Market valuations? Somethings got to give

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ChinchillaWhiplash
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Market valuations? Somethings got to give

Post by ChinchillaWhiplash »

After looking at the current stock markets indexes rise at such a great rate over such a short period of time, I would think that something has to give. Not saying that a crash is around the corner, but maybe a plateau. Seems that the Nasdaq 100 and Russell 2000 are a bit out of control. Surely valuations can’t keep going up at its current rate. There are some companies that are doing better than before COVID, but a lot are not. I know low interest credit has to play into it to some degree. How high can things keep going up before the market at least stalls out? Is there a point where valuations are too speculative and the powers that be stop buying? I have started putting new money into International as it seems more likely that these stocks have more room to run. I’m actually starting to tilt over market cap now. Seems like it might not be a bad idea. Aiming for 40/60 US/International. Good idea or not?
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Re: Market valuations? Somethings got to give

Post by 000 »

I think the US stock index is in a bubble, but sitting on heaps of cash seems like a bad move so I have been doing something similar, tilting towards productive assets with lower investor enthusiasm. Current equity portfolio is approximately 50% US / 50% ex-US, but the US breakdown is like 30% index / 20% select. Ultimately I believe the bubble will continue until the something that has been causing the bubble ceases or ceases to be effective. Then we may see a cash crunch and forced deleveraging leading to a (possibly brief) opportunity for cash hoarders. Followed by a new and unprecedented something. Of course getting the timing right is always very difficult with these things.
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Re: Market valuations? Somethings got to give

Post by Normchad »

Not sure what to think here. The stock market has been doing very well for 11 years now, and it seems like nothing can last forever.

For those of us with sizable taxable accounts, we're kind of stuck, right? I've got tons of VTSAX, and if I try to move out of it, I have a big tax burden. So I'm holding tight.

I have room to do thins in my tax deferred accounts, but what would you do there? Emerging Markets? That might not turn out any better.

So I'm probably going to do what I always do, which is to do nothing. Stick with my current plan. With is 60/40. About 50% of all my assets are in VG Life Strategy Moderate Growth, so. I guess I'm roughly 20% international equities and 8% international bonds; or something like that. But I doubt that level of exposure will really change much.
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Re: Market valuations? Somethings got to give

Post by mrspock »

I'll take the other side of this. This market is cheap compared the other investment options out there.

We hit 50 PE no problem, and we probably sit there until bond buyers wake up and start demanding positive real yield, the balance sheet of the fed contracts or earnings rocket upwards due to the COVID recovery (or some combo of this).

Incidentally... where were all these threads last March? Oh ya... the market was too expensive then as well because people thought it would keep falling, earnings would go into a nuclear winter etc. The reality is, most investors would know a deal on equities if it hit them in the face. I have little faith they can see an overvalued market either.
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Re: Market valuations? Somethings got to give

Post by ChinchillaWhiplash »

I guess changing my AA is a bit of market timing. Have not planned on selling current US holdings to fund International though. I might do a little of this to get the numbers where I want a little quicker than I can with new money. Take a little profit off the top to invest in another class that is a bit down still or just keep doing what I have been? Figure I will come out OK either way.
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Re: Market valuations? Somethings got to give

Post by AlohaJoe »

ChinchillaWhiplash wrote: Fri Feb 12, 2021 10:06 pm After looking at the current stock markets indexes rise at such a great rate over such a short period of time, I would think that something has to give. Not saying that a crash is around the corner, but maybe a plateau.
In July 2018 you posted:
I think US equities will be down and can almost guarantee that they will be. My reasoning is that it keeps getting posted that this will happen in financial news. Why does this matter? The general population of investors will follow this info and invest accordingly. Herd mentality. Sell off of US equities will occur and buying of international will occur. This will shift markets in favor or international.
The US market is up 42% since then. I don't really see a reason that your current speculation about the future is going to be any more accurate than your previous attempts.
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Re: Market valuations? Somethings got to give

Post by Hogan773 »

I have been wrestling with the toppiness as well. Was thinking of pulling back 5 or 10% of equity in tax deferred and putting into fixed income

But then I am thinking, so if I am RIGHT on the timing and the market has a 20pct correction, and I also reinvest at the bottom, then I have avoided a 20pct loss in 5pct of my portfolio, so not really a needle mover. And that is if I'm right. Certainly closer to 50/50 that I'm wrong
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Re: Market valuations? Somethings got to give

Post by 7eight9 »

mrspock wrote: Fri Feb 12, 2021 10:42 pm I'll take the other side of this. This market is cheap compared the other investment options out there.

We hit 50 PE no problem, and we probably sit there until bond buyers wake up and start demanding positive real yield, the balance sheet of the fed contracts or earnings rocket upwards due to the COVID recovery (or some combo of this).

Incidentally... where were all these threads last March? Oh ya... the market was too expensive then as well because people thought it would keep falling, earnings would go into a nuclear winter etc. The reality is, most investors would know a deal on equities if it hit them in the face. I have little faith they can see an overvalued market either.
Hello Japan (circa 1989). And we all know how that turned out. :happy

The trailing P/E for Japan at the market peak in end-1989 sat at 60x, and clearly investors were (over-)prepared to pay-up for the prospect of forward growth. On a 12-month forward consensus basis, the prospective P/E was 40x (and rose to 75x as earnings collapsed in 1990/4). Today – after the economy has been ravaged by deflation and demographics, and the equity market has been de-rated and declined by 75% – what are investors prepared to pay for Japanese 12-month forward earnings? The answer is ‘just’ 13.5x, up from a mere 10x at end October 2008.
https://www.ft.com/content/110f90a2-501 ... 526e03ec3a
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Re: Market valuations? Somethings got to give

Post by 000 »

AlohaJoe wrote: Fri Feb 12, 2021 11:15 pm
ChinchillaWhiplash wrote: Fri Feb 12, 2021 10:06 pm After looking at the current stock markets indexes rise at such a great rate over such a short period of time, I would think that something has to give. Not saying that a crash is around the corner, but maybe a plateau.
In July 2018 you posted:
I think US equities will be down and can almost guarantee that they will be. My reasoning is that it keeps getting posted that this will happen in financial news. Why does this matter? The general population of investors will follow this info and invest accordingly. Herd mentality. Sell off of US equities will occur and buying of international will occur. This will shift markets in favor or international.
The US market is up 42% since then. I don't really see a reason that your current speculation about the future is going to be any more accurate than your previous attempts.
If you're going to mine somebody's posts, at least use the quote feature so we can click the up arrow for context. :wink:
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Re: Market valuations? Somethings got to give

Post by 000 »

7eight9 wrote: Sat Feb 13, 2021 12:03 am
mrspock wrote: Fri Feb 12, 2021 10:42 pm I'll take the other side of this. This market is cheap compared the other investment options out there.

We hit 50 PE no problem, and we probably sit there until bond buyers wake up and start demanding positive real yield, the balance sheet of the fed contracts or earnings rocket upwards due to the COVID recovery (or some combo of this).

Incidentally... where were all these threads last March? Oh ya... the market was too expensive then as well because people thought it would keep falling, earnings would go into a nuclear winter etc. The reality is, most investors would know a deal on equities if it hit them in the face. I have little faith they can see an overvalued market either.
Hello Japan (circa 1989). And we all know how that turned out. :happy

The trailing P/E for Japan at the market peak in end-1989 sat at 60x, and clearly investors were (over-)prepared to pay-up for the prospect of forward growth. On a 12-month forward consensus basis, the prospective P/E was 40x (and rose to 75x as earnings collapsed in 1990/4). Today – after the economy has been ravaged by deflation and demographics, and the equity market has been de-rated and declined by 75% – what are investors prepared to pay for Japanese 12-month forward earnings? The answer is ‘just’ 13.5x, up from a mere 10x at end October 2008.
https://www.ft.com/content/110f90a2-501 ... 526e03ec3a
This may be the answer, but what P/E calculation do you use for the US market? A lot of funds exclude stocks with negative earnings from their P/E calculation.
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Re: Market valuations? Somethings got to give

Post by mrspock »

7eight9 wrote: Sat Feb 13, 2021 12:03 am
mrspock wrote: Fri Feb 12, 2021 10:42 pm I'll take the other side of this. This market is cheap compared the other investment options out there.

We hit 50 PE no problem, and we probably sit there until bond buyers wake up and start demanding positive real yield, the balance sheet of the fed contracts or earnings rocket upwards due to the COVID recovery (or some combo of this).

Incidentally... where were all these threads last March? Oh ya... the market was too expensive then as well because people thought it would keep falling, earnings would go into a nuclear winter etc. The reality is, most investors would know a deal on equities if it hit them in the face. I have little faith they can see an overvalued market either.
Hello Japan (circa 1989). And we all know how that turned out. :happy

The trailing P/E for Japan at the market peak in end-1989 sat at 60x, and clearly investors were (over-)prepared to pay-up for the prospect of forward growth. On a 12-month forward consensus basis, the prospective P/E was 40x (and rose to 75x as earnings collapsed in 1990/4). Today – after the economy has been ravaged by deflation and demographics, and the equity market has been de-rated and declined by 75% – what are investors prepared to pay for Japanese 12-month forward earnings? The answer is ‘just’ 13.5x, up from a mere 10x at end October 2008.
https://www.ft.com/content/110f90a2-501 ... 526e03ec3a
Couple thoughts. So after investors 3 folded their money by 1990... they rebalanced per their AA right? And where did they land after the decline and rebalancing back? If they didn’t have the discipline to rebalance on the way up and down... well, that’s a problem.

Even now, instead of people worrying about high PEs, why don’t they buy up bonds per their AA? Thats the whole point of having an AA in the context of buy and hold investing.

Secondly, how has living by the motto of cheap PEs worked it for the Japanese lately? They are cheap for a reason. No GOOGs, TSLAs, AAPLs etc

The beauty of modern ETFs is, if you want to buy up cheap PEs you don’t have to wait for the S&P to decline... you can go bet on that dog tomorrow. You could have bet on it 10 years ago.
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Re: Market valuations? Somethings got to give

Post by JBTX »

ChinchillaWhiplash wrote: Fri Feb 12, 2021 10:06 pm After looking at the current stock markets indexes rise at such a great rate over such a short period of time, I would think that something has to give. Not saying that a crash is around the corner, but maybe a plateau. Seems that the Nasdaq 100 and Russell 2000 are a bit out of control. Surely valuations can’t keep going up at its current rate. There are some companies that are doing better than before COVID, but a lot are not. I know low interest credit has to play into it to some degree. How high can things keep going up before the market at least stalls out? Is there a point where valuations are too speculative and the powers that be stop buying? I have started putting new money into International as it seems more likely that these stocks have more room to run. I’m actually starting to tilt over market cap now. Seems like it might not be a bad idea. Aiming for 40/60 US/International. Good idea or not?
Only time will tell. I agree at least a global market weight of international is a good idea, at least for me. I'm not making predictions as to what will do better, but if US does well, I will be fine, regardless of what international does. If US does poorly, chances are international will have done better and reduced the negative impact.
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Re: Market valuations? Somethings got to give

Post by Dr. Dad »

I'm wondering if there's more than one way for lofty equity valuations to "correct".
The one everyone discusses and fears is a (sudden) decline of stock prices--the bubble bursts.
But isn't it also possible that at least some market correction can come via increased earnings?
<hoping this isn't a foolish question>

DD
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Re: Market valuations? Somethings got to give

Post by HomerJ »

Dr. Dad wrote: Sat Feb 13, 2021 12:26 am I'm wondering if there's more than one way for lofty equity valuations to "correct".
The one everyone discusses and fears is a (sudden) decline of stock prices--the bubble bursts.
But isn't it also possible that at least some market correction can come via increased earnings?
<hoping this isn't a foolish question>

DD
Not a foolish question... Market can stay at the same price for a long time, while earnings slowly increase. A sideways market instead of a crash is certainly possible.
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Re: Market valuations? Somethings got to give

Post by HanSolo »

Aloha...
AlohaJoe wrote: Fri Feb 12, 2021 11:15 pm
ChinchillaWhiplash wrote: Fri Feb 12, 2021 10:06 pm After looking at the current stock markets indexes rise at such a great rate over such a short period of time, I would think that something has to give. Not saying that a crash is around the corner, but maybe a plateau.
In July 2018 you posted:
I think US equities will be down and can almost guarantee that they will be.
The US market is up 42% since then. I don't really see a reason that your current speculation about the future is going to be any more accurate than your previous attempts.
By some measures, it turned out to be a pretty good speculation. We achieved a bear market (20% down, peak-to-trough S&P 500 intraday prices) before the year was over.

Or, since the statement was made in July 2018, we could look at the July 2018 closing price compared to the 3/23/2020 closing price (also 20% down).

Regarding this:
Dr. Dad wrote: Sat Feb 13, 2021 12:26 am I'm wondering if there's more than one way for lofty equity valuations to "correct".
The one everyone discusses and fears is a (sudden) decline of stock prices--the bubble bursts.
But isn't it also possible that at least some market correction can come via increased earnings?
<hoping this isn't a foolish question>
I'd say that's a pretty good question. I think that's what Chinchilla was alluding to with "plateau".

Some professional analysts sidestep the question of whether there will be a big downturn by looking at 10-year or 20-year returns, and seeing if there's a relationship between that and the valuation metrics at the start of the period, with some suggestion that high valuations tend to lead to more modest returns over the ensuing periods. One such analysis was recently offered here:

https://www.mauldineconomics.com/frontl ... ock-market

I don't agree with all of the author's conclusions (for example, I think 60/40 passive funds are still a good idea). But I think the data is interesting, and I admit that I do limited allocation adjustments based on valuations.

My question for those who don't adjust their allocation due to equity market valuations: Is there any valuation level (according to any measure) that could ever conceivably make you consider going below your usual target equity allocation (e.g., metrics suggestive of 1989 Japan, or 1929 US)?
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Re: Market valuations? Somethings got to give

Post by Metsfan91 »

ChinchillaWhiplash wrote: Fri Feb 12, 2021 10:06 pm After looking at the current stock markets indexes rise at such a great rate over such a short period of time, I would think that something has to give. Not saying that a crash is around the corner, but maybe a plateau. Seems that the Nasdaq 100 and Russell 2000 are a bit out of control. Surely valuations can’t keep going up at its current rate. There are some companies that are doing better than before COVID, but a lot are not. I know low interest credit has to play into it to some degree. How high can things keep going up before the market at least stalls out? Is there a point where valuations are too speculative and the powers that be stop buying? I have started putting new money into International as it seems more likely that these stocks have more room to run. I’m actually starting to tilt over market cap now. Seems like it might not be a bad idea. Aiming for 40/60 US/International. Good idea or not?
Not giving up!!! Playing long!!! Sticking to plan. Worked toward 50/50 US/EX-US over the last 10 years. Not changing anything. Others have said, and read many times on this forum - have a plan (IPS) and stick to it.

Is your 40/60 US/International a good plan? I have no idea. I know nothing (nobody shared with me :( ). But, if I were to bet, US will outperform ex-US next 4 years.

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Re: Market valuations? Somethings got to give

Post by birdog »

Of course the U,S. market will crash/pull back. (We just don’t know when and it could very well not be for quite some time.) That’s what the stock market does. Then it climbs back to a new high. It always has in the past anyway. And all the while I’ll continue buying according to the AA set forth in my IPS. I think bonds, at their current levels, present a risk of their own. The risk of not providing enough return to cover one’s retirement. Even at current U.S. equity valuations I expect them to continue to outperform bonds going forward. Ignore the noise and stay the course.
Last edited by birdog on Sat Feb 13, 2021 6:06 am, edited 2 times in total.
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Re: Market valuations? Somethings got to give

Post by Forester »

mrspock wrote: Fri Feb 12, 2021 10:42 pm I'll take the other side of this. This market is cheap compared the other investment options out there.

We hit 50 PE no problem, and we probably sit there until bond buyers wake up and start demanding positive real yield, the balance sheet of the fed contracts or earnings rocket upwards due to the COVID recovery (or some combo of this).

Incidentally... where were all these threads last March? Oh ya... the market was too expensive then as well because people thought it would keep falling, earnings would go into a nuclear winter etc. The reality is, most investors would know a deal on equities if it hit them in the face. I have little faith they can see an overvalued market either.
Developed ex-USA is cheap today, and much cheaper relative to the USA, versus the 2000 tech era. Europe was very bubbly then. Germany, UK, eastern Europe are cheap then outside of Europe there are options.

I bet if you added up the % global market cap of the 2021 cheap bucket, it's no smaller than the similar cheap bucket of 2000/01, it's not like these are fringe plays.
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Re: Market valuations? Somethings got to give

Post by Scooter57 »

If you look at the stocks held in International and Developed Markets funds, you see that they are valued richly for the kinds of companies that dominate those indexes: financials, energy, and extractive industries.

Financials always have lower P/E ratios than other kinds of companies.

And most importantly, when you look at the companies in these indexes, you don't see companies with huge international growth potential. Many are regional companies that will stay that way. There are a handful of international companies and growth companies, but Tech is a much smaller part of these funds than it is of US funds.

The gains in international investing mostly come from declining dollar values. But that has nothing to do with valuation.
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Re: Market valuations? Somethings got to give

Post by nisiprius »

IMHO the right question is not "is the market overvalued, and is a crash coming sooner or later?" The right question is "what investing strategy should I pursue based on what I know?"

A key question to explore (i.e. I don't know any real data myself) is "how accurately do I need to be able to call the top in order to meaningfully improve my investment situation?" I believe the answer is "very accurately." Like, within a few months. Otherwise, statistically maybe you don't win or lose, but you are just throwing the dice and increasing your uncertainty, based on how well or poorly your moves happen to line up with the actual date of the crash.

Roger Babson isn't famous for saying "Sooner or later a crash is coming and it may be terrific." He is famous for saying that in September, 1929.

Jesse Livermore got rich shorting stocks in 1929. But it's still a fantasy for most of us. (And I personally feel that the fact that he eventually lost it all and committed suicide is relevant).

Another key question to explore is "statistically, which groups of investors do better? Those who invest 50/50 in stocks and bonds, do nothing, and just sit around letting their stocks get clobbered in a crash... or those who alternate between greed and fear, investing 100% in stocks so as not to miss out on bubble profits and expecting they can sell in time to avoid the crash?"

It seems bizarre not to even try to avoid a crash, but it's important to remember that patterns that look plain in a chart in hindsight are not plain when you are in them. Every price movement contains within it small price movements in the opposite direction, the pattern is fractal. On the way up, it is easy to get spooked by some little downturn and sell, have it turn out to be nothing, and miss out on further growth. On the way down after a top, it's easy to interpret some little upturn as the start of recovery, and say "I'd better not sell yet," and keep doing this all the way down (as your losses get worse and worse and you feel less and less able to give up on the hope of recouping).

The market is sometimes overvalued and sometimes undervalued. The evidence that an ordinary investor doing ordinary casual research can tell which it is and improve their results by acting on it is slim. In fact the evidence that pros can do it is slim.

When I was saving for retirement, I actually did a calculation whenever I reviewed my progress, in which I took the brokerage total and subtracted half of whatever value was showing for stocks. That is, I said "where would I be if stocks lost -50%?"
Last edited by nisiprius on Sat Feb 13, 2021 7:34 am, edited 3 times in total.
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Re: Market valuations? Somethings got to give

Post by livesoft »

I see that the US economy as measured by GDP is under $20 trillion. In 2020, the stimulus bill was about $2.2 trillion. It is well-known that in 2021 there will also be a stimulus bill of about the same amount.

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Re: Market valuations? Somethings got to give

Post by burritoLover »

I'm sure this bubble will pop within the next year to 15 years so you should move to cash now.
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Re: Market valuations? Somethings got to give

Post by birdog »

livesoft wrote: Sat Feb 13, 2021 7:30 am I see that the US economy as measured by GDP is under $20 trillion. In 2020, the stimulus bill was about $2.2 trillion. It is well-known that in 2021 there will also be a stimulus bill of about the same amount.

When I am stimulated I like it. I might get a hangover later though.
Hah! Interesting and applicable analogy.
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Re: Market valuations? Somethings got to give

Post by am »

ChinchillaWhiplash wrote: Fri Feb 12, 2021 10:06 pm After looking at the current stock markets indexes rise at such a great rate over such a short period of time, I would think that something has to give. Not saying that a crash is around the corner, but maybe a plateau. Seems that the Nasdaq 100 and Russell 2000 are a bit out of control. Surely valuations can’t keep going up at its current rate. There are some companies that are doing better than before COVID, but a lot are not. I know low interest credit has to play into it to some degree. How high can things keep going up before the market at least stalls out? Is there a point where valuations are too speculative and the powers that be stop buying? I have started putting new money into International as it seems more likely that these stocks have more room to run. I’m actually starting to tilt over market cap now. Seems like it might not be a bad idea. Aiming for 40/60 US/International. Good idea or not?
Your likely to lose if you do any market timing or asset adjustments based on your hunches, feelings, whims, etc. staying the course is the best plan. If you must, take 5% of portfolio and make some bets. I do and it helps with the itches.
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Re: Market valuations? Somethings got to give

Post by Wanderingwheelz »

7eight9 wrote: Sat Feb 13, 2021 12:03 am
mrspock wrote: Fri Feb 12, 2021 10:42 pm I'll take the other side of this. This market is cheap compared the other investment options out there.

We hit 50 PE no problem, and we probably sit there until bond buyers wake up and start demanding positive real yield, the balance sheet of the fed contracts or earnings rocket upwards due to the COVID recovery (or some combo of this).

Incidentally... where were all these threads last March? Oh ya... the market was too expensive then as well because people thought it would keep falling, earnings would go into a nuclear winter etc. The reality is, most investors would know a deal on equities if it hit them in the face. I have little faith they can see an overvalued market either.
Hello Japan (circa 1989). And we all know how that turned out. :happy

The trailing P/E for Japan at the market peak in end-1989 sat at 60x, and clearly investors were (over-)prepared to pay-up for the prospect of forward growth. On a 12-month forward consensus basis, the prospective P/E was 40x (and rose to 75x as earnings collapsed in 1990/4). Today – after the economy has been ravaged by deflation and demographics, and the equity market has been de-rated and declined by 75% – what are investors prepared to pay for Japanese 12-month forward earnings? The answer is ‘just’ 13.5x, up from a mere 10x at end October 2008.
https://www.ft.com/content/110f90a2-501 ... 526e03ec3a
We get it. Believe me. We get it. But most of us here have only a small allocation to Japanese stocks. I think VT is roughly 7% allocated to Japan so I doubt there’s one person who’ll read this thread who’s concerned about how Japanese stocks will affect their portfolio.
Last edited by Wanderingwheelz on Sat Feb 13, 2021 8:10 am, edited 1 time in total.
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Re: Market valuations? Somethings got to give

Post by Nowizard »

This is the other side of the discussions about bonds and what to do given the low returns, possible inflation, etc. Both discussions are market timing based to a large degree, and views on that topic influence actions taken. Some acknowledge the confusion, consider it noise and do nothing. Others act. A recent article, for example suggested that a bubble exists, that a downturn is coming, and the way to negotiate it is to purchase the 500 Index now because the market always returns and fixed investments are returning little. So, what do we give? Do we give credence to the current market in the sense of making market timing moves, give credence to the Boglehead philosophy of buy and hold and do nothing, or do something in between? Since no one knows what will actually happen, we decide based on individual circumstances combined with analysis. We act, or not, and simply have to be able to accept the consequences of our decisions. The one certainty is that there is none.

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Re: Market valuations? Somethings got to give

Post by firebirdparts »

It doesn’t seem clear at this point to expect interest rates to recover. That is the thing that will pop the bubble. I think the precariousness of our situation is mathematically correct. I mean we should be where we are.
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Re: Market valuations? Somethings got to give

Post by ensign »

AlohaJoe wrote: Fri Feb 12, 2021 11:15 pm
ChinchillaWhiplash wrote: Fri Feb 12, 2021 10:06 pm After looking at the current stock markets indexes rise at such a great rate over such a short period of time, I would think that something has to give. Not saying that a crash is around the corner, but maybe a plateau.
In July 2018 you posted:
I think US equities will be down and can almost guarantee that they will be. My reasoning is that it keeps getting posted that this will happen in financial news. Why does this matter? The general population of investors will follow this info and invest accordingly. Herd mentality. Sell off of US equities will occur and buying of international will occur. This will shift markets in favor or international.
The US market is up 42% since then. I don't really see a reason that your current speculation about the future is going to be any more accurate than your previous attempts.
Why do you find argumentum ad hominem useful?
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Re: Market valuations? Somethings got to give

Post by Shallowpockets »

The value of the market, P/E, bubbles, all of that should not matter to the BH philosophy. You buy the index and you sit. The best you can do within the framework of the BH is to reallocate. Of course, there is market timing there. The prudent thing would be to be 70/30 or 60/40, for life. Reallocation. That’s a red herring.
If you are 70/30 and stocks climb (indexes up) and then you are 80/20, or 90/10, who cares?
If the bear market comes due, or the bubble bursts, the loss will come on the appreciated percent of your newer allocation. So 60/40 goes to 80/20 and the drops back to 60/40.
I am playing lose with those numbers, but the premise is valid.
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Re: Market valuations? Somethings got to give

Post by birdog »

ensign wrote: Sat Feb 13, 2021 8:16 am Why do you find argumentum ad hominem useful?
Had to look that up. Thank you for expanding my vocabulary.
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Re: Market valuations? Somethings got to give

Post by 9-5 Suited »

A quote from Dr. Dahle of The White Coat Investor that has grown on my list of important bits of wisdom:

“Beginner investors have trouble staying the course in market downturns but I've noticed that what I call intermediate investors, people who have learned a thing or two about investing, become fearful at market highs and want to sell when the market is at new highs.”
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Re: Market valuations? Somethings got to give

Post by z3r0c00l »

ensign wrote: Sat Feb 13, 2021 8:16 am
AlohaJoe wrote: Fri Feb 12, 2021 11:15 pm
ChinchillaWhiplash wrote: Fri Feb 12, 2021 10:06 pm After looking at the current stock markets indexes rise at such a great rate over such a short period of time, I would think that something has to give. Not saying that a crash is around the corner, but maybe a plateau.
In July 2018 you posted:
I think US equities will be down and can almost guarantee that they will be. My reasoning is that it keeps getting posted that this will happen in financial news. Why does this matter? The general population of investors will follow this info and invest accordingly. Herd mentality. Sell off of US equities will occur and buying of international will occur. This will shift markets in favor or international.
The US market is up 42% since then. I don't really see a reason that your current speculation about the future is going to be any more accurate than your previous attempts.
Why do you find argumentum ad hominem useful?
Give the benefit of the doubt, it is extremely useful to remind everyone that past predictions (theirs included) were no more than guesses and any predictions made today are equally unlikely to be true. Your last prediction was off by a huge amount and anyone listening to that advice would be in bad shape today.

Speak about the probabilities that follow a remarkably consistent secular trend upwards, or talk about what rolling 20 year periods have been like and guess that the next 20 years will be within that range. Else these predictions have no value because they are not reliable.

Nothing's got to give. Valuations could stay exactly the same for a decade, or the P could go up or down, or the E could go up or down, or both. My gut says the E goes up significantly in the second half of this year due to reduced virus loading. But that is a guess, not actionable information.
Last edited by z3r0c00l on Sat Feb 13, 2021 8:35 am, edited 1 time in total.
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Re: Market valuations? Somethings got to give

Post by Ramjet »

AlohaJoe wrote: Fri Feb 12, 2021 11:15 pm
ChinchillaWhiplash wrote: Fri Feb 12, 2021 10:06 pm After looking at the current stock markets indexes rise at such a great rate over such a short period of time, I would think that something has to give. Not saying that a crash is around the corner, but maybe a plateau.
In July 2018 you posted:
I think US equities will be down and can almost guarantee that they will be. My reasoning is that it keeps getting posted that this will happen in financial news. Why does this matter? The general population of investors will follow this info and invest accordingly. Herd mentality. Sell off of US equities will occur and buying of international will occur. This will shift markets in favor or international.
The US market is up 42% since then. I don't really see a reason that your current speculation about the future is going to be any more accurate than your previous attempts.
end thread
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Re: Market valuations? Somethings got to give

Post by 9-5 Suited »

ensign wrote: Sat Feb 13, 2021 8:16 am
AlohaJoe wrote: Fri Feb 12, 2021 11:15 pm
ChinchillaWhiplash wrote: Fri Feb 12, 2021 10:06 pm After looking at the current stock markets indexes rise at such a great rate over such a short period of time, I would think that something has to give. Not saying that a crash is around the corner, but maybe a plateau.
In July 2018 you posted:
I think US equities will be down and can almost guarantee that they will be. My reasoning is that it keeps getting posted that this will happen in financial news. Why does this matter? The general population of investors will follow this info and invest accordingly. Herd mentality. Sell off of US equities will occur and buying of international will occur. This will shift markets in favor or international.
The US market is up 42% since then. I don't really see a reason that your current speculation about the future is going to be any more accurate than your previous attempts.
Why do you find argumentum ad hominem useful?
The tone is a little aggressive perhaps but the argument is not really an ad hominem attack. It’s an instructive way of making the point that the OP should accept that s/he isn’t able to see the future, as none of us are. Looking at the past forecasts of a forecaster is reasonably common way to assess the skill level of one’s current intuitions.
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Re: Market valuations? Somethings got to give

Post by Triple digit golfer »

9-5 Suited wrote: Sat Feb 13, 2021 8:29 am A quote from Dr. Dahle of The White Coat Investor that has grown on my list of important bits of wisdom:

“Beginner investors have trouble staying the course in market downturns but I've noticed that what I call intermediate investors, people who have learned a thing or two about investing, become fearful at market highs and want to sell when the market is at new highs.”
That one or a similar one has always stuck with me too. Something along the lines of beginners are fearful in a downturn, intermediates in a long bull, and advanced investors don't care what the market is doing.
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Re: Market valuations? Somethings got to give

Post by KlangFool »

OP,


I know that I know nothing. Hence, I invest based on the assumption of I know nothing.

A) My AA is 60/40

B) I have both US Stock and International Stock. I do not know and do not need to know whether the US stock is overvalued.


C) I have bonds too. I do not know and do not need to know whether the interest rate is moving up.


D) My rebalancing takes care of whatever is overvalued.


It is simple but hard.


You just need to let go of the idea that you know anything.


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Re: Market valuations? Somethings got to give

Post by ChinchillaWhiplash »

One thing I was looking at that makes me want to do the tilt is that both US and International are going up close to the same rate. I just think valuations are pretty inflated for US and the charts would indicate as such. Seems like International is a bit “safer” from a huge downturn, but still capable of a high rate of growth. This is my take on it anyway. We all know that there have been periods where International has out performed US. I think it is about that time again or at least it might try to catch up soon. Basically putting money into an asset class that is going up and has room to run vs putting money into an asset class that has run up a bunch and is still going up. Which makes the most sense?
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Re: Market valuations? Somethings got to give

Post by Triple digit golfer »

ChinchillaWhiplash wrote: Sat Feb 13, 2021 8:55 am One thing I was looking at that makes me want to do the tilt is that both US and International are going up close to the same rate. I just think valuations are pretty inflated for US and the charts would indicate as such. Seems like International is a bit “safer” from a huge downturn, but still capable of a high rate of growth. This is my take on it anyway. We all know that there have been periods where International has out performed US. I think it is about that time again or at least it might try to catch up soon. Basically putting money into an asset class that is going up and has room to run vs putting money into an asset class that has run up a bunch and is still going up. Which makes the most sense?
You may be right or you may be wrong. Your tone suggests that you think there's a great than 50% chance that you're right. There isn't.

At any point in time the market is priced at what investors in the aggregate think it and its components are worth. Do you think millions of investors are wrong?
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Re: Market valuations? Somethings got to give

Post by KlangFool »

ChinchillaWhiplash wrote: Sat Feb 13, 2021 8:55 am One thing I was looking at that makes me want to do the tilt is that both US and International are going up close to the same rate. I just think valuations are pretty inflated for US and the charts would indicate as such. Seems like International is a bit “safer” from a huge downturn, but still capable of a high rate of growth. This is my take on it anyway. We all know that there have been periods where International has out performed US. I think it is about that time again or at least it might try to catch up soon. Basically putting money into an asset class that is going up and has room to run vs putting money into an asset class that has run up a bunch and is still going up. Which makes the most sense?
ChinchillaWhiplash,

You are thinking short-term aka based on your feeling. If you are thinking in the long-term, there is no reason not to include International stock as part of your portfolio. Then, strategically, you should decide to allocate X% of your portfolio to International stock independent of your feeling/prediction.

This is the same as a tilt to SCV or anything else. If you do not have the conviction to hold it for a very long time, don't do it.

<<Basically putting money into an asset class that is going up and has room to run vs putting money into an asset class that has run up a bunch and is still going up. Which makes the most sense?>>

There are both nonsenses. The base assumption is wrong! It assumes that you can predict the future.


I am harvesting my gain from my International Stock since it exceeds my allocation. The herds had joined in. It is great to profit from those market timers.


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Re: Market valuations? Somethings got to give

Post by birdog »

ChinchillaWhiplash wrote: Sat Feb 13, 2021 8:55 am One thing I was looking at that makes me want to do the tilt is that both US and International are going up close to the same rate. I just think valuations are pretty inflated for US and the charts would indicate as such. Seems like International is a bit “safer” from a huge downturn, but still capable of a high rate of growth. This is my take on it anyway. We all know that there have been periods where International has out performed US. I think it is about that time again or at least it might try to catch up soon. Basically putting money into an asset class that is going up and has room to run vs putting money into an asset class that has run up a bunch and is still going up. Which makes the most sense?
I think this illustrates the need for an IPS that calls for an AA and a set percentage of equities in ex-US (assuming ex-US is desired).

For example, if you already had an IPS that stated (something reasonable) along the lines of: 70-30 stock to bonds and 30% of stocks are in int'l and if you actually stayed the course with that and periodically re-balanced then I very confidently think that you'd be better off in the long run than deciding on your own when to over-weight and under-weight certain asset classes based on what you think the future holds. It would at least remove the need to keep remaking the decision you are currently wrestling with.
Last edited by birdog on Sat Feb 13, 2021 9:48 am, edited 1 time in total.
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Re: Market valuations? Somethings got to give

Post by Wanderingwheelz »

Triple digit golfer wrote: Sat Feb 13, 2021 8:50 am
9-5 Suited wrote: Sat Feb 13, 2021 8:29 am A quote from Dr. Dahle of The White Coat Investor that has grown on my list of important bits of wisdom:

“Beginner investors have trouble staying the course in market downturns but I've noticed that what I call intermediate investors, people who have learned a thing or two about investing, become fearful at market highs and want to sell when the market is at new highs.”
That one or a similar one has always stuck with me too. Something along the lines of beginners are fearful in a downturn, intermediates in a long bull, and advanced investors don't care what the market is doing.
A lot of intermediate investors happen to be middle aged and newly FI with a couple million+ in net worth. Having that coincide with a toppy market (in the sense it’s hitting highs regularly, not the sense it’s about to top, necessarily), so it’s perhaps shaky advice to encourage those folks to press on with their tried and true accumulation strategy that’s worked so well over the last 10+ years.

To reassess and perhaps begin to add some fixed income or other less risky assets like real estate to your portfolio isn’t admitting defeat or that somehow you’re a beginner. A 60/40 portfolio or 70/30 for those who want a bit more growth is the ultimate admission that one no longer cares what the market is doing IMHO. Market goes up, that’s great. If it goes down, then that’s fine too.

I hope there aren’t too many folks with winning lottery tickets that are risking misplacing them because brave investors are supposed to not fear an old bull.
Last edited by Wanderingwheelz on Sat Feb 13, 2021 9:38 am, edited 1 time in total.
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Re: Market valuations? Somethings got to give

Post by Forester »

Assuming one has no size/value tilt; 60 global stocks 40 US bonds is still vulnerable to a 1970s dollar retreat. 74% of this portfolio (57% of the 60 + 40 bonds) is a bet on the current disflationary No Growth trend (so must own Growth Stocks i.e. US TSM). It's not so diversified.
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Re: Market valuations? Somethings got to give

Post by nedsaid »

The Bull Market has been very strong, no doubt about that. I have been in a program of mild rebalancing from Stocks to Bonds, from US Stocks to International Stocks, from US Growth to US Value since July 2013. I have slowly been rebalancing and de-risking my portfolio since then and because of the power of the Bull Market, the needle has barely budged. I got my Stock allocation down from 69% down to 62% and then 60% and now I am back up to 65% stocks. The International allocation of my Stock portfolio has ranged from 24% to 28% and I am now at almost 29%. The dollar amounts of all my rebalancing is a lot though in percentage doesn't seem like much, my best guess is that I would be at 77% stocks now instead of 65% if I had done nothing.

But I am hardly complaining, I keep harvesting gains from the US Stock Market as it hits new highs. This exercise has been all about controlling risk. A big dilemma has been created by the very low yield from bonds now, hard to get excited about 1% and 2% yields. US Stocks might be expensive here but it seems that bonds are even more expensive than stocks.
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Re: Market valuations? Somethings got to give

Post by 9-5 Suited »

Wanderingwheelz wrote: Sat Feb 13, 2021 9:20 am
Triple digit golfer wrote: Sat Feb 13, 2021 8:50 am
9-5 Suited wrote: Sat Feb 13, 2021 8:29 am A quote from Dr. Dahle of The White Coat Investor that has grown on my list of important bits of wisdom:

“Beginner investors have trouble staying the course in market downturns but I've noticed that what I call intermediate investors, people who have learned a thing or two about investing, become fearful at market highs and want to sell when the market is at new highs.”
That one or a similar one has always stuck with me too. Something along the lines of beginners are fearful in a downturn, intermediates in a long bull, and advanced investors don't care what the market is doing.
A lot of intermediate investors happen to be middle aged and newly FI with a couple million+ in net worth. Having that coincide with a toppy market (in the sense it’s hitting highs regularly, not the sense it’s about to top, necessarily), so it’s perhaps shaky advice to encourage those folks to press on with their tried and true accumulation strategy that’s worked so well over the last 10+ years.

To reassess and perhaps begin to add some fixed income or other less risky assets like real estate to your portfolio isn’t admitting defeat or that somehow you’re a beginner. A 60/40 portfolio or 70/30 for those who want a bit more growth is the ultimate admission that one no longer cares what the market is doing IMHO. Market goes up, that’s great. If it goes down, then that’s fine too.

I hope there aren’t too many folks with winning lottery tickets that aren’t risking misplacing them.
That isn’t what he is saying though. He is a big proponent of having an IPS that would include derisking the portfolio at specified points. He is objecting to doing that based on a feeling about the current moment and that market highs mean one should take action.
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Re: Market valuations? Somethings got to give

Post by birdog »

nedsaid wrote: Sat Feb 13, 2021 9:26 am The Bull Market has been very strong, no doubt about that. I have been in a program of mild rebalancing from Stocks to Bonds, from US Stocks to International Stocks, from US Growth to US Value since July 2013. I have slowly been rebalancing and de-risking my portfolio since then and because of the power of the Bull Market, the needle has barely budged. I got my Stock allocation down from 69% down to 62% and then 60% and now I am back up to 65% stocks. The International allocation of my Stock portfolio has ranged from 24% to 28% and I am now at almost 29%. The dollar amounts of all my rebalancing is a lot though in percentage doesn't seem like much, my best guess is that I would be at 77% stocks now instead of 65% if I had done nothing.

But I am hardly complaining, I keep harvesting gains from the US Stock Market as it hits new highs. This exercise has been all about controlling risk. A big dilemma has been created by the very low yield from bonds now, hard to get excited about 1% and 2% yields. US Stocks might be expensive here but it seems that bonds are even more expensive than stocks.
This is where I am as well. I keep trimming equities and they keep fighting my efforts. I suppose there are worse problems. I also share your sentiment on the price of bonds. I have to hold my nose every time I press the buy button but I remind myself that this is more about controlling risk than about maximizing returns at this point in my investing lifetime.
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Re: Market valuations? Somethings got to give

Post by Wanderingwheelz »

9-5 Suited wrote: Sat Feb 13, 2021 9:30 am
Wanderingwheelz wrote: Sat Feb 13, 2021 9:20 am
Triple digit golfer wrote: Sat Feb 13, 2021 8:50 am
9-5 Suited wrote: Sat Feb 13, 2021 8:29 am A quote from Dr. Dahle of The White Coat Investor that has grown on my list of important bits of wisdom:

“Beginner investors have trouble staying the course in market downturns but I've noticed that what I call intermediate investors, people who have learned a thing or two about investing, become fearful at market highs and want to sell when the market is at new highs.”
That one or a similar one has always stuck with me too. Something along the lines of beginners are fearful in a downturn, intermediates in a long bull, and advanced investors don't care what the market is doing.
A lot of intermediate investors happen to be middle aged and newly FI with a couple million+ in net worth. Having that coincide with a toppy market (in the sense it’s hitting highs regularly, not the sense it’s about to top, necessarily), so it’s perhaps shaky advice to encourage those folks to press on with their tried and true accumulation strategy that’s worked so well over the last 10+ years.

To reassess and perhaps begin to add some fixed income or other less risky assets like real estate to your portfolio isn’t admitting defeat or that somehow you’re a beginner. A 60/40 portfolio or 70/30 for those who want a bit more growth is the ultimate admission that one no longer cares what the market is doing IMHO. Market goes up, that’s great. If it goes down, then that’s fine too.

I hope there aren’t too many folks with winning lottery tickets that aren’t risking misplacing them.
That isn’t what he is saying though. He is a big proponent of having an IPS that would include derisking the portfolio at specified points. He is objecting to doing that based on a feeling about the current moment and that market highs mean one should take action.
My point was that human nature is to wait to do what needs to be done because why not? A market that’s hitting new highs is hard to sell.

The middle aged investor I described has seen a gain of as much as couple hundred thousand dollars this month, so far, if he’s in all equity index funds. It’s hard to convince him that now is a good time to go 80/20. Understandably, so.

This is the psychology of a bubble. Selling is hard.
Last edited by Wanderingwheelz on Sat Feb 13, 2021 9:51 am, edited 1 time in total.
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Re: Market valuations? Somethings got to give

Post by JoeRetire »

ChinchillaWhiplash wrote: Fri Feb 12, 2021 10:06 pm After looking at the current stock markets indexes rise at such a great rate over such a short period of time, I would think that something has to give.
Why?

What makes you feel that now is all that different from the past 10 or so years?
How high can things keep going up before the market at least stalls out?
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Re: Market valuations? Somethings got to give

Post by 9-5 Suited »

Wanderingwheelz wrote: Sat Feb 13, 2021 9:47 am
9-5 Suited wrote: Sat Feb 13, 2021 9:30 am
Wanderingwheelz wrote: Sat Feb 13, 2021 9:20 am
Triple digit golfer wrote: Sat Feb 13, 2021 8:50 am
9-5 Suited wrote: Sat Feb 13, 2021 8:29 am A quote from Dr. Dahle of The White Coat Investor that has grown on my list of important bits of wisdom:

“Beginner investors have trouble staying the course in market downturns but I've noticed that what I call intermediate investors, people who have learned a thing or two about investing, become fearful at market highs and want to sell when the market is at new highs.”
That one or a similar one has always stuck with me too. Something along the lines of beginners are fearful in a downturn, intermediates in a long bull, and advanced investors don't care what the market is doing.
A lot of intermediate investors happen to be middle aged and newly FI with a couple million+ in net worth. Having that coincide with a toppy market (in the sense it’s hitting highs regularly, not the sense it’s about to top, necessarily), so it’s perhaps shaky advice to encourage those folks to press on with their tried and true accumulation strategy that’s worked so well over the last 10+ years.

To reassess and perhaps begin to add some fixed income or other less risky assets like real estate to your portfolio isn’t admitting defeat or that somehow you’re a beginner. A 60/40 portfolio or 70/30 for those who want a bit more growth is the ultimate admission that one no longer cares what the market is doing IMHO. Market goes up, that’s great. If it goes down, then that’s fine too.

I hope there aren’t too many folks with winning lottery tickets that aren’t risking misplacing them.
That isn’t what he is saying though. He is a big proponent of having an IPS that would include derisking the portfolio at specified points. He is objecting to doing that based on a feeling about the current moment and that market highs mean one should take action.
My point was that human nature is to wait to do what needs to be done because why not? A market that’s hitting new highs is hard to sell.

The middle aged investor I described has seen a gain of as much as couple hundred thousand dollars this month, so far, if he’s in all equity index funds. It’s hard to convince him that now is a good time to go 80/20. Understandably, so.

This is the psychology of a bubble. Selling is hard.
This is certainly true as a slightly separate point - following through on a plan is definitely harder than making one. Especially when there’s a lot of noise out there about what a terrible investment bonds are, as well.
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Re: Market valuations? Somethings got to give

Post by greg24 »

Equities are richly valued.

Bonds are yielding almost zero.

I continue to plow into my chosen AA and reap the rewards.

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Re: Market valuations? Somethings got to give

Post by Ed 2 »

greg24 wrote: Sat Feb 13, 2021 10:01 am Equities are richly valued.

Bonds are yielding almost zero.

I continue to plow into my chosen AA and reap the rewards.

:sharebeer
+1 Best and shortest reply. Nobody knows nothing- stay the course.
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