CraigTester wrote: ↑Wed Jan 19, 2022 11:11 am
Elysium wrote: ↑Wed Jan 19, 2022 9:13 am
CraigTester wrote: ↑Wed Jan 19, 2022 8:35 am
I just can't bring myself to hold an asset that is priced at 2-3X it's intrinsic value. Any "rule" I can follow that would lead me to hold a high allocation of US equities at this moment, would also require me to hold them as they revert to their mean....I have a long term view....2018-2021 is noise....And I make no claim to be able to offer any reliable prediction in the near term....
25% per year average annualized return for S&P 500 2019-2021, that's some noise! You were better off taking the returns and re-balancing. How far should the market fall from there to justify staying out for that long through that sort of good times for the market. I reckon at least 50% to just cancel out last three years, if not more. Anyone waiting for a 50% drop in market is deluding themselves.
Here's a little perspective which I guess nobody talks about on this forum, because it doesn't really fit the "narrative"
You haven't read enough of the forum apparently. You don't seem to understand what the "narrative" is.
This isn't a group that believes the stock market only goes up and there is never any long periods of low returns.
The following time periods represent how long it took for an inflation adjusted position in the SP500 with dividends reinvested to get back to break-even.
20 yrs. May 1901-Aug 1921.
20 yrs. Aug 1929–May 1949
15 yrs. Nov 1968-Mar 1983
13 yrs. Mar 2000- Jan 2013
We talk about the "lost decade" of the 2000s all the time.
The 1966-1982 period is always brought up when talking about retirement and worst case scenarios.
We are well aware of these periods.
We preach that crashes and long periods of low returns WILL happen, and one should be prepared for it. I do worry sometimes that newer younger investors who have never gone through a long crash may not be listening, but we do talk about it often.
As the most recent of these examples, you could have gotten out any time in the late 90s and had lots of opportunities to take another position at a better price anywhere during the 2009 period....In the mean time, note that the 10-year bond was yielding 5 or 6%...
Market-timing is only easy in hindsight. You would have started getting out in 1992, and fully out by 1996. In 1996, valuations were the second highest in history (just like your 2018 post). SP500 was in the low 600s in 1996, and it never dropped that low again (there was like 4 days in March 2009 where it dipped into the high 600s). And that was a long 13 years to wait for a 4-day window.
Market-timing is not as easy as you say. It also requires good timing on both ends. You've already proven how hard getting the timing correct is. You got out in 2018, and missed out on a 75% gain, so far. In real-time, you've PROVEN that market-timing is hard.
Sure It would be great if one could just avoid the bad times in stocks, and only invest when they are going up, but it's not easy as you say it is.
But here's the thing. Here's the big secret of Boglehead investing. The long-term nominal 9%-10% returns of the stock market INCLUDES all the crashes and the long periods of low returns. So far, in the past, one didn't have to avoid the crashes and long periods of low returns to still get a great long-term return on their money and become wealthy.
Investing in stocks in 2000 at the highest valuations in history still gave a good return over the next 20 years. And of course, money invested in 1998, and 1999, and 2001, and 2002, etc. have returned even MORE. So far, while accumulating especially, you could completely ignore valuations and become quite wealthy.
So far, market-timing hasn't been easy, and, just as important,
hasn't been necessary, to become rich.
So far. No guarantees on the future. But you're big on the history, and the history says market-timing is not necessary, and rarely works well in real-time anyway.
P.S. Rebalancing isn't a magic bullet, in fact if done too frequently, or not frequently enough, it only hurts your performance
This is correct. I rebalance to maintain the same risk profile, not to increase performance.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59