A bit bubbly???

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kancell10
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Joined: Thu Jan 09, 2020 4:21 pm

A bit bubbly???

Post by kancell10 »

Hi guys,

I'm mulling over a lot of stuff at the moment, and occasionally drop in here to get things out of my mind and to gain your experienced words of wisdom.

In the last few months I'm becoming increasingly concerned we are in a crazy tech bubble equivalent to the Dot Com bubble. I was only about 20 at the time so wasn't really aware what was going on to be frank, and wasn't invested in the stock market enough for the 2008 financial crisis when I was 28.

I have done some research on the Dot Com in particular, currently reading a fantastic book called Dot.Con (https://www.amazon.co.uk/Dot-Greatest-S ... 0060008806) which was written 20 years ago and talks about all these new tech companies that were going to revolutionise the world, went through crazy IPO's, share prices and market cap went through the roof etc etc, until everyone realised they weren't actually profitable and most collapsed. Nasdaq down +50%, S&P down 30% etc..... It all sounds a bit similar to be honest.

Whilst I kind of accepted Tesla as company (but didn't agree with their market cap and share price) as I could see they were seeking to address a genuine problem and had created a good product, I really despise all the tweeting of digital currency in order to boost profits to acceptable levels. Also, the recent insane rises of Bitcoin, Dogecoin, NFT's etc are probably the straw that has broken the camels back for me as it's making me feel stupid for not getting in on them earlier... and for me, that's the point where I jump to the conclusion that this is shaping up for the mother of all come downs.

I'm relatively happy passively investing in VG LS 100 and VG FTSE Global All Cap, although I do have some minor active tendencies that I need to curb every few years. However I'm again getting concerned that 10 years of US growth stock dominance means I'm too weighted to the US and Tech even though I'm completely passive. In my head, the downside risk now is greater than the upside potential.

I'm sorely tempted to de-risk my investments (£90k) to see how this plays out but I don't want to go all cash in case I miss too much upside (of course)... I think my preference would be to begin a rotation towards value at both small and large market cap but keep a global outlook and an index based approach:

10k Cash - This amounts to my total current profit and I need this as a safety net as I just bought a BTL property
35k in VG FTSE All-World High Dividend Yield UCITS ETF OR VG Global Equity Income Fund (Active) - Weighted toward value/profitable companies
35k in VG FTSE Global All Cap Index Fund - Currently invested in this
10k in VG Global Small-Cap Index Fund - To give exposure to small caps that i don't get in All Cap

You will note I don't have any bonds in there, to be honest I treat my 2 x BTL properties as my 'bonds' even though I know they are riskier but they provide me with good income, long term capital appreciation and options for my family in a few years. I would consider putting some in bonds though if they would at least realise a modest positive return.

I'd really appreciate your thoughts before I go changing things around and then someone, as always, hits me with a wonderful pearl of wisdom that stops me in my tracks!!!!
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climber2020
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Re: A bit bubbly???

Post by climber2020 »

Your asset allocation should be constructed so that you can stick with it regardless of what happens with the stock market. This is a highly personal decision; some people are okay with 100% stocks and are able to ride it out; others panic and make poor, life altering decisions with their investments. If you're concerned about bubble conditions and a subsequent crash, then it means your portfolio is too aggressive.
invest4
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Re: A bit bubbly???

Post by invest4 »

Unfortunately, even if you could be certain about the “mother of all come downs”, no one knows how or when it would unfold...if at all.

I see a couple of options:

1. Change your AA to something you can stick with for the long term (as suggested by others and a staple piece of BH advice)

1a. Direct new monies away from equities and do some more thinking about what is an appropriate setup for yourself. You will maintain the ability to capture further gains (the market may continue to rise for whatever reason...logical and less so). You will also be slowly lowering risk and creating some ballast and rebalancing options for yourself in the meantime while you figure it out.
Topic Author
kancell10
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Re: A bit bubbly???

Post by kancell10 »

You both make good points and perhaps I am slightly aggressive at present, I've been fine to be 100% equities until now but perhaps it would be prudent to take the foot off the gas slightly if I am feeling this way.

Aside from the 10k cash I need to take out anyway, that portfolio is still 100% equities, just perhaps in an even more diverse but still index linked and global fashion than it is at present.

I don't mind suffering a paper loss, it just means a great buying opportunity for the longer term, but if I'm in 60% or 80% equities and there is a big crash, I figure there isn't much difference with being 100% equities i.e. I'm still going to be in the red.

I'm doing as you say right now, not inputting any new money to my ISA and re-building my cash reservoir, which will be good as a safety net and potentially come in useful if there is any great buying opportunities.

I am going to have to find something I can stick to long term though, which is difficult for me as a bit of a dabbler....
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Watty
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Re: A bit bubbly???

Post by Watty »

As long as you do not have money in cryptocurrencies you can ignore these. It is normal to regret having missed out on them but it is little different than not having bought last week's winning lottery ticket.
kancell10 wrote: Fri May 07, 2021 7:57 am I'd really appreciate your thoughts before I go changing things around and then someone, as always, hits me with a wonderful pearl of wisdom that stops me in my tracks!!!!
.....
...my 2 x BTL properties..
Your two BTL(buy to let, or buy to rent in American :D ) properties are the elephant in the room that I would be more concerned about than the tech stocks that you own.

I would assume that you are in the UK, I do not know how the housing market is doing there but in the US many areas are pretty clearly in a housing bubble that will likely not end well.

I know that you just bought one of them but owning two of them could be a big diversification problem.

If you bought them with loans then using leverage like that could wipe out most or all of your net worth if home prices decline by 40% or more and that has happened many times after a housing bubble.
Topic Author
kancell10
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Re: A bit bubbly???

Post by kancell10 »

The properties are part of a few medium and long term strategic plans for my kids, my mum and ultimately for us. The properties and rental yields are first class in a very vibrant growth (but still low cost purchase areas relative to most of UK i.e. 140k for great 2 bed flat) and they won't be sold no matter what, I'm totally comfortable with them and can sleep all night long :D
Valuethinker
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Re: A bit bubbly???

Post by Valuethinker »

kancell10 wrote: Fri May 07, 2021 10:37 am The properties are part of a few medium and long term strategic plans for my kids, my mum and ultimately for us. The properties and rental yields are first class in a very vibrant growth (but still low cost purchase areas relative to most of UK i.e. 140k for great 2 bed flat) and they won't be sold no matter what, I'm totally comfortable with them and can sleep all night long :D
140k for a 2 BR? Hartlepool? Burnley? Unless they are ex Council in some Midlands city... The build cost of a new 2 BR flat, anywhere in the country, is going to be at least £140k. Then there's the land ...

You are probably OK because UK planning and other laws favour property ownership. As long as you can rent them out, you can cover the mortgage. Only danger is a change in laws regarding tenancy - no sign of that for a few years, at least (I think that law is set at the level of England + Wales, so I couldn't make a comment re Scotland or Northern Ireland).
Valuethinker
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Re: A bit bubbly???

Post by Valuethinker »

Watty wrote: Fri May 07, 2021 10:15 am As long as you do not have money in cryptocurrencies you can ignore these. It is normal to regret having missed out on them but it is little different than not having bought last week's winning lottery ticket.
kancell10 wrote: Fri May 07, 2021 7:57 am I'd really appreciate your thoughts before I go changing things around and then someone, as always, hits me with a wonderful pearl of wisdom that stops me in my tracks!!!!
.....
...my 2 x BTL properties..
Your two BTL(buy to let, or buy to rent in American :D ) properties are the elephant in the room that I would be more concerned about than the tech stocks that you own.

I would assume that you are in the UK, I do not know how the housing market is doing there but in the US many areas are pretty clearly in a housing bubble that will likely not end well.
The kick of Brexit was down, generally, but that blow seems to have fallen. With Covid-19 there's a huge push out of city centres into suburbs and more rural areas - and almost no supply - so probably house prices are a bit extended, but unless we have a continued bad recession, they are not in bubble territory.

London always looks too expensive but in truth its London properties that have done the worst in the past 5 years.
I know that you just bought one of them but owning two of them could be a big diversification problem.

If you bought them with loans then using leverage like that could wipe out most or all of your net worth if home prices decline by 40% or more and that has happened many times after a housing bubble.
Yes but as long as OP can rent them out, and there's no major change in tenancy law, should be OK. The other danger is a major leasehold expense - for example newbuild flats (last 10-15 years) are often faced with 10s of thousands of pounds charges for removal of flammable external cladding - over 80 people died when a building went up 4 years ago (Grenfell disaster) and another building went up today (no dead, as of the last news I heard - the neighbours woke each other up via the local WhatsAp group, and got out before the smoke was too severe).

I knew people who rode out the early 90s crash that way - -40% drop in prices nationwide. Sold in the late 90s for at least what they paid in 1989.

The real problem would be if interest rates spiked. Most Buy To Let loans are floating rate, I believe. You could then get into a cash flow negative situation.
AJS
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Re: A bit bubbly???

Post by AJS »

OP,

It is almost certain that you will see significant unrealized losses in your investments at some time. Since you wrote on this forum and read an entire book on the dot.com crash, you seem as though you may not take those unrealized losses very well, which could lead you to sell low at some point. Find a way to invest that will not allow those demons to scare you into selling. I had a friend eliminate her entire equity position when the Dow fell below 7,000 during the last recession. She laughed at me when I told her I was willing to ride the market to zero. We all know what happened next. My point is that no matter what happens, stay the course and don't realize those losses. Always stay away from the herd. The herd will lead you off the cliff. Keep them in sight but don't hang out with them. The herd tells me to stay away from cryptocurrency so I take that as my cue to explore crypto. I don't own any crypto mainly because at my age I don't need the extra risk and the fees, exchanges and soft vs hard wallet crap isn't worth the effort. But I am still considering it.

Your portfolio looks find to me. I would try to increase your cash balance overtime and just view the cost as insurance against selling investments during the next popped bubble or crisis.
The sea was angry that day my friends...
Topic Author
kancell10
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Re: A bit bubbly???

Post by kancell10 »

Valuethinker wrote: Fri May 07, 2021 10:52 am
kancell10 wrote: Fri May 07, 2021 10:37 am The properties are part of a few medium and long term strategic plans for my kids, my mum and ultimately for us. The properties and rental yields are first class in a very vibrant growth (but still low cost purchase areas relative to most of UK i.e. 140k for great 2 bed flat) and they won't be sold no matter what, I'm totally comfortable with them and can sleep all night long :D
140k for a 2 BR? Hartlepool? Burnley? Unless they are ex Council in some Midlands city... The build cost of a new 2 BR flat, anywhere in the country, is going to be at least £140k. Then there's the land ...

You are probably OK because UK planning and other laws favour property ownership. As long as you can rent them out, you can cover the mortgage. Only danger is a change in laws regarding tenancy - no sign of that for a few years, at least (I think that law is set at the level of England + Wales, so I couldn't make a comment re Scotland or Northern Ireland).
Dundee, Scotland. I don't claim to have 'edge' as Lars Kroijer calls it, in anything but property in my local area. One is a beautiful 3 bed in a historic low rise building, which I purchased for £160k and rents out all day long at £1200 PCM to students as it is next door to the university. The other a nice modern 2 bed again in a low rise block in the vibrant west end of the town with south facing sea views, purchased for £140k and will get £725 PCM all day long. Don't worry about the property side of my portfolio, I don't :D

The stock market on the other hand.... i most certainly don't have edge ha ha!!!

p.s. yes interest rates spikes is the only real risk as you point out, I don't have a crystal ball but i don't see any major rate increases any time soon. Ultimately there is so much of a buffer that it is not a major risk anyway, I pay BTL mortgage of £154 PCM on the property I get £1200 PCM for!!!!
Last edited by kancell10 on Fri May 07, 2021 11:44 am, edited 2 times in total.
Topic Author
kancell10
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Re: A bit bubbly???

Post by kancell10 »

AJS wrote: Fri May 07, 2021 11:04 am OP,

It is almost certain that you will see significant unrealized losses in your investments at some time. Since you wrote on this forum and read an entire book on the dot.com crash, you seem as though you may not take those unrealized losses very well, which could lead you to sell low at some point. Find a way to invest that will not allow those demons to scare you into selling. I had a friend eliminate her entire equity position when the Dow fell below 7,000 during the last recession. She laughed at me when I told her I was willing to ride the market to zero. We all know what happened next. My point is that no matter what happens, stay the course and don't realize those losses. Always stay away from the herd. The herd will lead you off the cliff. Keep them in sight but don't hang out with them. The herd tells me to stay away from cryptocurrency so I take that as my cue to explore crypto. I don't own any crypto mainly because at my age I don't need the extra risk and the fees, exchanges and soft vs hard wallet crap isn't worth the effort. But I am still considering it.

Your portfolio looks find to me. I would try to increase your cash balance overtime and just view the cost as insurance against selling investments during the next popped bubble or crisis.
I think the reason is more out of trying to be clever (which I know I am not in investing terms) and time the market, rather than just ride it out passively long term. In my head, I move into less risky investments, then if/when the market drops, I jump back in again at a lower price and no capital theoretically lost. No matter what though in the event of paper losses, I know already I won't sell at any point, as I have confidence that an upside of the cycle will return and I have never realised a loss.

I'm interested in your comments on the herd, as from my perspective the herd is now buying cryptocurrency and speculating wildly in tech stocks, SPAC, NFT etc which is precisely the reason I'm considering moving the opposite way of the herd into more value orientated and less risky options.
MindBogler
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Re: A bit bubbly???

Post by MindBogler »

kancell10 wrote: Fri May 07, 2021 11:38 am I think the reason is more out of trying to be clever (which I know I am not in investing terms) and time the market, rather than just ride it out passively long term. In my head, I move into less risky investments, then if/when the market drops, I jump back in again at a lower price and no capital theoretically lost. No matter what though in the event of paper losses, I know already I won't sell at any point, as I have confidence that an upside of the cycle will return and I have never realised a loss.
It is very difficult to pull something like this off. You are more likely to get out too early and jump back in too late, due to fear. The closest you can probably get to having any semblance of control is to use something like tactical rebalancing, aka over-rebalancing. For example, maybe your portfolio at baseline is 60/40 and then after a 30%+ crash you move to 80/20 or even 100%.
Topic Author
kancell10
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Re: A bit bubbly???

Post by kancell10 »

MindBogler wrote: Fri May 07, 2021 11:46 am
kancell10 wrote: Fri May 07, 2021 11:38 am I think the reason is more out of trying to be clever (which I know I am not in investing terms) and time the market, rather than just ride it out passively long term. In my head, I move into less risky investments, then if/when the market drops, I jump back in again at a lower price and no capital theoretically lost. No matter what though in the event of paper losses, I know already I won't sell at any point, as I have confidence that an upside of the cycle will return and I have never realised a loss.
It is very difficult to pull something like this off. You are more likely to get out too early and jump back in too late, due to fear. The closest you can probably get to having any semblance of control is to use something like tactical rebalancing, aka over-rebalancing. For example, maybe your portfolio at baseline is 60/40 and then after a 30%+ crash you move to 80/20 or even 100%.
Yes I completely agree with you, these comments resonate a lot with me. They actually make me feel better about missing the peaks of a boom and troughs of a low, and settling for the more stable bits in the middle.

Looking forward, I'd take 2 years of 5 - 10% reductions in returns right now, if it meant missing a 30 - 50% crash in 2 years. I just feel that the downside risk is now higher than the upside potential! Deep down I also think I'm a bear that likes old fashioned businesses that make real physical stuff and generate regular cash flow etc.
VWCE
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Re: A bit bubbly???

Post by VWCE »

kancell10 wrote: Fri May 07, 2021 11:38 am
I'm interested in your comments on the herd, as from my perspective the herd is now buying cryptocurrency and speculating wildly in tech stocks, SPAC, NFT etc which is precisely the reason I'm considering moving the opposite way of the herd into more value orientated and less risky options.
Exactly this; literally everyone is in Crypto right now. Ethereum has the same market cap as Visa...
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climber2020
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Re: A bit bubbly???

Post by climber2020 »

kancell10 wrote: Fri May 07, 2021 11:38 am I think the reason is more out of trying to be clever (which I know I am not in investing terms) and time the market, rather than just ride it out passively long term. In my head, I move into less risky investments, then if/when the market drops, I jump back in again at a lower price and no capital theoretically lost.
It seems like a big deal at the micro level, but unless you're moving around massive amounts of money all at once, it's unlikely to make much of a difference in the long run.

The chart below is March 2012 when I started investing and made a lump sum into my Roth IRA:

Image

As you can see, the market dropped about 10% after I put my money in, and I was pretty distraught at the time.

Now zoom out, and the same time period is indicated by the red arrow:

Image

9 years later, it made no practical difference at all.
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Re: A bit bubbly???

Post by sperry8 »

kancell10 wrote: Fri May 07, 2021 7:57 am Hi guys,

I'm mulling over a lot of stuff at the moment, and occasionally drop in here to get things out of my mind and to gain your experienced words of wisdom.

In the last few months I'm becoming increasingly concerned we are in a crazy tech bubble equivalent to the Dot Com bubble. I was only about 20 at the time so wasn't really aware what was going on to be frank, and wasn't invested in the stock market enough for the 2008 financial crisis when I was 28.

I have done some research on the Dot Com in particular, currently reading a fantastic book called Dot.Con (https://www.amazon.co.uk/Dot-Greatest-S ... 0060008806) which was written 20 years ago and talks about all these new tech companies that were going to revolutionise the world, went through crazy IPO's, share prices and market cap went through the roof etc etc, until everyone realised they weren't actually profitable and most collapsed. Nasdaq down +50%, S&P down 30% etc..... It all sounds a bit similar to be honest.

Whilst I kind of accepted Tesla as company (but didn't agree with their market cap and share price) as I could see they were seeking to address a genuine problem and had created a good product, I really despise all the tweeting of digital currency in order to boost profits to acceptable levels. Also, the recent insane rises of Bitcoin, Dogecoin, NFT's etc are probably the straw that has broken the camels back for me as it's making me feel stupid for not getting in on them earlier... and for me, that's the point where I jump to the conclusion that this is shaping up for the mother of all come downs.

I'm relatively happy passively investing in VG LS 100 and VG FTSE Global All Cap, although I do have some minor active tendencies that I need to curb every few years. However I'm again getting concerned that 10 years of US growth stock dominance means I'm too weighted to the US and Tech even though I'm completely passive. In my head, the downside risk now is greater than the upside potential.

I'm sorely tempted to de-risk my investments (£90k) to see how this plays out but I don't want to go all cash in case I miss too much upside (of course)... I think my preference would be to begin a rotation towards value at both small and large market cap but keep a global outlook and an index based approach:

10k Cash - This amounts to my total current profit and I need this as a safety net as I just bought a BTL property
35k in VG FTSE All-World High Dividend Yield UCITS ETF OR VG Global Equity Income Fund (Active) - Weighted toward value/profitable companies
35k in VG FTSE Global All Cap Index Fund - Currently invested in this
10k in VG Global Small-Cap Index Fund - To give exposure to small caps that i don't get in All Cap

You will note I don't have any bonds in there, to be honest I treat my 2 x BTL properties as my 'bonds' even though I know they are riskier but they provide me with good income, long term capital appreciation and options for my family in a few years. I would consider putting some in bonds though if they would at least realise a modest positive return.

I'd really appreciate your thoughts before I go changing things around and then someone, as always, hits me with a wonderful pearl of wisdom that stops me in my tracks!!!!
The question is not whether stocks are at an all time high. The question is what will their price be when you need to sell. So if this is your retirement fund and you're 40 today, you have perhaps another 25-30 years before you start drawing down the monies. In this scenario the questions should more appropriately be:

1- Do I have any skills that enable me to market time?
2- Do I believe stocks will be higher than they are today when I need the monies (25-30 years from now).

If the answers are No and Yes... then you just sit tight.

If your answer to #1 is yes, you need to ask yourself how this can be. Because no one, not even the hedge fund managers, institutional managers, etc. whose jobs it is to earn the most from equities can do it. So why can you?

If the answer to #2 is no, then I would suggest breaking out stocks into categories, such as value, international, emerging, real estate, etc. and asking the same question by segment/sector. If the answer to all categories is still no then you are gripped with fear and I'd suggest doing nothing until you've had a chance to read more books on the long term efficacy of stocks.
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sperry8
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Re: A bit bubbly???

Post by sperry8 »

climber2020 wrote: Fri May 07, 2021 5:28 pm
kancell10 wrote: Fri May 07, 2021 11:38 am I think the reason is more out of trying to be clever (which I know I am not in investing terms) and time the market, rather than just ride it out passively long term. In my head, I move into less risky investments, then if/when the market drops, I jump back in again at a lower price and no capital theoretically lost.
It seems like a big deal at the micro level, but unless you're moving around massive amounts of money all at once, it's unlikely to make much of a difference in the long run.

The chart below is March 2012 when I started investing and made a lump sum into my Roth IRA:

Image

As you can see, the market dropped about 10% after I put my money in, and I was pretty distraught at the time.

Now zoom out, and the same time period is indicated by the red arrow:

Image

9 years later, it made no practical difference at all.
btw, great post. I've said this in words many times on this board. But a picture is worth a thousand words.
BH contests: 2020 #253 of 664 | 19 #233 of 645 | 18 #150 of 493 | 17 #516 of 647 | 16 #121 of 610 | 15 #18 of 552 | 14 #225 of 503 | 13 #383 of 433 | 12 #366 of 410 | 11 #113 of 369 | 10 #53 of 282
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ClevrChico
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Re: A bit bubbly???

Post by ClevrChico »

I work in tech, and every small-cap tech company I lookup, seems to be unprofitable. They've been unprofitable for years. The companies that I directly work with seem to be incredibly bloated and poorly ran.

That does feel bubbly to me.

Is there going to be a crypto crash followed up by a market correction? That seems possible.

I have an AA that works for me, so I'll continue to stay the course.
Last edited by ClevrChico on Fri May 07, 2021 5:44 pm, edited 1 time in total.
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Re: A bit bubbly???

Post by abuss368 »

No one knows nuttin! Hold enough in bonds in case of a market pullback. Place the rest in total market index funds.

Tony
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Re: A bit bubbly???

Post by abuss368 »

I don’t know an I don’t care. I back up our truck this week and bought more. I will continue to do so.

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Re: A bit bubbly???

Post by Kookaburra »

I want to buy a doggycoin! Bubble schmubble.
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