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

[Cougar]

This post will cover three things, the financial markets, the world markets and economy over the rest of this year. As you should know, the financial markets has started off the year terribly and that’s going to continue. Now, the initial downturn was because of the Chinese markets that no one could have forseen but the damage has been done and without serious intervention by the FED; the markets are going to continue to decline, the average bear market decline is 28%, so we would have another 15% minimum to go.

So, I will lay out some facts:
1. 85% of all stocks follow the market, meaning if we are in bear market; you will probably not avoid it.
2. Sales by hedge funds were the largest last week in two years.
3. The baltic dry index, used to measure movement of shipping, is at a record low.
4. Texas general business activity, the state that created 40% of all jobs since 2009;  is at a 6 year low.
5. There have been 8 month over month declines in industrial production in the past 12 months, this has never happened before without a recession.
6. 42 north american oil companies filed for bankruptcy.

I could go on and on with this list that it’s a bad time to be investing in the market. Now, I am not trying to scare anyone here that the wheels are about to fall off; but there is no denial the global economy is slowing and much more likely to be in a recession within the next two years than continue to grow.

I am sharing this information with the MMM crowd to help you preserve capital as I would think would be an MMM priority

The reason I am suggesting this is not the time to be buying the dip, the bull rally from 2009 has finally failed and it’s likely to be headed lower and at an increasing rate.

The reason I believe this is because even though November thru April are typically the strongest months of the market, every target for the market to rally to this year has failed to hit(meaning the market is weaker).

Cast me aside here if you wish, but my goal of this post is to help the mmm’ers preserve capital. If you lost money in 2008, you also lost the time you had to spend gaining back that lost money. The market lost nearly 50%, so you had to gain 100% just to get back to even and that took 6 years and that was on the back of QE which by all accounts grew the market faster than normal.

I would suggest reading: realinvestmentadvice.com,  his daily blog post "Technically Speaking: February Stats & Taking Action" and current weekly report "Whew! BOJ Saved The Rally…For Now 01-30-16". I also suggest following his portfolio recommendations in his newsletter if you do not have an idea of how to allocate yours in an economic decline(I currently have less market exposure than he is recommending).

If you wish to go off on me and tell the board how wrong I am and me trying to time the market here is a fool’s errand, go ahead. Everyone is entitled to their opinion and I’m not a professional money manager. I have given the board my opinion on what would be best for them this year and a solid free reference to follow; best of luck to you all.

[ender]

The flip side is that if the facts are as obvious as you say, then stock prices should loosely reflect their value correctly.

Threads like this have popped up at the beginning of the last 3 years here. It's fun to go back through time and look at that, when compared to the SP500 overall performance in their "doom and gloom" years.

That being said, I would not mind a 15% further drop given that we're starting our journey so hopefully you are right ;) 

[frugledoc]

Presumably all this obvious information which is freely available to all the world's investors has been priced in?

A more worrying time to invest is when the general public and market commentators are bullish, everybody is rejoicing in their gains, and more and more people are joining in.

If you are feeling very worried about putting money into the market, because there is so much bad news out there it is sure to go down, that is a usually a good time to invest.

If you are feeling positive about the market and think it is going to go up, probably not a good time.

My thoughts are that I don't really care and we'll see how things are in 15 years, when the roads are full of self driving cars etc. etc.

[GrowingTheGreen]

I'm not trying to say "you're wrong" about the possibility (or likelihood) that the market will take a tumble in the future.  It could happen.  If I were to  sit here and tell you that it's going to go up, then how is my argument any different than yours?  I think you've provided some really good insight into the current market conditions.  In fact, you've somewhat convinced me that the market will probably continue to dip in the near future.

However, I think that this sort of strategy does not fit in with the MMM community.  In general, people here use a dollar-cost-averaging strategy.  This strategy has proved to be effective over the long-term time and time again.  It is also a relatively stress-free strategy.  It doesn't force us to keep tabs on the market.  We simply plug away with our $50/$100/$500/$5,000 deposit at a regularly scheduled interval.  Will this strategy guarantee the absolute best returns ever?  No.  But it does generate the best returns for the "normal guy" investor who doesn't have the time or energy to analyze the market and make big money decisions based off of his/her analysis.  A DCA strategy also prevents the investor from pulling out of the market when they are convinced it will tank, only to miss out on unpredictable positive returns.

All we have here is a difference in investing strategy.  Either way, it will be interesting to see how everything plays out through 2016.

[Interest Compound]

If you wish to go off on me and tell the board how wrong I am and me trying to time the market here is a fool’s errand, go ahead.

Sure. I'm looking forward to your response to my earlier reply to a similar post of yours:

What's the best sign that some people are selling? Market price. Simply looking at a graph shows us that people are getting out. But what else does it show us?



Remember, for every dollar that's selling, there's a corresponding dollar that's buying. So for every "smart guy/gal or big boy/girl" who is getting out, another one is getting in at that exact point! Who are you to know that one half is smarter than the other half? What information do you think you have, that they don't?

Have you ever read Nassim Taleb's "The Black Swan". It's a fascinating book. In one chapter he discusses a strange phenomena, where people in the financial world are consistently wrong with their predictions, yet nobody seems to care. Someone could be wrong 95% of the time, and still be considered an expert. In any other discipline, when someone is consistently wrong, you'd stop listening to them. I wondered if that's the case here, so I decided to find the oldest information available on that site you recommended, and see how their predictions held up.

The oldest content on that page was a 2012 outlook video. I listed out his predictions, and compared them against what happened:

Prediction: 10-12% housing price decline

Result: Housing market up 8.1%



Prediction: The demise of the Eurozone as a whole

Result: Nope. Eurozone is still here.

Prediction: Oil prices higher.

Result: Oil down 13%



Prediction: I expect the dollar to do better this year, simply because of the Eurozone crisis

Result: USD fell 1.86% against the EUR in 2012



Prediction: Gold went through the roof recently, it's got to consolidate, won't be a great performer this year

Result: Gold went up 11% a few times, and ended the year up 5%



Prediction: "2012 is going to look a lot like 2011"

Result: Nope



Prediction: "Anything other than apocalypse is a win"

Result: US GDP rose to almost pre-crash levels, and the stock market rose 16%





Looking through these predictions, and the other articles on that site, it seems like Eric's response in the other thread fits perfectly:

----------------------------------------
The only problem with the graph is that it assumes that anyone following zerohedge realinvestmentadvice.com still had money in the market in 2016.  Everyone at zerohedge realinvestmentadvice.com knew that the crash was right around the corner in 2012. And 2013.  And 2014.  And 2015.

If you followed zerohedge realinvestmentadvice.com for the right week, you'd know that you could've avoided all of the losses of the last month by simply avoiding the gains of the last few years.
----------------------------------------

Cougar, I have a genuine question, and I urge you to answer honestly...Why do you still pay attention to these people?

[RedmondStash]

Is there a way to bookmark this post and revisit it in 1, 2, and 5 years? It'll be interesting to see whose predictions bear out.

I haven't the foggiest what will happen; I have realized that like the weather, the stock market is a chaotic system and therefore literally unpredictable, at least in the short term.

We just recently left our financial planner and moved all our money into Vanguard index funds. No dollar-cost averaging here, just one big plunge. And we're just going to let it ride. If it drops, it drops. It will eventually recover, and then, over time, increase. If our seasoned, experienced financial planner couldn't beat the market (and she couldn't, even over 10 years of trying), I surely can't either, and I won't try.

Good luck to all.

[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.

I don't understand why people don't recognize an expensive market vs a cheap market.  While predicting the future is impossible and a stupid endeavor, I find using history as a guide for making decisions in the present is useful.  By historical measures, the US market is over-valued.  Period.  End of story.  The math is in your face.  Does anyone actually think the market is cheap?  Even fairly valued?

Corporate profit margins - record high of 10% vs historical average of 6.5%
Buffett Indicator shows the market has only been more expensive 2 times in history (2000 and 2008)
Shiller PE is at almost 21 - historical average mean is 15.5

The above figures are the screaming indicators of the market being expensive.  Only if you are DCAing over like 40 years can you ignore this.  While you guys point out that people have been saying this year after year after year, the market has been expensive year after year after year.  It looks like only 2 brief period over the past 20 years have been not expensive (2003 and 2009).  The point I am trying to make is, markets can get expensive and stay expensive for very long periods of time.  And then suddenly, they can get cheap and stay cheap for very long periods of time also.  Imagine DCAing for 20 years into the market from 1995 to about now.  Then the market returns to historical valuations or lower for the next 20 years, like 1973 to 1993 in the attached chart.  Your returns will suck, maybe even be negative.  Recent history, the past 20 years, has given everyone a lot of ammunition to say that things will always stay expensive, or at least revert to being expensive even if they crash.  Looking at history, this is not the case though.  Look at Japan.  Their stock market peaked in 1990 and they haven't recovered since.

[Keith123]

Is there a way to bookmark this post and revisit it in 1, 2, and 5 years? It'll be interesting to see whose predictions bear out.

I haven't the foggiest what will happen; I have realized that like the weather, the stock market is a chaotic system and therefore literally unpredictable, at least in the short term.

We just recently left our financial planner and moved all our money into Vanguard index funds. No dollar-cost averaging here, just one big plunge. And we're just going to let it ride. If it drops, it drops. It will eventually recover, and then, over time, increase. If our seasoned, experienced financial planner couldn't beat the market (and she couldn't, even over 10 years of trying), I surely can't either, and I won't try.

Good luck to all.

I think you should reconsider.  Please average in over the next 2 years minimum.  Even the god of Vanguard, John Bogle, thinks the market is going to give poor returns for a while - http://www.marketwatch.com/story/john-bogle-says-you-wont-make-much-money-from-stocks-2015-11-05

[Geekenstein]

I'm comfortable letting doomsayers invest in whatever way they feel guided.  Just understand that many of us have been in the market for a long time, have heard the same things you are saying for a long time, and have continued to watch our portfolios grow for a long time. 

By all means, do the hokey-pokey with your investments if you wish.  We wish you the best of luck. 

[Cycling Stache]

We just recently left our financial planner and moved all our money into Vanguard index funds. No dollar-cost averaging here, just one big plunge. And we're just going to let it ride.

This is actually the perfectly economically rational way to do it.  Over time, the stock market goes up, and statistically, every day is more likely to be an up day than a down day.  So the earlier you get in the market, the better.  The reason dollar cost averaging is popular is because if the market does go down (i.e., the possibility become a reality), then people feel better that they didn't put all their money in that day. 

Of course, dollar cost averaging is better than gut investing, because you put in at regular intervals unrelated to market moves.

It's nice to see someone make the economically rational decision.

This thread made me chuckle because it highlights a behavioral irrationality that popped up recently in another thread.  Cougar made a number of good observations about why the market might go down, but the problem is that everyone else knows that as well.  So the risks are priced into the market, and the market will move once the possibilities go to one or zero (i.e., happen or don't).  The recent thread on this was someone loading up on Disney because Star Wars was coming out and it was going to be awesome.  Again, that might be a reason for Disney to do great, but everyone else had also heard of the Star Wars movie, so no real information advantage there.

For anyone who wants to see this in action, look at gambling lines.  The line gets set initially, but then moves based on how the bets come in.  For a game like the Super Bowl, the book makers are almost always fine because the number of bets ensures that the price (i.e. the line) is an accurate reflection of everyone's best estimates of what's going to happen.  It's also why not too many people get rich betting sports, because it is very hard to beat the collective "wisdom" consistently because an individual typically has no real information advantage.

For the record, putting money in the market when it's going down is hard.  I have it set to transfer every available dollar after my paycheck to an index fund, and I still find myself checking the price that day to see if it went up or down, and feel happy or sad as a result.  But then I realize I'm being an idiot and go about my day.  Repeat enough times, and you get rich!

[Dicey]

I'm getting in the boat with Interest Compound and Geekenstein, if they'll have me. Woo-hoo! This is going to be fun.

Oh yeah, Cycling Stache just chimed in. Looks they're in the fun boat too.

[BarkyardBQ]

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.

Most people retiring or aiming to FIRE in 10 years or less are likely contributing enough that gains aren't as necessary. The danger would be from sequence of returns risk post FIRE and your portfolio not keeping pace with withdrawals. This is where FU money comes into play and people can step back and work less or move toward other passive income streams, like rentals.

[Interest Compound]

I don't understand why people don't recognize an expensive market vs a cheap market.

I don't understand why people think they can beat the market, outsmarting people with nearly unlimited resources who do this for a living, by looking at a backwards-looking chart. Seriously. I'm going to be blunt about this Keith123, it shows a deep lack of understanding about how these numbers are put together. I know, because I've been there. I've seen charts like this, charts which make things look so obvious in hindsight, only to realize two things:

1. They are impossible to trade on.

2. You can't know where you are on that chart, without knowledge of the future.

To highlight the point, this is what your chart would've looked like from the perspective of the 1992 investor:



You would've missed out on a great early retirement by staying out of the market because a line on a backwards-looking chart told you to.



"Investing is not nearly as difficult as it looks. Successful investing involves doing a few things right and avoiding serious mistakes." ~Bogle

This is serious mistake territory.

[James]

I'm comfortable letting doomsayers invest in whatever way they feel guided.  Just understand that many of us have been in the market for a long time, have heard the same things you are saying for a long time, and have continued to watch our portfolios grow for a long time. 

By all means, do the hokey-pokey with your investments if you wish.  We wish you the best of luck.

I agree with this completely, including wishing you the best of luck, because you sure as hell are going to need it...


I hear it all the time, from my dad who went all in on silver as it went up, and then watched his life savings plummet. From coworkers who day trade in the break room wanting to make a fast buck. From the Wealth Management group who is constantly trying to convince me to join up, setting up nice booths at work events, talking about how much value they can add to my investments while getting worse returns than my funds and siphoning off a big chunk. From the neighbor kid who went to work for an investment firm and tried to sell me on the companies benefits (I did it to be nice, but almost cried because he knew so little and was selling such a crock of shit). Everyone is a genius because they found the one true way, well I hate to break it to you, but you sound like you are selling a religion, not a financial strategy. All those things you mention are factored into the market already, you can't look at the past to predict the future in the market, you have to somehow find a way of predicting the future in a way that isn't already factored into the price. When you do that let me know, until then... good luck...


One final note. You say "I am sharing this information with the MMM crowd to help you preserve capital as I would think would be an MMM priority", but "preserving capital" is certainly not our priority. Our priority is putting dollars to work as our slaves, not sitting on them while inflation eats away at their value.

[Keith123]

I don't understand why people don't recognize an expensive market vs a cheap market.

I don't understand why people think they can beat the market, outsmarting people with nearly unlimited resources who do this for a living, by looking at a backwards-looking chart. Seriously. I'm going to be blunt about this Keith123, it shows a deep lack of understanding about how these numbers are put together. I know, because I've been there. I've seen charts like this, charts which make things look so obvious in hindsight, only to realize two things:

1. They are impossible to trade on.

2. You can't know where you are on that chart, without knowledge of the future.

To highlight the point, this is what your chart would've looked like from the perspective of the 1992 investor:



You would've missed out on a great early retirement by staying out of the market because a line on a backwards-looking chart told you to.



"Investing is not nearly as difficult as it looks. Successful investing involves doing a few things right and avoiding serious mistakes." ~Bogle

This is serious mistake territory.

I see what you're saying and I'm really trying hard to be convinced.  I mean, it would make my life so easy to just buy VTI with every spare dollar I have all the time.  You would have no argument from me if we weren't at one of the record high points of valuation in the history of the market (I'm guessing you don't agree with this).  Also, you are missing one major point of mine.  I'm not advocating selling, ever.  Whatever you have in the market should stay in the market because we obviously have no idea where it is going or for how long.  What I am advocating for is waiting for the right time to buy with whatever cash you have accumulated.  I don't think people should buy all the time.  Buying at extremely high periods of valuation hurt returns over the long term.  Maybe over a period of 50 or 60 years the difference becomes negligible, but over a 20 year period, it can hurt returns a lot. 

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 

[steveo]

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.

But if markets are going to fall or stagnate isn't now a better time ? You'd be buying at lower rates and still getting dividends plus the risk is lower. I think if the market was consistently going up that would be more risky.

[Telecaster]

 Buying at extremely high periods of valuation hurt returns over the long term.  Maybe over a period of 50 or 60 years the difference becomes negligible, but over a 20 year period, it can hurt returns a lot. 

Do you have a backtest with clearly defined point of when not to buy? 

[sol]

I love threads like this.

Doom!  Fear!  Sell sell sell!  The Illuminati are coming to eat our babies!

Great, you do your thing.  I have no responsibility to try to help you or anyone else avoid ruining themselves.  It's tiring to repeatedly try to help people, and have them argue with you about it.  Fine, don't take our advice.  Go ahead and sit on cash for the next decade if that's what makes you happy. 

Me, I'll continue to buy the index every week like I always have, and I'm confident that this plan will work out for me eventually.

[Interest Compound]

I see what you're saying and I'm really trying hard to be convinced.  I mean, it would make my life so easy to just buy VTI with every spare dollar I have all the time.  You would have no argument from me if we weren't at one of the record high points of valuation in the history of the market

Here's an exercise for you. Look at your chart:



and hide it party behind another window on your computer, so you can only see the graph up to 1985:



Now move the window slowly to the right, so you can see what this chart would look like in real-time, with 0 knowledge of what the future years hold.

Now mark down the points on the chart where you think the market was "obviously expensive":



Then mark down the points on the chart where you would've started investing in the market again. Let me guess, you think you would've ended up putting all your money in the market at the bottom of the 2001 and 2008 crashes? Look at them from the perspective of someone who doesn't know the future, and tell me it doesn't look "obviously expensive",





Finally, go to IndexView, and see if it would've made any difference in your returns. I think you'll be surprised. I just tried this exercise, and ended up losing money. If you're feeling particularly brave, upload your marked-up chart for us all to see. :)

[popcornflying]

Believe it or not, a form of Keith123's strategy is covered in Ben Stein's book "Yes, You Can Time the Market!".  I see that everyone on this forum has already gone to Amazon and written one star reviews for it  :) :) :)

I don't have the book in front of me, but I think the authors backtested a strategy where you would compare the P/E of the index with its trailing 15 year average P/E once a year. If the current P/E was below the average, you bought the index. If the current P/E was above, you held onto that year's contribution and lump sum invested it with the current year's contribution on the year it crossed back below.  The book discussed timing with other indicators like price, Tobin's Q, and dividend yield, and they all beat the market.

Like all investing, you educate yourself and take responsibility for your results.  I thought for $4 it was worth the read.

[Interest Compound]

I love threads like this.

Doom!  Fear!  Sell sell sell!  The Illuminati are coming to eat our babies!

Great, you do your thing.  I have no responsibility to try to help you or anyone else avoid ruining themselves.  It's tiring to repeatedly try to help people, and have them argue with you about it.  Fine, don't take our advice.  Go ahead and sit on cash for the next decade if that's what makes you happy. 

Me, I'll continue to buy the index every week like I always have, and I'm confident that this plan will work out for me eventually.

You mean I shouldn't spend hours on my day off doing research and trying to convince people not to commit financial suicide after being repeatedly warned not to?

[Livewell]

Keith, you're back for more?  ;)

Have to agree with Sol and others.  I think we've all seen this play out before.  I'm sure there will be opportunities on the down and up side over the next whatever period of time you want to apply.  If you're sure, fantastic!  I've been through enough ups and downs to know for the most part it's better to just dca and go indexes, and concentrate on making money at work.

I'm in commission only sales, and I realized about 10 years ago the more I applied myself there the more my wealth would build.  Discovering Vanguard sealed the deal.  Conisidentally I was 32 at the time.

It sounds like you have experience in real estate.  Maybe just concentrate on making money there?  My advice would be to leverage where you have experience, and take the adventure out of the investing side.

[Psychstache]

For a thought exercise, let's pretend your strategy is accurate and we can foresee the upcoming bear market.

1. What do I do with my money at the moment? If I take it out of the market, do I just let it sit for now? Invest in another area?

2. When, if ever, do I reinvest in the stock market?


I'm not planning on making any moves myself, but I am just curious to understand your thought process.

[FINate]

Many years of investing have taught me, painfully at times, that one cannot consistently time the market. Some people will guess correctly in every cycle -- this is pure luck. No one writes about the vast majority of people who guess wrong, because we all like to hear stories about skill and talent, and this results in a form of collective confirmation bias.

Besides, if someone could time the market, why would they spend their time writing a newsletter to tell everyone their strategy instead of just cashing in?

[iamlindoro]

Here's an exercise for you. Look at your chart:

...

Interest Compound, I really like the way that you present your case in this and many other threads.  It's rational, patient, and really approachable.  Thanks for what you bring to these threads.

[MustacheAndaHalf]

So, I will lay out some facts:
1. 85% of all stocks follow the market, meaning if we are in bear market; you will probably not avoid it.

I'd like to see the source of this information, and maybe open up a separate topic.  Sounds interesting, apart from the rest of the topic.

There's an assumption that if you know when to sell, it's problem solved.  But when will you buy?  For example, the "Double Momentum" book aims to skip recessions.  But there it sells on the dip, and doesn't purchase again until stocks have returned to their former level.  In other words, it avoids the dip and the gain - not much different than buy and hold.  How will you know to time the purchase of stocks after this?

[redcedar]

There are some things you may consider if you believe a correction is coming. Least to most aggressive.

Go all cash and buy a big mattress
Shift from investing contributions to pay down mortgage
Shift contributions to a cash like instrument
Shift to a more conservative allocation
Buy/sell options
Shift to an allocation with gold
Short the market

Ignoring the options of do nothing or buy more.

[mrpercentage]

Meanwhile my ExxonMobil bi-weekly investing is up 5% in equity and yields 3.81% in a cratered market. You never know. Ford is still taking a beating even though they are vastly successful right now-- even in China, their numbers are up.

I sometimes wonder who is throwing money left to right with no reason involved at all. None.. zero

They will tell you we are all going to have solar cars when the average is a gas guzzling SUV 10 years old, or that cars are going to go away, or that Amazon is going to put supermarkets out of business with grocery delivering drones. There is a lot of stupid out there not looking at numbers at all. Granted I sidestep some numbers for oil because I know it has to be profitable and its not right now.

DCA turns volatility into profit providing its a zigzag and not strait down. I have bought Exxon at $85 I have got it at $72 and Im buying it at $80 and Im up. I don't understand it but it works. Not so well with Conoco but companies carry more risk than the market as a whole and the principal is the same.

[YoungInvestor]

There is still plenty of value to be found in the market.

It's less obviously cheap than it was in 2009, but it's certainly there.

I'm sure the market is going to be lower than it is now at some point in the future. I'm not sure that I would be able to take advantage of it on a way that would beat simply holding and reinvesting dividends and distributions.

I'm fairly sure that I will slowly but surely get richer and richer.

[frugledoc]

It's a multidecade bull market.

Any cheaper prices are just a chance to make better gains in the long term.

I am at complete peace with my investing strategy.  I am an experienced physician and think it would be extremely arrogant of me to presume I can out perform the rest of the investing world, most of which has more knowledge and resources than I do.  In the same way, I would not expect a goldman sachs banker to be able to perform a colonoscopy.

I buy only one fund, vanguard all world.

The world is an amazing place.  Unless we blow it up or destroy it, I see no reason why it will not be more amazing in the future.

[RedmondStash]

I think you should reconsider.  Please average in over the next 2 years minimum.  Even the god of Vanguard, John Bogle, thinks the market is going to give poor returns for a while - http://www.marketwatch.com/story/john-bogle-says-you-wont-make-much-money-from-stocks-2015-11-05

I appreciate the thought; I know it's coming from a good place of wanting me to avoid what you see as imminent catastrophe. I really do get that. But that's not how I see what's happening in the market. And if I'm wrong, spouse & I will just work longer to make up the difference. We'll reach FI eventually regardless. We're clear about and comfortable with our decision, and we'll accept the consequences. I have no doubt we'll see both ups and downs as the years roll by.

The way I look at it is that either you a) stuff your money under your mattress and watch as it loses value over time, or b) take a risk so that it has at least a chance of increasing over time. The greater the risk, the greater the (potential, long-term) reward. But there will always be some risk in trying to make your money grow; that's just built into the system.

However -- since you do see things differently, Keith, it makes sense that you should adopt the strategy that your analysis dictates, and see how you do. I'm not trying to talk you into changing your mind. We all have different comfort levels with different kinds of risk; for example, I really want to pay off my house even though having lots of $$ in stagnant home equity is a poor return on money.

I hope we all end up with what we're looking for. It really would be interesting to check back at points over the next several years and see how our various strategies have worked.

It's a multidecade bull market.

Any cheaper prices are just a chance to make better gains in the long term.

I am at complete peace with my investing strategy.

This is pretty much how I see it too. And even if I'm wrong, I know we'll be okay.

[Lexaholik]

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

This makes a lot of sense but I wonder if it's applicable to stock investing. Real estate investment is more similar to starting your own niche business because it's so dependent on geographic dependent trends. So someone with expertise in that geographic location can evaluate whether something is overvalued or undervalued. The stock market is different--it's far more difficult to tell if the market is overvalued or undervalued. You can convince yourself that it's expensive based on ratios or statements from authoritative sources, but I don't think it's that clear cut.

[Retire-Canada]

You can convince yourself that it's expensive based on ratios or statements from authoritative sources, but I don't think it's that clear cut.

If it was that easy we'd all be special unicorns and it would be priced into the market.

As it stands only a few of us believe they have the recipe for the "secret sauce".

[wwweb]

Hmmm... I'm always a little uneasy jumping into these discussions, but I'll give it a shot.

Before you try to time the market using publicly available information, you should have a darn good answer to the following question:
"Why doesn't everyone get rich doing this?"

You say that it is obvious when valuations are high/low. If it were as obvious as you make it out to be, then it would be relatively easy to become extremely rich by buying when valuations are low and selling when valuations are high. With even a little bit of information about the future market trajectory, earning huge returns is easy. Millions of people have developed systems for "valuing" the market, but the world is not filled in retired market timers. Why do you think your intuition about the market is so much better than everyone else's?

[Paul der Krake]

Bogle did sell stocks in 2000 when the valuations reached complete insanity. There is room for critical thinking and paying attention to fundamentals, no matter how deeply you believe in indexing.

Whether the market has reached a level that warrants drastic measures is left as an exercise to the reader.

[Tyler]

It strikes me that much of this conversation is built on a misunderstanding of what constitutes "the market".  The stock market just one piece of the larger puzzle.  There are many types of markets -- US stock markets, international stock markets, bond markets, commodities markets, real estate markets, cash markets, etc.  By diversifying markets, I feel no need to babysit every individual one and stress about when to sell out and buy in to protect my money.  I'm always 100% invested in "the market".  I'm just not always 100% invested in stocks.

[SingleMaltScot]

Long time forum lurker who is finally motivated to post.

I have to say I love these threads.  I treat them like an AA Meeting for timing the market.
Just when I'm starting to weaken I know that the MM forum will have a thread that will talk some sense.

I think the next step is a "You can't time the market!" tatoo.

[Keith123]

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

This makes a lot of sense but I wonder if it's applicable to stock investing. Real estate investment is more similar to starting your own niche business because it's so dependent on geographic dependent trends. So someone with expertise in that geographic location can evaluate whether something is overvalued or undervalued. The stock market is different--it's far more difficult to tell if the market is overvalued or undervalued. You can convince yourself that it's expensive based on ratios or statements from authoritative sources, but I don't think it's that clear cut.

A house for rent is basically a business right?  It sells rental space over time.  It has on-going expenses.  It is bought with intent to make a profit.  Isn't trying to value the stock market just an exercise in a business valuation?  For the real estate example, first figure out the return you'd like.  Say 8% on invested cash minimum per year.  Now, let's put together our assumptions and do our fundamental analysis.  20% down payment, rents of $2000 per month, vacancy of 20% per year, average yearly repairs of $6000, insurance, taxes, etc.  You get the point.  Please keep in mind that I'm pulling all these numbers completely out of thin air.  Its the exercise that I'm trying to illustrate.  So let's say after modelling all that, you think you can securely get $20k per year total rent and that you'll have total carrying costs (total expenses) of $15k per year.  That leaves you with $5k profit.  So...you shouldn't have more than $62.5k invested in this property in order to ensure that you have an 8% return. If $62.5k is the down payment (20%), then you shouldn't purchase the house for more than $312.5k or you will likely have a lower return than 8%.  This is simple, clear cut, fundamental analysis.  If there are no properties that you can buy that meet your criteria and desired return (an overvalued market), you don't buy them.  What isn't clear about that?  Real estate, stocks, bonds, etc.  They all can be measured like this in one way, shape, or form.  Maybe not perfectly, but well enough that one can make an educated guess of valuation. 

It honestly seems like a lot of people on this forum think fundamental analysis and determining fair value is not possible or at least not worth the effort.  By doing that, you are putting your faith in some belief that no matter what price you pay for an asset, it will eventually work out to a good return just because.  This is nonsense.  It is faith.  Faith does not belong in investing. 

Why not combine a few of the lessons from the greatest investors into one awesome strategy?  Bogle taught indexing, Buffett taught buy and hold value investing, Benjamin Graham taught margin of safety (25%).  Why can't these co-exist?  Why can't you buy and hold (Buffett) an indexed market fund, or sector ETF (Bogle) when there is a margin of safety from it's fair value (Benjamin Graham).  When you can't do that with the overall market, sit on the bench or look for the same opportunities in individual sector ETF's of the market.  If you still can't find anything, wait it out.  There will be a "fat pitch" eventually. 





 
 

[sol]

Why not combine a few of the lessons from the greatest investors into one awesome strategy?  Bogle taught indexing, Buffett taught buy and hold value investing, Benjamin Graham taught margin of safety (25%).  Why can't these co-exist?  Why can't you buy and hold (Buffett) an indexed market fund, or sector ETF (Bogle) when there is a margin of safety from it's fair value (Benjamin Graham).  When you can't do that with the overall market, sit on the bench or look for the same opportunities in individual sector ETF's of the market.  If you still can't find anything, wait it out.  There will be a "fat pitch" eventually. 

The reason you can't combine those strategies is that they are each designed to keep you buying, all the time, by helping you identify WHAT to buy at any given moment.  None of them ever recommend "stop buying everything" which is what you're trying to do by combining them.  You've ignored all of the good advice and just put together all of the "what not to buy" recommendations into one giant "buy nothing" recommendation and that strategy is a guaranteed loser.

[forestj]

My family has been in real estate for almost 40 years.  We have a small real estate brokerage.

It sounds to me like you can already retire, and no matter what you do with your money, you will always have more to fall back/retire on.  For some of us on this forum, that is not the case. If I tried to make some bets and trades on the indexes and lost half of my money, that would be additional years of work, and I wouldn't have any other options. There is no-one I can call, nothing I can do, besides continuing on working and trying to grow my income.

Things feel different when you are in that position. I have to take on all the uncertainty in the world on my own. If I lose, I actually lose. Like, there are consequences. I think that DCA is simply the best strategy for my position. I am willing to make a bet on the market over the long term, but I'm not willing to make a bet on myself beating the market in the long term. If I had money to burn, then sure, maybe I would play around with it more. But I don't.

[Keith123]

Why not combine a few of the lessons from the greatest investors into one awesome strategy?  Bogle taught indexing, Buffett taught buy and hold value investing, Benjamin Graham taught margin of safety (25%).  Why can't these co-exist?  Why can't you buy and hold (Buffett) an indexed market fund, or sector ETF (Bogle) when there is a margin of safety from it's fair value (Benjamin Graham).  When you can't do that with the overall market, sit on the bench or look for the same opportunities in individual sector ETF's of the market.  If you still can't find anything, wait it out.  There will be a "fat pitch" eventually. 

The reason you can't combine those strategies is that they are each designed to keep you buying, all the time, by helping you identify WHAT to buy at any given moment.  None of them ever recommend "stop buying everything" which is what you're trying to do by combining them.  You've ignored all of the good advice and just put together all of the "what not to buy" recommendations into one giant "buy nothing" recommendation and that strategy is a guaranteed loser.

Not true.  I've been buying VDE, Vanguard's energy sector ETF.  7k last week.  Like I said, when the total market is overvalued, you have to look for sectors within it that are undervalued and invest in them.  Since around 2010/2011, I've mostly been investing in real estate and doing-hard money lending though.  Never had one go bad.  The reason I am even on this forum currently is because the time for hard-money lending is quickly coming to a close and I have a bunch of cash coming back to me and I'm looking for somewhere to put it.  Housing prices have recovered to a level that it does not make it a sound investment anymore in my area either.  This is why I have been looking at the stock market.

[Keith123]

My family has been in real estate for almost 40 years.  We have a small real estate brokerage.

It sounds to me like you can already retire, and no matter what you do with your money, you will always have more to fall back/retire on.  For some of us on this forum, that is not the case. If I tried to make some bets and trades on the indexes and lost half of my money, that would be additional years of work, and I wouldn't have any other options. There is no-one I can call, nothing I can do, besides continuing on working and trying to grow my income.

Things feel different when you are in that position. I have to take on all the uncertainty in the world on my own. If I lose, I actually lose. Like, there are consequences. I think that DCA is simply the best strategy for my position. I am willing to make a bet on the market over the long term, but I'm not willing to make a bet on myself beating the market in the long term. If I had money to burn, then sure, maybe I would play around with it more. But I don't.

You're interpreting way too much.  When I say small brokerage, I mean small - 4 agents.  I'm 32.  I figure my net worth is slightly over 700k.  I lived on 26k last year.  But that's because I live in a 600sq ft apt in a 3-family house that I own.  I drive a 1996 sedan with almost 200k miles.  I'm quite frugal and live very small in order to build capital.  I don't want to live like this forever though.  My income is good, over 100k, but I really don't enjoy my job, at all.  I hope to someday have a passive income of 60k to 70k yearly on super conservative investments.  I think I can do that with around 1.5mil.  So I'm gettin' there but I can't afford to have a huge loss either without setting myself back a few years. 

[jamesvt]

The S&P 500 is currently at 1880 right now. It may never drop below 1880 ever again or could drop to 1000 six months from now. No one knows what the market will do in the future except it will eventually goes up over the long haul. Always putting money in the market and never selling is going to give you far better returns on your money than trying to time the market. People that try to time the market end up losing the vast majority of the time and the few that managed to somewhat time the market were lucky. 

[Keith123]

Hmmm... I'm always a little uneasy jumping into these discussions, but I'll give it a shot.

Before you try to time the market using publicly available information, you should have a darn good answer to the following question:
"Why doesn't everyone get rich doing this?"

You say that it is obvious when valuations are high/low. If it were as obvious as you make it out to be, then it would be relatively easy to become extremely rich by buying when valuations are low and selling when valuations are high. With even a little bit of information about the future market trajectory, earning huge returns is easy. Millions of people have developed systems for "valuing" the market, but the world is not filled in retired market timers. Why do you think your intuition about the market is so much better than everyone else's?

Because I am a genius and everyone else is dumb!  Kidding, kidding. 
On a serious note, I can't tell you which way the overall market will go in the short-term.  No one can.  You're absolutely right about that.  What I can tell you is this.  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.  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.  If you do agree with that, then you should believe that you can value a market and it's expected returns over the long-term if you analyze presently available data as well as historical trends.  Not perfectly, but well enough.

[forestj]

700k ... I hope to someday have a passive income of 60k to 70k yearly on super conservative investments.  I think I can do that with around 1.5mil.

Sure, and I hope to be able to stop working before I get run over by a bus or my body falls apart. If I had 700k I'd quit tomorrow.

Even if you socked it all in the market, quit your job, and saw a 50% drop in the S&P immediately following, by my standards, you would still be safe and wealthy enough to stay in retirement forever.

My point is, making the choice between

 - retiring, eating out all the time and going on vacation in europe VS. retiring, rarely eating out and going hiking nearby

 feels different from

 - living in a van and eating rice and beans VS. working 40 hours a week, sharing an apartment, and eating vegetables.

You have more choices.

[Keith123]

The S&P 500 is currently at 1880 right now. It may never drop below 1880 ever again or could drop to 1000 six months from now. No one knows what the market will do in the future except it will eventually goes up over the long haul. Always putting money in the market and never selling is going to give you far better returns on your money than trying to time the market. People that try to time the market end up losing the vast majority of the time and the few that managed to somewhat time the market were lucky.

If the S&P was 10,000 right now, would you put money in?  You're telling me there is no price too high that would keep you out of the market?  No one else sees the error in this line of thinking?  You have to incorporate fundamental analysis and market valuation into this strategy. 

[jamesvt]

The S&P 500 is currently at 1880 right now. It may never drop below 1880 ever again or could drop to 1000 six months from now. No one knows what the market will do in the future except it will eventually goes up over the long haul. Always putting money in the market and never selling is going to give you far better returns on your money than trying to time the market. People that try to time the market end up losing the vast majority of the time and the few that managed to somewhat time the market were lucky.

If the S&P was 10,000 right now, would you put money in?  You're telling me there is no price too high that would keep you out of the market?  No one else sees the error in this line of thinking?  You have to incorporate fundamental analysis and market valuation into this strategy.

If the market jumped up 550% over the weekend no I would not, but I don't think I have to worry about that. 50% of my pay every month goes into various accounts buying VTI or the equivalent and will I continue to do so.

[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

[MrGreen]

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.

[Kaspian]

By all means, do the hokey-pokey with your investments if you wish.  We wish you the best of luck.

I hear it all the time, from my dad who went all in on silver as it went up, and then watched his life savings plummet. From coworkers who day trade in the break room wanting to make a fast buck. From the Wealth Management group who is constantly trying to convince me to join up, setting up nice booths at work events, talking about how much value they can add to my investments while getting worse returns than my funds and siphoning off a big chunk. From the neighbor kid who went to work for an investment firm and tried to sell me on the companies benefits (I did it to be nice, but almost cried because he knew so little and was selling such a crock of shit)....

Great list, James!!  Forgot to mention all the people who decided in 2014 that Bitcoin was "the future" so bought in at $970 a pop to get on the action.  There has to be a few threads right here on MMM a few years ago saying that was a great idea.