) market says Ford go down (Ford pays special dividend on top of a 4.5% dividend because they are responsible enough not to expanding beyond their means) Market says screw you Ford Im buying Vanguard.

Seriously dude. That is how I see it.

But that's it, as market prices incorporate the consensus opinion, you might as well just buy index funds, which seems to be the best thing for almost anyone to do.

Although, and this is why people dream, that consensus can be wrong, so if you believe something that's correct, and is contrary to consensus, then in the long term, you should be able to outdo the market. But of course, for this, many have tried, but few have succeeded.

[mrpercentage]

So you can't use public information, so everything is speculation then right-- because the market already knows and it does what it wants.

Well I can't make the market do what I want, but I did suspect-- and have been saying for a long time (long trollers be my witness) that Ford would do well on earnings, that is would increase sales, but the market didn't budge.. it didn't move.. it didn't care.. it said China dude. Numbers came back from China good. Market still doesn't care. I think the whole damn market is speculating in index funds. Forget Fords numbers because auto with be down because of X, X, and X. Market says Ford go down (Ford beats earnings) Market says Ford go down (Ford has recording smashing month) market says Ford go down (Ford pays special dividend on top of a 4.5% dividend because they are responsible enough not to expanding beyond their means) Market says screw you Ford Im buying Vanguard.

Seriously dude. That is how I see it.

But that's it, as market prices incorporate the consensus opinion, you might as well just buy index funds, which seems to be the best thing for almost anyone to do.

Although, and this is why people dream, that consensus can be wrong, so if you believe something that's correct, and is contrary to consensus, then in the long term, you should be able to outdo the market. But of course, for this, many have tried, but few have succeeded.

I use a different consensus. I use the consensus of people who are willing to average into individual companies for years never caring what the market does because they don't sell. Wana see?

Right here is one:

[faramund]

Right here is one:

I'm sorry - I don't understand what you mean. Although - you have Penny!!! Many of my shares, including my Vanguard ETFs are managed by an Australia company called computershare - and so do they! I wonder if Buy Stock Direct and computershare are really the same company, or if they just share the same software and they couldn't be bothered customizing her.

[mrpercentage]

Yes it is the same company. You can buy all of those companies though it too. Even from over seas

And I mean the consensus of most active direct stock purchases under direct stock purchase plans

[faramund]

Oh, so you mean, you buy the shares of the companies that are being most bought? Which is equivalent to, you buy the shares of the companies that are most traded. Is that correct?

[mrpercentage]

Oh, so you mean, you buy the shares of the companies that are being most bought? Which is equivalent to, you buy the shares of the companies that are most traded. Is that correct?

No.  These are companies people hold not trade, and there is a reason people hold them. I could give you lots of reasons like Ford beating earnings and doing well yet losing value so being a value company even though the market thinks its worth less than 6 months ago. Yet you look at this and Mainstreet says Ford is a successful company worth giving your money. In fact, more people have long term confidence in Ford than McDonalds. The list is buy popular vote with PG#1 and XOM#2

Eh, what do I know? I didn't go to Harvard. Maybe I should buy an index. They are all going down too with much less yield.

[faramund]

No.  These are companies people hold not trade, and there is a reason people hold them. I could give you lots of reasons like Ford beating earnings and doing well yet losing value so being a value company even though the market thinks its worth less than 6 months ago. Yet you look at this and Mainstreet says Ford is a successful company worth giving your money. In fact, more people have long term confidence in Ford than McDonalds. The list is buy popular vote with PG#1 and XOM#2

Eh, what do I know? I didn't go to Harvard. Maybe I should buy an index. They are all going down too with much less yield.

Well, on average, what people hold most, should in general match the market, so as long as you are well diversified, you will probably get results very similar to an index. The only problem, is if there's a bubble, and then there will be a rush of people chasing dreams that could badly skew the results - which probably again says just buy an index.

Reading all the investment threads on here, I think a good rule of thumb is. If you think you can beat the index, buy a little bit of an index and track what you're doing. This should become a multiple year thing. If you discover you can't beat the index, then you should put any new money into an index.

If someone doesn't have the systems to see if they can beat the index or not, then they should just buy the index - the vast majority of people can't beat the index, so if you don't know if you can or not, you probably aren't beating it.

In spite of all that, I don't think there's much harm in say putting 90% of your new money into an index, and using 10% to try to beat the index - but unless you've got the systems/spreadsheets to know if you're doing it - how would you ever know?

On Harvard... I'm not in the US, but there's at least a few studies that show that overly educated types, are often such people that are arrogant enough to think they know best, and refuse any evidence to the contrary. To do well in the market, I think you either need to buy an index fund, or have an attitude of humility and self-doubt - so that you can learn and improve upon your mistakes.

[mrpercentage]

Define beating the market. Is the quarterly, annually, decade, or multi decade, or is it something different like reliable yield? If its multi decade I think I have a very strong chance. I also think My American Funds Roth IRA will likely win that equity race in decades provided I don't jump funds. You can throw all the facts at me but they all look backward. Every one of them. No doubt I have and will make mistakes but I will learn and adapt. Index is brute force investing with extreme diversification. Just an opinion but its mine.

[faramund]

If you can beat the market on a multi-decade, and probably decade basis, and you know that (not just guess that) - I'd say stick at what you're doing. Any analysis is backward looking, but what else can you do? I've seen studies that suggest you need 12 years of data, to show that outperformance is 'true', and not just random chance.

I'm similar, I have a value-based approach, which for all I can tell, beats the market across multiple time spans. I'm a buy-and-hold investor, but I buy stocks that have good value attributes.

Looking at this forum is interesting. I do believe that for most people, the best/easiest thing they can do, is buy an index. But I do think you can do better - but that most people who try to do better - don't. So saying - buy an index fund - is the best advice for most people.

[mrpercentage]

Agreed. By the way, I love Australia. I have been to Freemantle and Perth. Probably the greatest trip of my life. I remember it being an artsy town full of street performers and the friendliest people that like to brawl I have ever met. Im going crash and watch Squawkbox. Cheers

[ender]

Define beating the market. Is the quarterly, annually, decade, or multi decade, or is it something different like reliable yield? If its multi decade I think I have a very strong chance. I also think My American Funds Roth IRA will likely win that equity race in decades provided I don't jump funds. You can throw all the facts at me but they all look backward. Every one of them. No doubt I have and will make mistakes but I will learn and adapt. Index is brute force investing with extreme diversification. Just an opinion but its mine.

Obviously they look backwards, you can't quantify your success you will have in the future 5 years from now - you measure success based on history.