Stock Bubble? History Argues the Contrary

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z3r0c00l
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Re: Stock Bubble? History Argues the Contrary

Post by z3r0c00l »

protagonist wrote: Mon Mar 22, 2021 1:30 pm
nisiprius wrote: Sun Mar 21, 2021 1:14 pm I think we're in a stock bubble, and I am personally trying to take no action at all based on that belief.

One confusing thing is that I really do think we are seeing clear signs of some kind of mania as evidenced by GME, SPACs, NFTs, etc. etc. However, the total dollar amount is trivial compared to the total size of the market. Robinhood is the bucket shop for the 21st century, but VTI is not one of the things being gambled on.

I don't like starting at 1933. Basically, if you believe that the history of the stock market is discontinuous, then history shouldn't be used to argue anything. Jim Otar published an interesting chart:

Image

I don't know how seriously to take it. I do think it suggests that when we look at a century or so of data, we are looking at eight independent data points, not a hundred. It does fit with one traditional view of the stock market, which is that it is an episodic sequence of separate "markets," last around a decade or so, each with its own independent "personality" and characteristics.
That sort of pattern would certainly fit with modern chaos theory and the idea of punctuated equilibrium applied to complex nonlinear systems such as the stock market. I recall seeing a similar pattern of interest rates, going back considerably further, shifting from increasing to decreasing every few decades or so.
And this would mesh with the idea that if we are in a secular bull it could easily run until 2030, merely matching 1982-2000 if it does. Or it could be like '49 to '66 in which case we could say it runs until 2029. Either way there are two prior instances in the past century of a long and robust secular bull lasting about 17-18 years, meaning we could see another 10 years of this.
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Re: Stock Bubble? History Argues the Contrary

Post by protagonist »

z3r0c00l wrote: Tue Mar 23, 2021 9:23 am
protagonist wrote: Mon Mar 22, 2021 1:30 pm
nisiprius wrote: Sun Mar 21, 2021 1:14 pm I think we're in a stock bubble, and I am personally trying to take no action at all based on that belief.

One confusing thing is that I really do think we are seeing clear signs of some kind of mania as evidenced by GME, SPACs, NFTs, etc. etc. However, the total dollar amount is trivial compared to the total size of the market. Robinhood is the bucket shop for the 21st century, but VTI is not one of the things being gambled on.

I don't like starting at 1933. Basically, if you believe that the history of the stock market is discontinuous, then history shouldn't be used to argue anything. Jim Otar published an interesting chart:

Image

I don't know how seriously to take it. I do think it suggests that when we look at a century or so of data, we are looking at eight independent data points, not a hundred. It does fit with one traditional view of the stock market, which is that it is an episodic sequence of separate "markets," last around a decade or so, each with its own independent "personality" and characteristics.
That sort of pattern would certainly fit with modern chaos theory and the idea of punctuated equilibrium applied to complex nonlinear systems such as the stock market. I recall seeing a similar pattern of interest rates, going back considerably further, shifting from increasing to decreasing every few decades or so.
And this would mesh with the idea that if we are in a secular bull it could easily run until 2030, merely matching 1982-2000 if it does. Or it could be like '49 to '66 in which case we could say it runs until 2029. Either way there are two prior instances in the past century of a long and robust secular bull lasting about 17-18 years, meaning we could see another 10 years of this.
My only disagreement here is that, just as it was impossible to say when the asteroid that hit Earth and wiped out the dinosaurs would hit, it is impossible to guess when or why the current "secular bull" will end....just that it will at some point, and thus it is probably impossible to use that information to time the market. Equilibria (or is it "equilibriums"?) are often "punctuated" by major unexpected and unpredictable events- mammals proliferated because of an asteroid strike that came out of nowhere, for example, and the US economy (and political dominance) soared after Europe was decimated by two world wars.

Most of what happens day to day is just noise.
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Re: Stock Bubble? History Argues the Contrary

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whereskyle wrote: Mon Mar 22, 2021 2:29 pm
watchnerd wrote: Mon Mar 22, 2021 2:19 pm
whereskyle wrote: Mon Mar 22, 2021 2:10 pm
This isn't rocket science.
You're right.

Rocket science is much easier.
Exactly. Rocket science is actually doable, whereas market timing is not.
For what it is worth, in the 1970's a rocket scientist told me that rocket science really isn't "rocket science". Market timing, on the other hand (or predicting the market in general), is not science at all. It is faith-based, relying on a paucity of past data and no truly testable hypotheses.
(just an aside....)
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Re: Stock Bubble? History Argues the Contrary

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No 'Broad Bubble' in Equities Says Goldman's Oppenheimer
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Re: Stock Bubble? History Argues the Contrary

Post by dboeger1 »

watchnerd wrote: Mon Mar 22, 2021 11:54 am I don't think it requires one to think that we're in a bubble to think that stocks are expensive at the moment.

And I don't think it's illogical to make minor adjustments to one's AA if one thinks stocks are expensive.

We reduced on stock allocation by 10% (from 70% to 60%) in February because our IPS says that's allowed under valuation circumstances.

From an ROI perspective, I don't feel bad about doing 'something else' with that 10%.

That 'something else' will probably be to take those monies out of our risk portfolio entirely and use it to add to our TIPS/STRIPS LMP ladder at the July TIPS auction and/or to beef up the collection of short TIPS we would use to bridge us from early retirement at 55 to IRA withdrawal age at 59.5.

Is that valuation-based market timing?

Sure.
While I agree that such strategies are logical for mitigating risk (I don't actually have any proof of this but it seems logical), I think the counter-argument is that for longer-term investors in the accumulation phase, total return is what matters, and valuation risk doesn't necessarily translate to total return over time. Earnings could expand to justify currently high multiples, and the only way to realize subsequent gains would be to stay fully invested. My guess is the strategy mostly makes sense for downside risk mitigation, not return maximization, and bond allocations generally do most of the heavy lifting in that regard anyway, so valuation-based IPSs are likely to be a minor rounding error in the grand scheme of things, especially for risk-averse investors already heavily invested in bonds. Again, I don't have any data to back that up, it just seems logical to me.
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Re: Stock Bubble? History Argues the Contrary

Post by Scooter57 »

Robot Monster wrote: Tue Mar 23, 2021 1:30 pm No 'Broad Bubble' in Equities Says Goldman's Oppenheimer
YouTube link
Well, if he is as wrong as all the other Wall Street pundits who regularly talk their book to the simplistic media (CNBC, Marketwatch, etc) we should be seeing a crash any minute.

I have yet to see a single stock recommendation made by any of these guys that wasn't issued AFTER the stock had a long period of outperformance that had just started to stall.
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Re: Stock Bubble? History Argues the Contrary

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dboeger1 wrote: Tue Mar 23, 2021 1:57 pm I think the counter-argument is that for longer-term investors in the accumulation phase, total return is what matters, and valuation risk doesn't necessarily translate to total return over time.
Oh, but my accumulation phase is winding down. The plan is to retire in 2-5 years.

Reducing SOR is more important to me at this stage than maximizing total return.

We're at 40x right now, saving 2 years of expenses for every 1 year worked. We could hit 50x in 5 years just by going all fixed income / cash.
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Re: Stock Bubble? History Argues the Contrary

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Ray Dalio says there's a bubble that's 'halfway' to the magnitude of 1929 or 2000
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Re: Stock Bubble? History Argues the Contrary

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watchnerd wrote: Tue Mar 23, 2021 3:13 pm
dboeger1 wrote: Tue Mar 23, 2021 1:57 pm I think the counter-argument is that for longer-term investors in the accumulation phase, total return is what matters, and valuation risk doesn't necessarily translate to total return over time.
Oh, but my accumulation phase is winding down. The plan is to retire in 2-5 years.

Reducing SOR is more important to me at this stage than maximizing total return.

We're at 40x right now, saving 2 years of expenses for every 1 year worked. We could hit 50x in 5 years just by going all fixed income / cash.
At 40x, your withdrawal rate would be only 2.5%, below the historic perpetual withdrawal rate of about 3%. With such a low WR, you would have very little exposure to sequence of return risk.
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Re: Stock Bubble? History Argues the Contrary

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willthrill81 wrote: Thu Mar 25, 2021 9:30 am
At 40x, your withdrawal rate would be only 2.5%, below the historic perpetual withdrawal rate of about 3%. With such a low WR, you would have very little exposure to sequence of return risk.
Logically, yes.

Behaviorally, I have to consider the possibility of having the account value go down by $1M+ in the near / medium term.

That's just a lot of ducats and a lot of years of living expenses to see go poof.

In 2020, the correction (temporarily) ate up an amount more than the value of our house. But we were working, so it was easy to think, because I was still accumulating, I was getting the chance to buy on the cheap.

I don't know if I'd be so sanguine about losing 7 figures if not working.
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Re: Stock Bubble? History Argues the Contrary

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watchnerd wrote: Thu Mar 25, 2021 12:04 pm
willthrill81 wrote: Thu Mar 25, 2021 9:30 am
At 40x, your withdrawal rate would be only 2.5%, below the historic perpetual withdrawal rate of about 3%. With such a low WR, you would have very little exposure to sequence of return risk.
Logically, yes.

Behaviorally, I have to consider the possibility of having the account value go down by $1M+ in the near / medium term.

That's just a lot of ducats and a lot of years of living expenses to see go poof.

In 2020, the correction (temporarily) ate up an amount more than the value of our house. But we were working, so it was easy to think, because I was still accumulating, I was getting the chance to buy on the cheap.

I don't know if I'd be so sanguine about losing 7 figures if not working.
Have you considered something like the Permanent Portfolio?
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Re: Stock Bubble? History Argues the Contrary

Post by Ramjet »

willthrill81 wrote: Thu Mar 25, 2021 12:36 pm
watchnerd wrote: Thu Mar 25, 2021 12:04 pm
willthrill81 wrote: Thu Mar 25, 2021 9:30 am
At 40x, your withdrawal rate would be only 2.5%, below the historic perpetual withdrawal rate of about 3%. With such a low WR, you would have very little exposure to sequence of return risk.
Logically, yes.

Behaviorally, I have to consider the possibility of having the account value go down by $1M+ in the near / medium term.

That's just a lot of ducats and a lot of years of living expenses to see go poof.

In 2020, the correction (temporarily) ate up an amount more than the value of our house. But we were working, so it was easy to think, because I was still accumulating, I was getting the chance to buy on the cheap.

I don't know if I'd be so sanguine about losing 7 figures if not working.
Have you considered something like the Permanent Portfolio?
I'm always impressed at how well it's held up
https://portfoliocharts.com/portfolio/p ... portfolio/
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Re: Stock Bubble? History Argues the Contrary

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Ya, who cares about valuations they are irrelevant, I should just expect the market to always provide the same long-term rate of return because earnings are bound to grow at a constant rate too. /s
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Re: Stock Bubble? History Argues the Contrary

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willthrill81 wrote: Thu Mar 25, 2021 12:36 pm
watchnerd wrote: Thu Mar 25, 2021 12:04 pm
willthrill81 wrote: Thu Mar 25, 2021 9:30 am
At 40x, your withdrawal rate would be only 2.5%, below the historic perpetual withdrawal rate of about 3%. With such a low WR, you would have very little exposure to sequence of return risk.
Logically, yes.

Behaviorally, I have to consider the possibility of having the account value go down by $1M+ in the near / medium term.

That's just a lot of ducats and a lot of years of living expenses to see go poof.

In 2020, the correction (temporarily) ate up an amount more than the value of our house. But we were working, so it was easy to think, because I was still accumulating, I was getting the chance to buy on the cheap.

I don't know if I'd be so sanguine about losing 7 figures if not working.
Have you considered something like the Permanent Portfolio?
25% gold?

I can't get into that much capital invested in something with no IRR.
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Re: Stock Bubble? History Argues the Contrary

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watchnerd wrote: Thu Mar 25, 2021 1:15 pm
willthrill81 wrote: Thu Mar 25, 2021 12:36 pm
watchnerd wrote: Thu Mar 25, 2021 12:04 pm
willthrill81 wrote: Thu Mar 25, 2021 9:30 am
At 40x, your withdrawal rate would be only 2.5%, below the historic perpetual withdrawal rate of about 3%. With such a low WR, you would have very little exposure to sequence of return risk.
Logically, yes.

Behaviorally, I have to consider the possibility of having the account value go down by $1M+ in the near / medium term.

That's just a lot of ducats and a lot of years of living expenses to see go poof.

In 2020, the correction (temporarily) ate up an amount more than the value of our house. But we were working, so it was easy to think, because I was still accumulating, I was getting the chance to buy on the cheap.

I don't know if I'd be so sanguine about losing 7 figures if not working.
Have you considered something like the Permanent Portfolio?
25% gold?

I can't get into that much capital invested in something with no IRR.
Bonds are expected to lose money over the next decade. That's worse than a yellow metal that just sits there.

Beyond that, I would urge you to not focus too much on any portfolio's individual components and instead examine the portfolio as a whole. If you want a portfolio that has historically had very little exposure to sequence of returns risk, the PP is a very strong contender. The 60/40 AA bandied about here all the time has been greatly exposed to sequence of returns risk, so much so that 100% SCV has actually had a lower start date sensitivity than a 60/40 AA.
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Re: Stock Bubble? History Argues the Contrary

Post by watchnerd »

Ramjet wrote: Thu Mar 25, 2021 12:44 pm

I'm always impressed at how well it's held up
https://portfoliocharts.com/portfolio/p ... portfolio/
Although, since 2000, with a 3.5% withdrawal rate, it loses (just barely, by 10 bps CAGR) to the Couch Potato portfolio of 50% stocks / 50% TIPS.

https://www.portfoliovisualizer.com/bac ... tion5_2=50

But it has much less volatility.
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Re: Stock Bubble? History Argues the Contrary

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willthrill81 wrote: Thu Mar 25, 2021 1:22 pm Bonds are expected to lose money over the next decade. That's worse than a yellow metal that just sits there.
Is it?

At least with bonds, I have a reasonable chance of predicting the magnitude of that loss and can model it.

I have no idea with gold.

Nobody knows if gold will behave as it has in the past, and there is no way to model its future returns.

25% gold is completely off the table for me as I have no faith in it.

It's a behavioral non-starter for me as I'm not a gold bug.
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Re: Stock Bubble? History Argues the Contrary

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willthrill81 wrote: Thu Mar 25, 2021 1:22 pm
Beyond that, I would urge you to not focus too much on any portfolio's individual components and instead examine the portfolio as a whole. If you want a portfolio that has historically had very little exposure to sequence of returns risk, the PP is a very strong contender. The 60/40 AA bandied about here all the time has been greatly exposed to sequence of returns risk, so much so that 100% SCV has actually had a lower start date sensitivity than a 60/40 AA.

The 60/40 AA bandied about here all the time has been greatly exposed to sequence of returns risk, so much so that 100% SCV has actually had a lower start date sensitivity than a 60/40 AA.
I'm not sure why you're thinking we aren't looking at the port as a whole.

60/40 is what we're at now.

40/60 works fine at our likely SWR rate, too.
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Re: Stock Bubble? History Argues the Contrary

Post by hi_there »

watchnerd wrote: Thu Mar 25, 2021 1:28 pm
willthrill81 wrote: Thu Mar 25, 2021 1:22 pm Bonds are expected to lose money over the next decade. That's worse than a yellow metal that just sits there.
Is it?

At least with bonds, I have a reasonable chance of predicting the magnitude of that loss and can model it.

I have no idea with gold.

Nobody knows if gold will behave as it has in the past, and there is no way to model its future returns.

25% gold is completely off the table for me as I have no faith in it.

It's a behavioral non-starter for me as I'm not a gold bug.
Well, in so far as tradeable securities are concerned (and sorry that there is no 10y point on this futures curve), based on this data, you could buy an oz of gold today for $1732, and short a 5y future for about $1860, thereby earning an annualized rate of about 1.43% (not counting the cost of daily settlement of futures margin, but let's say that is a small effect for this purpose). This is above the 5y treasury rate of 0.83%. Let's also say that the storage cost of your gold is negligible, since gold bars are dense and small.

https://www.denvergold.org/precious-met ... res-curve/

Yes, it might be worth mentioning that futures prices and interest rates are not necessarily expectations for future market prices, since they blend price expectations with supply/demand and market segmentation effects. But I think this is the most direct way to compare hedgeable long term trades between gold and bonds.
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Re: Stock Bubble? History Argues the Contrary

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hi_there wrote: Thu Mar 25, 2021 1:49 pm
Well, in so far as tradeable securities are concerned (and sorry that there is no 10y point on this futures curve), based on this data, you could buy an oz of gold today for $1732, and short a 5y future for about $1860, thereby earning an annualized rate of about 1.43% (not counting the cost of daily settlement of futures margin, but let's say that is a small effect for this purpose). This is above the 5y treasury rate of 0.83%. Let's also say that the storage cost of your gold is negligible, since gold bars are dense and small.

https://www.denvergold.org/precious-met ... res-curve/

Yes, it might be worth mentioning that futures prices and interest rates are not necessarily expectations for future market prices, since they blend price expectations with supply/demand and market segmentation effects. But I think this is the most direct way to compare hedgeable long term trades between gold and bonds.
I'm just not going to buy $1M+ in gold, no matter what the backtesting shows has happened in the past, because I know myself.

I know I would get annoyed at holding seven figures in gold and it would bug me to no end, make me 2nd guess my decision, lead to bad sleep, etc.
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Re: Stock Bubble? History Argues the Contrary

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watchnerd wrote: Thu Mar 25, 2021 1:32 pm
willthrill81 wrote: Thu Mar 25, 2021 1:22 pm
Beyond that, I would urge you to not focus too much on any portfolio's individual components and instead examine the portfolio as a whole. If you want a portfolio that has historically had very little exposure to sequence of returns risk, the PP is a very strong contender. The 60/40 AA bandied about here all the time has been greatly exposed to sequence of returns risk, so much so that 100% SCV has actually had a lower start date sensitivity than a 60/40 AA.

The 60/40 AA bandied about here all the time has been greatly exposed to sequence of returns risk, so much so that 100% SCV has actually had a lower start date sensitivity than a 60/40 AA.
I'm not sure why you're thinking we aren't looking at the port as a whole.

60/40 is what we're at now.

40/60 works fine at our likely SWR rate, too.
What happens to one's portfolio is more important than what happens to all of the individual components to the portfolio, right?
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Re: Stock Bubble? History Argues the Contrary

Post by hi_there »

watchnerd wrote: Thu Mar 25, 2021 1:54 pm
hi_there wrote: Thu Mar 25, 2021 1:49 pm
Well, in so far as tradeable securities are concerned (and sorry that there is no 10y point on this futures curve), based on this data, you could buy an oz of gold today for $1732, and short a 5y future for about $1860, thereby earning an annualized rate of about 1.43% (not counting the cost of daily settlement of futures margin, but let's say that is a small effect for this purpose). This is above the 5y treasury rate of 0.83%. Let's also say that the storage cost of your gold is negligible, since gold bars are dense and small.

https://www.denvergold.org/precious-met ... res-curve/

Yes, it might be worth mentioning that futures prices and interest rates are not necessarily expectations for future market prices, since they blend price expectations with supply/demand and market segmentation effects. But I think this is the most direct way to compare hedgeable long term trades between gold and bonds.
I'm just not going to buy $1M+ in gold, no matter what the backtesting shows has happened in the past, because I know myself.

I know I would get annoyed at holding seven figures in gold and it would bug me to no end, make me 2nd guess my decision, lead to bad sleep, etc.
This isn't a strategy based on back testing. It is the current 5 year market price for a hedged trade on gold futures, representing the price you could be guaranteed to sell your gold for in 5 years. In other words, a "riskless" 5y trade in gold would provide a higher yield than treasuries - no loss of sleep required.

Now, it is valid when you say that this isn't for everyone due to operational complexity and tolerance for mark-to-market volatility. However, I would lean with will in saying that the expected return for gold is higher than treasuries. More importantly, the hedged trade in gold seems to offer a higher "guaranteed" return than treasuries.
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Re: Stock Bubble? History Argues the Contrary

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willthrill81 wrote: Thu Mar 25, 2021 1:58 pm

What happens to one's portfolio is more important than what happens to all of the individual components to the portfolio, right?
Yes, of course.

That's MPT 101.

I don't get your point or where you think I said otherwise?
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Re: Stock Bubble? History Argues the Contrary

Post by watchnerd »

hi_there wrote: Thu Mar 25, 2021 2:05 pm [
This isn't a strategy based on back testing. It is the current 5 year market price for a hedged trade on gold futures, representing the price you could be guaranteed to sell your gold for in 5 years. In other words, a "riskless" 5y trade in gold would provide a higher yield than treasuries - no loss of sleep required.

Now, it is valid when you say that this isn't for everyone due to operational complexity and tolerance for mark-to-market volatility. However, I would lean with will in saying that the expected return for gold is higher than treasuries. More importantly, the hedged trade in gold seems to offer a higher "guaranteed" return than treasuries.
I do not hold the necessary worldview or faith in its future returns to hold 25% gold, as specified in the Permanent Portfolio.

It's not compatible with my ideology.

As for a trading-based strategy, I don't engage in active trading.

The closest I might get, and have in the past circa 2000-2009, was allocating to a broad commodities futures fund.
Last edited by watchnerd on Thu Mar 25, 2021 2:55 pm, edited 2 times in total.
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Re: Stock Bubble? History Argues the Contrary

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Chief_Engineer wrote: Mon Mar 22, 2021 1:32 pm My main issue with this type of argument or when people talk about "reversion to the mean" is the assumption that there is a mean to begin with. It implies that the stock market is a stochastic process with a fixed mean, as opposed to the changes in valuations of companies based upon economics and human expectation. It is not some rule of the universe that the US stock market will average 7% real until the heat death of the universe. And what does the historical data tell us in a world where US GDP growth hasn't cracked 4% since 2000?

For my own planning purposes I assume stocks will average 4% real going forward. My hope is that ends up being needlessly pessimistic and conservative. Past returns do not predict future performance, and yet historical data is our best guess for what the future will look like. Quite the pickle.
It also implies that gen z and after invests in the S&P500 vs bitcoin/whatever. My guess is they lose faith in the stock market if this bubble continues:

Survey: More than half of investors think the stock market is rigged against individuals
https://www.bankrate.com/investing/stoc ... arch-2021/
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Re: Stock Bubble? History Argues the Contrary

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ballons wrote: Thu Mar 25, 2021 2:45 pm
Chief_Engineer wrote: Mon Mar 22, 2021 1:32 pm My main issue with this type of argument or when people talk about "reversion to the mean" is the assumption that there is a mean to begin with. It implies that the stock market is a stochastic process with a fixed mean, as opposed to the changes in valuations of companies based upon economics and human expectation. It is not some rule of the universe that the US stock market will average 7% real until the heat death of the universe. And what does the historical data tell us in a world where US GDP growth hasn't cracked 4% since 2000?

For my own planning purposes I assume stocks will average 4% real going forward. My hope is that ends up being needlessly pessimistic and conservative. Past returns do not predict future performance, and yet historical data is our best guess for what the future will look like. Quite the pickle.
It also implies that gen z and after invests in the S&P500 vs bitcoin/whatever. My guess is they lose faith in the stock market if this bubble continues:

Survey: More than half of investors think the stock market is rigged against individuals
https://www.bankrate.com/investing/stoc ... arch-2021/
What's interesting about the article is that the *investors* were more skeptical than the non-investors:
The survey shows that 56 percent of investors either strongly agreed or somewhat agreed with the statement “The stock market is rigged against individual investors,” compared to just 41 percent of non-investors.
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Re: Stock Bubble? History Argues the Contrary

Post by willthrill81 »

watchnerd wrote: Thu Mar 25, 2021 2:18 pm
willthrill81 wrote: Thu Mar 25, 2021 1:58 pm

What happens to one's portfolio is more important than what happens to all of the individual components to the portfolio, right?
Yes, of course.

That's MPT 101.

I don't get your point or where you think I said otherwise?
When you said 'I don't like gold', that's focusing on one segment of something like the Permanent Portfolio. What happens with gold alone is not as important as what happens with the entire portfolio, of which gold is only one part.

If you're so concerned about sequence of returns risk, then it seems that selecting a portfolio that's better suited to reduce that risk would be a top priority, rather than pursuing an ever smaller withdrawal rate.
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Re: Stock Bubble? History Argues the Contrary

Post by watchnerd »

willthrill81 wrote: Thu Mar 25, 2021 3:12 pm
watchnerd wrote: Thu Mar 25, 2021 2:18 pm
willthrill81 wrote: Thu Mar 25, 2021 1:58 pm

What happens to one's portfolio is more important than what happens to all of the individual components to the portfolio, right?
Yes, of course.

That's MPT 101.

I don't get your point or where you think I said otherwise?
When you said 'I don't like gold', that's focusing on one segment of something like the Permanent Portfolio. What happens with gold alone is not as important as what happens with the entire portfolio, of which gold is only one part.

If you're so concerned about sequence of returns risk, then it seems that selecting a portfolio that's better suited to reduce that risk would be a top priority, rather than pursuing an ever smaller withdrawal rate.
Skepticism of gold's value as an asset, either in isolation or as part of a portfolio, is not in conflict with belief in MPT.

My views on how it fits in a portfolio align with Ben Felix:

https://www.youtube.com/watch?v=ulgqlQW ... l=BenFelix
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Re: Stock Bubble? History Argues the Contrary

Post by willthrill81 »

watchnerd wrote: Thu Mar 25, 2021 3:21 pm
willthrill81 wrote: Thu Mar 25, 2021 3:12 pm
watchnerd wrote: Thu Mar 25, 2021 2:18 pm
willthrill81 wrote: Thu Mar 25, 2021 1:58 pm

What happens to one's portfolio is more important than what happens to all of the individual components to the portfolio, right?
Yes, of course.

That's MPT 101.

I don't get your point or where you think I said otherwise?
When you said 'I don't like gold', that's focusing on one segment of something like the Permanent Portfolio. What happens with gold alone is not as important as what happens with the entire portfolio, of which gold is only one part.

If you're so concerned about sequence of returns risk, then it seems that selecting a portfolio that's better suited to reduce that risk would be a top priority, rather than pursuing an ever smaller withdrawal rate.
Skepticism of gold's value as an asset, either in isolation or as part of a portfolio, is not in conflict with belief in MPT.

My views on how it fits in a portfolio align with Ben Felix:

https://www.youtube.com/watch?v=ulgqlQW ... l=BenFelix
I won't bother trying to address the issues present with Felix's argument, which is just a regurgitation of others' arguments. If you don't like gold, fine, but if you really want to avoid sequence of returns risk, you should consider assets beyond stocks and bonds.
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Re: Stock Bubble? History Argues the Contrary

Post by watchnerd »

willthrill81 wrote: Thu Mar 25, 2021 3:24 pm I won't bother trying to address the issues present with Felix's argument, which is just a regurgitation of others' arguments. If you don't like gold, fine, but if you really want to avoid sequence of returns risk, you should consider assets beyond stocks and bonds.
We do. The portfolio in our signature is simply our liquid portfolio. We have other illiquid investments that produce cash flow outside of that.

However, if we're talking about securitized, liquid, investments, beyond stocks and bonds, that leaves...

--Commodities
--Crypto
--Currencies

...all of which can be useful hedges under certain circumstances, but are zero real return over the long haul.

And, of course, cash. Which has negative real return.
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Re: Stock Bubble? History Argues the Contrary

Post by Makefile »

watchnerd wrote: Thu Mar 25, 2021 2:57 pm What's interesting about the article is that the *investors* were more skeptical than the non-investors:
The survey shows that 56 percent of investors either strongly agreed or somewhat agreed with the statement “The stock market is rigged against individual investors,” compared to just 41 percent of non-investors.
I wouldn't read into it too much. If "the stock market" means short-term trading as I'd argue it does in popular culture, then wouldn't many of us agree?
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Re: Stock Bubble? History Argues the Contrary

Post by watchnerd »

Makefile wrote: Thu Mar 25, 2021 3:41 pm
I wouldn't read into it too much. If "the stock market" means short-term trading as I'd argue it does in popular culture, then wouldn't many of us agree?
I don't know you reconcile that with the data they cite that belief in rigged markets is higher with increased education, investors, and income:
Those who believed in a rigged market were more likely to fall in the following groups:

Men (54 percent), compared to women at 42 percent
Younger (55 percent for those under age 40), compared to those over 40 (43 percent)
Educated (58 percent of college graduates), compared to 44 percent without a degree
Higher-earning (53 percent of those earning more than $50,000 annually), compared to those earning less (45 percent)
Investors (56 percent), compared to those not invested in the market (41 percent)
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Re: Stock Bubble? History Argues the Contrary

Post by OohLaLa »

Considering "stock market" means a million different things to different people, "Do you believe the stock market is rigged against individuals?" is a ridiculously vague question, and you can't really glean anything from it.

Also, it saddens me to see that even at BH, people repeatedly just seem to be aching for an argument... If a guy tells you he doesn't trust the behavior of asset A, why does it matter whether it's alone or within a total portfolio? He's not going to trust it to do its "job".
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Re: Stock Bubble? History Argues the Contrary

Post by watchnerd »

OohLaLa wrote: Thu Mar 25, 2021 4:10 pm Considering "stock market" means a million different things to different people, "Do you believe the stock market is rigged against individuals?" is a ridiculously vague question, and you can't really glean anything from it.
I think decent sized swathes of Wall Street does not have the best interest of individual investors at heart.

When I see funds like FOMO being proposed, it looks like a cynical play on the part of the fund creators.

I'm not sure I'd truly call that 'rigged', but if someone asked me a binary question on a survey, I might say 'yes'.
Last edited by watchnerd on Thu Mar 25, 2021 4:53 pm, edited 1 time in total.
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Re: Stock Bubble? History Argues the Contrary

Post by North Texas Cajun »

Chief_Engineer wrote: Mon Mar 22, 2021 1:32 pm My main issue with this type of argument or when people talk about "reversion to the mean" is the assumption that there is a mean to begin with. It implies that the stock market is a stochastic process with a fixed mean, as opposed to the changes in valuations of companies based upon economics and human expectation. It is not some rule of the universe that the US stock market will average 7% real until the heat death of the universe. And what does the historical data tell us in a world where US GDP growth hasn't cracked 4% since 2000?

For my own planning purposes I assume stocks will average 4% real going forward. My hope is that ends up being needlessly pessimistic and conservative. Past returns do not predict future performance, and yet historical data is our best guess for what the future will look like. Quite the pickle.
I agree with your argument about there being no rule that the US stock market will average 7% real. But you also seem to imply that S&P 500 returns might mirror U.S. GDP growth. That part troubles me a little. I’ve seen Goldman Sachs analysis that international revenue accounts for 30% of absolute S&P 500 total revenue. Another analysis shows that market-weighted share of S&P 500 international revenue was about 40% of total S&P revenue. I think that would indicate that for growth companies, international was even larger.

Do we have any reason to believe that U.S. based companies would continue to allocate more resources to U.S. operations? Suppose GDP in some other countries were in the future growing faster than U.S. GDP. Would U.S. based companies target those countries? And perhaps reduce resources in countries with slower growing GDP?
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Re: Stock Bubble? History Argues the Contrary

Post by willthrill81 »

OohLaLa wrote: Thu Mar 25, 2021 4:10 pmIf a guy tells you he doesn't trust the behavior of asset A, why does it matter whether it's alone or within a total portfolio? He's not going to trust it to do its "job".
This was seemingly pointed at me. The specific notion addressed above was whether gold has any place in an investor's portfolio, especially one who is apparently very concerned about sequence of returns risk. Over the last ~50 years, it's hard to argue that an allocation to gold has been beneficial to investors.

Further, the distinction of examining an asset in isolation as opposed to a portfolio in total is very important. As watchnerd pointed out, it's a basic tenet of modern portfolio theory. I dare say that a great many of the posters on this forum don't like bonds right now because their expected return over the next decade is negative, but they still own some bonds because the bonds have a place in the overall portfolio.

Anyone who says that they are choosing to avoid an asset that would have been helpful in significantly reducing sequence of returns risk over the last half century and who is also concerned about this risk should expect to be asked why they are purposefully avoiding the asset. My question was not a jab in disguise, only a genuine attempt at being helpful, which is what this forum is all about.
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Re: Stock Bubble? History Argues the Contrary

Post by OohLaLa »

watchnerd wrote: Thu Mar 25, 2021 4:50 pm I think decent sized swathes of Wall Street does not have the best interest of individual investors at heart.

When I see funds like FOMO being proposed, it looks like a cynical play on the part of the fund creators.

I'm not sure I'd truly call that 'rigged', but if someone asked me a binary question on a survey, I might say 'yes'.
I'd definitely agree that this "domain" is very cutthroat and incentivizes looking out for number 1, versus the wellbeing of Mom and Pop. To add to that, when you are a billion(s)-dollar fund or investment bank, you don't get knocked around by the wave, like I do... you ARE the wave.

So, yeah, I would probably answer "yes" to that vox pop, as well. haha :wink:
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Re: Stock Bubble? History Argues the Contrary

Post by OohLaLa »

willthrill81 wrote: Thu Mar 25, 2021 5:03 pm
OohLaLa wrote: Thu Mar 25, 2021 4:10 pmIf a guy tells you he doesn't trust the behavior of asset A, why does it matter whether it's alone or within a total portfolio? He's not going to trust it to do its "job".
This was seemingly pointed at me. The specific notion addressed above was whether gold has any place in an investor's portfolio, especially one who is apparently very concerned about sequence of returns risk. Over the last ~50 years, it's hard to argue that an allocation to gold has been beneficial to investors.

Further, the distinction of examining an asset in isolation as opposed to a portfolio in total is very important. As watchnerd pointed out, it's a basic tenet of modern portfolio theory. I dare say that a great many of the posters on this forum don't like bonds right now because their expected return over the next decade is negative, but they still own some bonds because the bonds have a place in the overall portfolio.

Anyone who says that they are choosing to avoid an asset that would have been helpful in significantly reducing sequence of returns risk over the last half century and who is also concerned about this risk should expect to be asked why they are purposefully avoiding the asset. My question was not a jab in disguise, only a genuine attempt at being helpful, which is what this forum is all about.
I honestly had to go back and see who penned each reply... In this case, what ticked me off was the fact that watchnerd explained himself in multiple replies yet people didn't let go. I'm not asking for an official "Bogleheads Safe Space" :P, but, at a certain point, it just looks like people trying to convert others to the righteous way, even if that way doesn't fit their vision and investment goals/ timeline.

I truly find it hard to believe that watchnerd, closing in on 7k posts after many years, does not understand that there are interactions between different assets of a portfolio. What I was saying is that if he does not trust the behavior of gold to be consistent, or guaranteed to be consistent by its very nature, then whether it's alone or within a portfolio does not matter. People see it as a proper hedge... he stated he does not, for XYZ reasons.
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Re: Stock Bubble? History Argues the Contrary

Post by willthrill81 »

OohLaLa wrote: Thu Mar 25, 2021 5:47 pm
willthrill81 wrote: Thu Mar 25, 2021 5:03 pm
OohLaLa wrote: Thu Mar 25, 2021 4:10 pmIf a guy tells you he doesn't trust the behavior of asset A, why does it matter whether it's alone or within a total portfolio? He's not going to trust it to do its "job".
This was seemingly pointed at me. The specific notion addressed above was whether gold has any place in an investor's portfolio, especially one who is apparently very concerned about sequence of returns risk. Over the last ~50 years, it's hard to argue that an allocation to gold has been beneficial to investors.

Further, the distinction of examining an asset in isolation as opposed to a portfolio in total is very important. As watchnerd pointed out, it's a basic tenet of modern portfolio theory. I dare say that a great many of the posters on this forum don't like bonds right now because their expected return over the next decade is negative, but they still own some bonds because the bonds have a place in the overall portfolio.

Anyone who says that they are choosing to avoid an asset that would have been helpful in significantly reducing sequence of returns risk over the last half century and who is also concerned about this risk should expect to be asked why they are purposefully avoiding the asset. My question was not a jab in disguise, only a genuine attempt at being helpful, which is what this forum is all about.
I honestly had to go back and see who penned each reply... In this case, what ticked me off was the fact that watchnerd explained himself in multiple replies yet people didn't let go. I'm not asking for an official "Bogleheads Safe Space" :P, but, at a certain point, it just looks like people trying to convert others to the righteous way, even if that way doesn't fit their vision and investment goals/ timeline.

I truly find it hard to believe that watchnerd, closing in on 7k posts after many years, does not understand that there are interactions between different assets of a portfolio. What I was saying is that if he does not trust the behavior of gold to be consistent, or guaranteed to be consistent by its very nature, then whether it's alone or within a portfolio does not matter. People see it as a proper hedge... he stated he does not, for XYZ reasons.
This is no reflection about Watchnerd whatsoever, but the number of posts one has made doesn't mean much. There are some here with tens of thousands of posts who don't understand MPT.
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Re: Stock Bubble? History Argues the Contrary

Post by ballons »

Makefile wrote: Thu Mar 25, 2021 3:41 pm
watchnerd wrote: Thu Mar 25, 2021 2:57 pm What's interesting about the article is that the *investors* were more skeptical than the non-investors:
The survey shows that 56 percent of investors either strongly agreed or somewhat agreed with the statement “The stock market is rigged against individual investors,” compared to just 41 percent of non-investors.
I wouldn't read into it too much. If "the stock market" means short-term trading as I'd argue it does in popular culture, then wouldn't many of us agree?
My point was to highlight that relatively young investors are seeing wall street as a rigged casino. Bad things happen if the mentality of "the only way to win a rigged game, is to not play" develops out of this.
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Re: Stock Bubble? History Argues the Contrary

Post by watchnerd »

OohLaLa wrote: Thu Mar 25, 2021 5:47 pm I truly find it hard to believe that watchnerd, closing in on 7k posts after many years, does not understand that there are interactions between different assets of a portfolio. What I was saying is that if he does not trust the behavior of gold to be consistent, or guaranteed to be consistent by its very nature, then whether it's alone or within a portfolio does not matter. People see it as a proper hedge... he stated he does not, for XYZ reasons.
I've actually owned gold in the past, as well as commodity futures, so I'm well aware, both on a personal experience level and from data, on the trade offs in a portfolio.

Roles gold can play in portfolio construction and my current alternative preferences, all of which are visible in my sig:

--Negative correlation with equities / flight to safety: LTT (bonus, also helps in deflation)

--Inflation protection: TIPS

--Dollar decline relative to other currencies: ~50% of my stocks (30% of my port, market weight fluctuates) are unhedged foreign equities

Roles gold plays that I don't solve for:

--Total financial apocalypse / Mad Max scenarios / fleeing the country / refugee status
Last edited by watchnerd on Thu Mar 25, 2021 7:15 pm, edited 4 times in total.
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Re: Stock Bubble? History Argues the Contrary

Post by fwellimort »

ballons wrote: Thu Mar 25, 2021 6:25 pm My point was to highlight that relatively young investors are seeing wall street as a rigged casino. Bad things happen if the mentality of "the only way to win a rigged game, is to not play" develops out of this.
I mean there is some truth to this.

Young investors literally saw GME right in front of their eyes in January.
The game was completely rigged (whether it was due to just DTCC or not). On top of all that, some brokerages like IBKR had its founder blatantly admit to market manipulation. Something about "for the integrity of the market" since there's no other way to justify brokerages and the middle man purchasing over 200 million shares on one day with just 40 million active shares.

Stock market is rigged for sure. No doubt. Especially the lower cap stocks. Those tend to be more prone to manipulation: this is especially known in the penny stock space.

That said, I think young investors staying in the stock is here to stay.
The younger generation are a lot more educated and understand concepts like indexing. Just cause the market is rigged doesn't mean younger generation aren't going to take advantage of such rigged system.

Plus, the younger generation literally saw what the government did to indirectly prop up the stock market in both 2008 and 2020.
Younger generation learnt (whether such be true or not) from 2008 that the government would never let the stock market fail even if the average American fails in real life. Hence in the dip during 2020 March, the younger generation flocked to the stock market in waves.

Retail investors are getting smarter. And the younger generation is learning. And they also realize with near zero interest rates, valuations don't really matter as much.
In that sense, stock market today is pretty much a casino. The price of the stock can be outrageously 'overpriced' by historical standards and the pricing would still make sense cause there's no 'other alternative' with near zero interest rates.
The only other option is to speculate on other assets (e.g. crypto) at this point.
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Re: Stock Bubble? History Argues the Contrary

Post by protagonist »

Valuethinker wrote: Thu Mar 25, 2021 11:18 am
protagonist wrote: Tue Mar 23, 2021 10:43 am
Valuethinker wrote: Tue Mar 23, 2021 9:15 am
nedsaid wrote: Sun Mar 21, 2021 12:11 pm
sapphire96 wrote: Sun Mar 21, 2021 11:57 am
So for giggles, I just created an all-time exponential average. It would imply a few things...
1873-1897 had elevated prices with no growth.
The 1925-1929 "bubble" was never a bubble.
The US never got back to average until the 1960s, but barely.
Prices have been elevated since 1990 - the tech bubble never fully popped.
The bottom of the Great Financial Crisis crash had evaluations back to average.

The question I think arises was there a fundamental economic shift in the US starting in the 1930s that created a new exponential average growth line and does this create the possibility of a lower (or higher?) exponential growth line for the future.
What we might be seeing is the effect of the post Civil War period and reconstruction. A pretty good argument can be made that the American South took 100 years to really recover from the effects of the war. There are still folks hopping mad over Sherman's March to Atlanta, you can see evidence of the path of destruction even now with satellite photos. Not sure if there is GDP data from the former Confederate states in the aftermath of the Civil War, if my thesis is correct, the South might have been a drag on total US economic growth for over 50 years.
The South's recovery from Civil War was delayed by the maintenance of a system of outright human repression and the serf labour system in its farming.

Three things changed it:

1. the New Deal brought massive swamp drainage and other infrastructure, and so the prevalence of mosquito born diseases like malaria declined markedly.

2. the invention of air conditioning as a mass product brought an end to "the Southern summer" of low productivity. The South suddenly became accessible and liveable, and the great migration south of generally older whites began. Florida and Texas in particular.

3. the Federal Government forced the end of Segregation with the Civil Rights Act and the Voting Rights Act of 1964. The South suddenly lost the toxic radioactivity of legally enforced segregation. It became feasible for US companies, and foreign companies, to base themselves in the South, to have factories in the South etc. What is now the Research Triangle Park - the highest concentration of PhDs in the USA - became possible. Ditto modern Atlanta.

Imagine if Segregation had lasted until 1990, as it did in South Africa. The South would have been a pariah, isolated from the discourse of modern commerce.

If you want a 4th reason it was the attack on trade unions of Right to Work acts, etc, which made the South a cheaper place to manufacture. Things like shoes, furniture, textiles left NY New England and moved south.
That was an interesting analysis, Valuethinker. :sharebeer
Someone here will actually be a historian of the South, and be able to tell you which of my hypotheses, above, is wrong, and which 2 key factors I have missed ;-).

On 2 there is actually a famous paper entitled "air conditioning and the long Southern summer" or something like that. You may well find a pdf of it if you google.

EDIT: here it is

https://www.jstor.org/stable/2208474?seq=1

https://works.bepress.com/raymond-arsenault/62/

Where the US has seen significant investment in manufacturing eg the Japanese car transplants (and the components factories which follow along with them) it has been largely in the South (Tennessee in particular) - Right to Work states. Beginning in the late 1970s, from memory.

Malaria is the one that surprises me, and in the age of Covid-19 (and also of warming temperatures) is quite interesting to me. Malaria was common in parts of the US South, until the 1930s, when New Deal projects drained the breeding grounds (there was also a lot of use of DDT, which turned out to be only effective for a while before mosquitioes mutated to resist it).

The migration South had probably started before the 1960s, but that era saw the end of a set of laws that had become internationally embarassing (and useful material for Communist propaganda, especially in Africa). Thus modern Atlanta became possible.

If the cities of the 19th c like New York were the product of sea transport, and Chicago of lake transport and of the railways, then Atlanta, the city of the late 20th century, is the city of the airport. What has been called "Aerotropolis" (aerotropoli?).
#2 was, imho, the most interesting hypothesis....or at least the one I had not considered before. I wish I could have afforded some of that air conditioning when I lived there.
As a med student at Charity Hospital in New Orleans in the 1970s, we saw an amazing amount of diseases that were virtually eradicated in most of the US by then- it was about as close to third world medicine as existed in North America. There was a major migration happening then to the sun belt when I lived there (~1973-1980) ....The talk was all about the "New South". Northern industrial cities were bankrupt and corporations were relocating to Atlanta, Houston, etc. Southern rock swept the nation....Allman Bros., Lynyrd Skynyrd, Charlie Daniels, etc. I think the most popular TV show might have been Dallas , though I don't think I ever watched it. A TV was over my budget. I had a friend...fellow med student who had one...we used to go over to his house every week to watch Saturday Night Live and Mary Hartman Mary Hartman. I missed out on the rest of 70s television.
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Re: Stock Bubble? History Argues the Contrary

Post by watchnerd »

fwellimort wrote: Thu Mar 25, 2021 6:33 pm In that sense, stock market today is pretty much a casino. The price of the stock can be outrageously 'overpriced' by historical standards and the pricing would still make sense cause there's no 'other alternative' with near zero interest rates.
The only other option is to speculate on other assets (e.g. crypto) at this point.
I'm not saying you're wrong.

But if ignoring fundamentals entirely becomes the new norm for stock investing for the next generation, that's not something I feel very happy about, on multiple levels, and definitely not as an investor.
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Re: Stock Bubble? History Argues the Contrary

Post by fwellimort »

watchnerd wrote: Thu Mar 25, 2021 7:27 pm But if ignoring fundamentals entirely becomes the new norm for stock investing for the next generation, that's not something I feel very happy about, on multiple levels, and definitely not as an investor.
Irrational exuberance. Just a matter of time before a correction hits in the market unexpectedly and things can change.
It seems at this point that the stock market has a pattern of becoming complacent to over-valuation followed by an unexpected fall. And then repeat. And repeat.
With each new generation learning such the hard way (or maybe not with many of the younger generation believing 'stonks only go up' after a fall [especially with the vast resources available through the Internet to look upon historical returns followed by a crash]).
It's becoming more 'common knowledge' that after a crash, the best place to 'park your money' is the stock market. How things have changed.

That said, past performance is not indicative of future performance and maybe this might actually become the new norm for this generation.
If such, :/ . Not sure what to think about the stock market too. Is it all just a fake system for the rich to get richer legally?
Is the stock market just an excuse of a system for poorly managed firms to take money from outsiders for extended periods of time?

A lot of questions.
Also, why SHOULD the US stock market return an averaged X% a year perpetually.
US is having birth to less kids, less innovation, lower inflation, and more competition (globally).
It already doesn't make sense why equities have such a premium over the long run. Why do we discount the expected cash flows of many stocks by so much. Truly a puzzling question indeed (you can check out 'equity premium puzzle').
And why do so many people believe the US stock market is unique in that it will for sure keep going up long term in the near future. What's so wrong with longer periods of flat returns (if we assume falls might become rarer with enough people convinced to 'hop in' when there's a noticeable drop).

Anyways, I'm still in stocks at end of day. When I look at a company like Microsoft today, I would pay premium for the market cap over long term treasury bonds. So there's that. :D
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Re: Stock Bubble? History Argues the Contrary

Post by ballons »

fwellimort wrote: Thu Mar 25, 2021 6:33 pm
ballons wrote: Thu Mar 25, 2021 6:25 pm My point was to highlight that relatively young investors are seeing wall street as a rigged casino. Bad things happen if the mentality of "the only way to win a rigged game, is to not play" develops out of this.
I mean there is some truth to this.

Young investors literally saw GME right in front of their eyes in January.
The game was completely rigged (whether it was due to just DTCC or not). On top of all that, some brokerages like IBKR had its founder blatantly admit to market manipulation. Something about "for the integrity of the market" since there's no other way to justify brokerages and the middle man purchasing over 200 million shares on one day with just 40 million active shares.

Stock market is rigged for sure. No doubt. Especially the lower cap stocks. Those tend to be more prone to manipulation: this is especially known in the penny stock space.

That said, I think young investors staying in the stock is here to stay.
The younger generation are a lot more educated and understand concepts like indexing. Just cause the market is rigged doesn't mean younger generation aren't going to take advantage of such rigged system.

Plus, the younger generation literally saw what the government did to indirectly prop up the stock market in both 2008 and 2020.
Younger generation learnt (whether such be true or not) from 2008 that the government would never let the stock market fail even if the average American fails in real life. Hence in the dip during 2020 March, the younger generation flocked to the stock market in waves.

Retail investors are getting smarter. And the younger generation is learning. And they also realize with near zero interest rates, valuations don't really matter as much.
In that sense, stock market today is pretty much a casino. The price of the stock can be outrageously 'overpriced' by historical standards and the pricing would still make sense cause there's no 'other alternative' with near zero interest rates.
The only other option is to speculate on other assets (e.g. crypto) at this point.
Why would a young investor use index investing if moral hazard exists in a rigged casino?

TINA - There is no alternative. The younger generation has found alternatives with bitcoin, leveraged / options trades on MEME stocks, etc. If they win, they win. If they lose, government bails them out through moral hazard. What you call speculate, they call investing.
Thesaints
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Re: Stock Bubble? History Argues the Contrary

Post by Thesaints »

fwellimort wrote: Thu Mar 25, 2021 6:33 pm [Something about "for the integrity of the market" since there's no other way to justify brokerages and the middle man purchasing over 200 million shares on one day with just 40 million active shares.
Does it mean that shares were sold and bought again an average of 5 times each ?
Inordinately large purchases of shares on the MM's part can be justified by an inordinate purchase of Call contracts on the public's part.
whereskyle
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Re: Stock Bubble? History Argues the Contrary

Post by whereskyle »

watchnerd wrote: Thu Mar 25, 2021 6:27 pm
OohLaLa wrote: Thu Mar 25, 2021 5:47 pm I truly find it hard to believe that watchnerd, closing in on 7k posts after many years, does not understand that there are interactions between different assets of a portfolio. What I was saying is that if he does not trust the behavior of gold to be consistent, or guaranteed to be consistent by its very nature, then whether it's alone or within a portfolio does not matter. People see it as a proper hedge... he stated he does not, for XYZ reasons.
I've actually owned gold in the past, as well as commodity futures, so I'm well aware, both on a personal experience level and from data, on the trade offs in a portfolio.

Roles gold can play in portfolio construction and my current alternative preferences, all of which are visible in my sig:

--Negative correlation with equities / flight to safety: LTT (bonus, also helps in deflation)

--Inflation protection: TIPS

--Dollar decline relative to other currencies: ~50% of my stocks (30% of my port, market weight fluctuates) are unhedged foreign equities

Roles gold plays that I don't solve for:

--Total financial apocalypse / Mad Max scenarios / fleeing the country / refugee status
Chiming in late on this after backtesting the permanent portfolio. The one historical period that all of your preferred assets (all of which I think are reasonable to hold) would have struggled in by comparison is the late 70s and early 80s, unless ex-us stocks did well. I don't have data on that. TIPS might have netted a 0% real return, but gold didn't merely keep up with inflation, it kicked its butt, earning 12% real from the beginning of 77 until the end of 81. Not that I expect that period to reoccur. I just wanted to disregard the gold portion myself and fashion a modified permanent portfolio excluding it. But I failed. Let me know if ex-us stocks performed well during that period (if you know).

A lot of people really, really, really believe in gold. Perhaps that has to count for something in our irrationally exuberant world.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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Beensabu
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Re: Stock Bubble? History Argues the Contrary

Post by Beensabu »

whereskyle wrote: Fri Mar 26, 2021 7:31 pm ...the late 70s and early 80s, unless ex-us stocks did well ... Let me know if ex-us stocks performed well during that period (if you know).
They "kicked butt", specifically Pacific, more specifically Japan. For two whole decades. The majority of which is not included in Portfolio Visualizer.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
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Random Musings
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Re: Stock Bubble? History Argues the Contrary

Post by Random Musings »

IMHO, the quest for quick riches, BTC, NFT's, Robinhood, 3x portfolio's, huge swings with certain stocks like GME having no real story says that we are closer to the end. But unlike 2008, when all asset classes were hammered, I believe that value and international won't take it on the chin as badly as the growth darlings. However, unlike 2008, I don't believe bonds can save the day as much, or maybe not at all.

Starting in the fall, I have been repositioning more into value and int'l on the equity side and lower duration's on the bond side (like ST TIPs); haven't really changed equity/bond allocation, But that time may come.

RM
I figure the odds be fifty-fifty I just might have something to say. FZ
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