What a Great Moment to Invest!

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
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HomerJ
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Re: What a Great Moment to Invest!

Post by HomerJ »

Nathan Drake wrote: Wed May 18, 2022 12:08 pm Fair CAPE was low in the early 2010s

Fair CAPE was moderate slightly high in mid 2010s, and became scorching the past few years
"Fair CAPE" didn't exist until 2017 (edit: Actually Shiller didn't come out with his new Earnings-Cape-Yield theory until Sept 2018). CAPE has failed as a prediction tool, so they've added a new variable. We only have a few years of out-of-sample data so far, so I guess we'll have to see. At least this proves that using valuations in the past has not been useful. Maybe this new equation will be useful going forward..

Here's a good read, which I hadn't seen before.

https://mebfaber.com/wp-content/uploads ... ecasts.pdf
Professors John Campbell and Robert Shiller’s (1988) cyclically-adjusted P/E (or, CAPE) ratio is
arguably the most widely-followed metric in the investment profession to judge whether or not a
stock market is fairly valued. The CAPE ratio’s popularity is due in part to the power of mean
reversion. A high (low) cyclically-adjusted P/E (CAPE) ratio has been associated with below average (above-average) 10-year-ahead U.S. stock returns.

Nevertheless, stock return predictions using the Shiller CAPE ratio have generally not performed
well more recently. Beginning around 1985, average out-of-sample forecast errors of the
predicted returns ten years ahead (i.e., 1995 and on) have been larger than if one had used the
trailing historical long-run average. The rise in average forecast error has coincided with the
secular rise in the CAPE ratio above its 1926-1984 average of 14.6. Indeed, the Shiller CAPE
ratio has defied mean reversion since that time, having only once dropped below its long-run
average. And realized U.S. stock returns over the past three decades have been robust,
notwithstanding the global financial crisis
I like how he says, "beginning around 1985"... since CAPE was formulated in 1988, basically he's saying CAPE has pretty much ALWAYS failed to make accurate predictions using out-of-sample data.

With that fact, it's embarrassing that CAPE is still "arguably the most widely-followed metric in the investment profession to judge whether or not a stock market is fairly valued."
On a keynote panel at the 70th Annual CFA National Conference in May 2017, Professors
Jeremy Siegel and Robert Shiller both cited low interest rates as a potential factor in the extended
period of elevated CAPE ratios, although neither explicitly quantified the link between interest
rates and future stock returns. This paper does just that.
This paper was written in July 2017.

I've been arguing, for 14 years here on these boards, that the original CAPE predictions were not useful. If Faber, Siegel, and Shiller himself agree with me, can you guys stop trying to pretend valuations were useful in the past?

We'll have to see how this new valuations theory works going forward before we can fully judge it.
Last edited by HomerJ on Wed May 18, 2022 1:06 pm, edited 1 time in total.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
billaster
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Re: What a Great Moment to Invest!

Post by billaster »

HomerJ wrote: Wed May 18, 2022 10:58 am Yes, Shiller himself has said that his original equation failed to predict returns, and so he's added another variable.

So CAPE alone never worked as a predictor. The guy who won the Nobel prize for formulating CAPE has said this.
Shiller never said this. That is your own interpretation.
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HomerJ
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Re: What a Great Moment to Invest!

Post by HomerJ »

billaster wrote: Wed May 18, 2022 1:06 pm
HomerJ wrote: Wed May 18, 2022 10:58 am Yes, Shiller himself has said that his original equation failed to predict returns, and so he's added another variable.

So CAPE alone never worked as a predictor. The guy who won the Nobel prize for formulating CAPE has said this.
Shiller never said this. That is your own interpretation.
Yes, you are correct. It's not a direct quote. It's my interpretation of his actions.

In early 2017, he was still telling people to lower their allocation to stocks based on CAPE (SP500 at 2300)

https://www.cnbc.com/2017/02/24/robert- ... dings.html

in late 2020, he was telling people the high stock prices made sense (SP500 at 3700) using his new ECY method.

https://www.marketwatch.com/story/sky-h ... 1606838599
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
billaster
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Re: What a Great Moment to Invest!

Post by billaster »

HomerJ wrote: Wed May 18, 2022 1:20 pm
billaster wrote: Wed May 18, 2022 1:06 pm
HomerJ wrote: Wed May 18, 2022 10:58 am Yes, Shiller himself has said that his original equation failed to predict returns, and so he's added another variable.

So CAPE alone never worked as a predictor. The guy who won the Nobel prize for formulating CAPE has said this.
Shiller never said this. That is your own interpretation.
Yes, you are correct. It's not a direct quote. It's my interpretation of his actions.
Well, there you go. You are entitled to your own opinions. You are not entitled to mislead readers by putting your opinions in another person's mouth.
Broken Man 1999
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Re: What a Great Moment to Invest!

Post by Broken Man 1999 »

JohnDoh wrote: Mon May 09, 2022 7:27 am
willthrill81 wrote: Sun May 08, 2022 3:04 pm
TomatoTomahto wrote: Sun May 08, 2022 11:52 am
willthrill81 wrote: Sat May 07, 2022 11:03 am Correct! I've often said in prior years that accumulators should be begging for times like this.
We are still accumulators, but relative to our existing portfolio new funds aren’t moving the needle much. I’m hoping that we recover before we become decumulators.
Even if the additional contributions aren't significant, the mere fact that you experience poor returns now vs. retirement is a significant benefit.
OTOH, I wonder if the fact that an ever-increasing share of the population is in retirement (and thus with relatively shortened time horizons) and actually living off their portfolios, will affect the course of events. It seems there's a greater chance of panic selling, etc. In any case, a 50/50 retiree would seem to be in a boatload of trouble at the moment.
Not necessarily. Whether the 50/50 retiree would be in a boatload of trouble at the moment would depend on the assets in the 50/50 portfolio, and the withdrawal they need to cover their expenses, no?

$5mil in equities and $5mil in fixed income with a need for $100,000/year would be in no trouble at all. Sadly that is not our portfolio. :D We don't have $10mil, OTOH we don't need $100,000/year either.

The amount needed for expenses in retirement are all over the place, as are the portfolio values needed.

I do wonder how the FIRE community might be faring. Some FIRE posts seemed really on the edge so far as being able to FIRE. Probably many can return to work easily at the moment. If we slip into a prolonged recession things might get ugly for them, especially if an important part of their Plan B was reentering the workforce.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
Nathan Drake
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Re: What a Great Moment to Invest!

Post by Nathan Drake »

HomerJ wrote: Wed May 18, 2022 12:50 pm
Nathan Drake wrote: Wed May 18, 2022 12:08 pm Fair CAPE was low in the early 2010s

Fair CAPE was moderate slightly high in mid 2010s, and became scorching the past few years
"Fair CAPE" didn't exist until 2017 (edit: Actually Shiller didn't come out with his new Earnings-Cape-Yield theory until Sept 2018). CAPE has failed as a prediction tool, so they've added a new variable. We only have a few years of out-of-sample data so far, so I guess we'll have to see. At least this proves that using valuations in the past has not been useful. Maybe this new equation will be useful going forward..

Here's a good read, which I hadn't seen before.

https://mebfaber.com/wp-content/uploads ... ecasts.pdf
Professors John Campbell and Robert Shiller’s (1988) cyclically-adjusted P/E (or, CAPE) ratio is
arguably the most widely-followed metric in the investment profession to judge whether or not a
stock market is fairly valued. The CAPE ratio’s popularity is due in part to the power of mean
reversion. A high (low) cyclically-adjusted P/E (CAPE) ratio has been associated with below average (above-average) 10-year-ahead U.S. stock returns.

Nevertheless, stock return predictions using the Shiller CAPE ratio have generally not performed
well more recently. Beginning around 1985, average out-of-sample forecast errors of the
predicted returns ten years ahead (i.e., 1995 and on) have been larger than if one had used the
trailing historical long-run average. The rise in average forecast error has coincided with the
secular rise in the CAPE ratio above its 1926-1984 average of 14.6. Indeed, the Shiller CAPE
ratio has defied mean reversion since that time, having only once dropped below its long-run
average. And realized U.S. stock returns over the past three decades have been robust,
notwithstanding the global financial crisis
I like how he says, "beginning around 1985"... since CAPE was formulated in 1988, basically he's saying CAPE has pretty much ALWAYS failed to make accurate predictions using out-of-sample data.

With that fact, it's embarrassing that CAPE is still "arguably the most widely-followed metric in the investment profession to judge whether or not a stock market is fairly valued."
On a keynote panel at the 70th Annual CFA National Conference in May 2017, Professors
Jeremy Siegel and Robert Shiller both cited low interest rates as a potential factor in the extended
period of elevated CAPE ratios, although neither explicitly quantified the link between interest
rates and future stock returns. This paper does just that.
This paper was written in July 2017.

I've been arguing, for 14 years here on these boards, that the original CAPE predictions were not useful. If Faber, Siegel, and Shiller himself agree with me, can you guys stop trying to pretend valuations were useful in the past?

We'll have to see how this new valuations theory works going forward before we can fully judge it.
It’s not meant to predict anything, so you’re not using it in proper context
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atdharris
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Re: What a Great Moment to Invest!

Post by atdharris »

I just noticed I've actually lost money in my 401k since I began contributing to it 4 years ago. I guess that's what happens when my payday always seemed to hit when the market hit ATHs and/or rallied from the lows before dropping again. My last buys when in after last Friday's rally..
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HomerJ
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Re: What a Great Moment to Invest!

Post by HomerJ »

Nathan Drake wrote: Wed May 18, 2022 2:44 pm It’s not meant to predict anything, so you’re not using it in proper context
What?

What context are you using it for then?

I said normal CAPE was high in the 2010s, and predicted low returns (you said that too at the time), yet returns have been good... so CAPE hasn't been very predictive.

You JUST said, "Fair CAPE didn't say that in the 2010s" (even though Fair CAPE didn't exist until 2017)
Nathan Drake wrote: Wed May 18, 2022 12:08 pm Fair CAPE was low in the early 2010s

Fair CAPE was moderate slightly high in mid 2010s, and became scorching the past few years
So you seem to be saying that the good returns in the 2010s totally make sense because FAIR CAPE was low in the early 2010s, and only moderately high in the mid-2010s.

So that the good returns don't disprove anything because you seem to be implying the FAIR CAPE was predicting decent returns all along.

Is that not the context you are using?

If not, what exactly are you saying?

And then you say this.
Given this year’s revaluation back down I’d say that reversion is a reasonable expectation when valuations get stretched.
Is an expectation not a prediction? I mean you are saying "scorching" FAIR CAPE numbers the past few years reasonably create an expectation of a reversion to the mean, i.e. poor returns...

So it certainly seems that are using FAIR CAPE as a predictive tool. Just like you used CAPE as a predictive tool back in 2014 and 2016 to justify changing your Asset Allocation away from high valuation markets.

Please help me understand.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
Nathan Drake
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Re: What a Great Moment to Invest!

Post by Nathan Drake »

HomerJ wrote: Wed May 18, 2022 3:11 pm
Nathan Drake wrote: Wed May 18, 2022 2:44 pm It’s not meant to predict anything, so you’re not using it in proper context
What?

What context are you using it for then?

I said normal CAPE was high in the 2010s, and predicted low returns (you said that too at the time), yet returns have been good... so CAPE hasn't been very predictive.

You JUST said, "Fair CAPE didn't say that in the 2010s" (even though Fair CAPE didn't exist until 2017)
Nathan Drake wrote: Wed May 18, 2022 12:08 pm Fair CAPE was low in the early 2010s

Fair CAPE was moderate slightly high in mid 2010s, and became scorching the past few years
So you seem to be saying that the good returns in the 2010s totally make sense because FAIR CAPE was low in the early 2010s, and only moderately high in the mid-2010s.

So that the good returns don't disprove anything because you seem to be implying the FAIR CAPE was predicting decent returns all along.

Is that not the context you are using?

If not, what exactly are you saying?

And then you say this.
Given this year’s revaluation back down I’d say that reversion is a reasonable expectation when valuations get stretched.
Is an expectation not a prediction? I mean you are saying "scorching" FAIR CAPE numbers the past few years reasonably create an expectation of a reversion to the mean, i.e. poor returns...

So it certainly seems that are using FAIR CAPE as a predictive tool. Just like you used CAPE as a predictive tool back in 2014 and 2016 to justify changing your Asset Allocation away from high valuation markets.

Please help me understand.
CAPE showcases the dispersion of historical returns at a given valuation. The data is extremely noisy, but nonetheless there is a clear relationship between starting valuations and future returns

That’s it. It’s not designed as a market timing or short term trading tool. Can it be useful in the presence of setting long term asset allocations? I believe so.
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
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HomerJ
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Re: What a Great Moment to Invest!

Post by HomerJ »

Nathan Drake wrote: Wed May 18, 2022 3:26 pm CAPE showcases the dispersion of historical returns at a given valuation. The data is extremely noisy, but nonetheless there is a clear relationship between starting valuations and future returns
A clear relationship that has continually shifted to the right, since it was formulated. Which is why it hasn't been useful as a predictive tool, so far.
That’s it. It’s not designed as a market timing or short term trading tool. Can it be useful in the presence of setting long term asset allocations? I believe so.
Well, yes, we agree on that first sentence. We haven't been talking about that.

I've been talking about 10-year returns with CAPE predictions, not short-term market-timing or trading.

Are you not setting your long-term asset allocations on 10-year CAPE or FAIR CAPE predictions?
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
Nathan Drake
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Re: What a Great Moment to Invest!

Post by Nathan Drake »

HomerJ wrote: Wed May 18, 2022 3:44 pm
Nathan Drake wrote: Wed May 18, 2022 3:26 pm CAPE showcases the dispersion of historical returns at a given valuation. The data is extremely noisy, but nonetheless there is a clear relationship between starting valuations and future returns
A clear relationship that has continually shifted to the right, since it was formulated. Which is why it hasn't been useful as a predictive tool, so far.
That’s it. It’s not designed as a market timing or short term trading tool. Can it be useful in the presence of setting long term asset allocations? I believe so.
Well, yes, we agree on that...

I've been talking about 10-year returns with CAPE predictions, not short-term market-timing or trading.

Are you not setting your long-term asset allocations on 10-year CAPE or FAIR CAPE predictions? That was the argument you made back in 2014 and 2016.
Thus far it’s only really shifted meaningfully to the right for one market.

One could use CAPE to select long term positions towards areas with higher expected returns or as a means of capturing adequate returns for less downside risk

10 years really isn’t long enough
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invest2bfree
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Re: What a Great Moment to Invest!

Post by invest2bfree »

William Million wrote: Fri May 06, 2022 7:22 pm After several tough investing years, when investors bemoaned how everything was overpriced,it seems we now have almost the perfect entry point for stocks and bonds:

- Many bond funds haven't reached levels this low since the Great Recession. Last time Vanguard Total Bond Index was this low was 2008.

- Some of the most dynamic companies are down 50% or so. NASDAQ has lost a quarter of its value. Among great companies,you can take your pick. For instance, Starbucks pays 2.5% dividend, after having steadily raised its dividend since 2010 from a nickel to.49. Does anyone seriously believe that company won't be profitably selling coffee 20 years from now?

- Want more international equity or REIT exposure? The US dollar is now almost at parity with the Euro. Amazing buying power.

- As soon as inflation tumbles, investors will flee TIPS with a vengeance.We might well soon see +2% real rates.

-10 year treasuries are back to where they were in 2011. If they rise to 5%, 1st time since 2007, they could prove a reliable long-term portfolio stabilizer.

In sum, the next year could bring the best forward investment climate in a decade or more. War in Ukraine, high inflation, lockdowns in China, COVID weariness, etc have spooked many investors when they should be strategically buying.


Just the fact you post this means we are nowhere near the bottom.

Go back and read up on the posts from 2008-2009 time-frame. The great Taylor Larimore in one post even had doubts on boglehead way of investing.
36% (IRA) - Individual LT Corporate Bonds , 33%(taxable) - schy, 33%(taxable) - SCHD Dividend Growth
an_asker
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Re: What a Great Moment to Invest!

Post by an_asker »

invest2bfree wrote: Wed May 18, 2022 4:53 pm [...]
The great Taylor Larimore in one post even had doubts on boglehead way of investing.
Please share a link. That would be interesting to read.
nigel_ht
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Re: What a Great Moment to Invest!

Post by nigel_ht »

Nathan Drake wrote: Wed May 18, 2022 3:26 pm It’s not designed as a market timing or short term trading tool. Can it be useful in the presence of setting long term asset allocations? I believe so.
Homer is tilting at windmills (he will never convince CAPE enthusiasts that CAPE has a mediocre track record) but that is clearly using CAPE in a predictive manner.

Why are you dancing around trying not to admit to using it as a future forecast of expected performance ranges in order to set your AA?

Valuations matter. Is that so heretical to say around here that nobody wants to admit it?
freyj6
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Re: What a Great Moment to Invest!

Post by freyj6 »

invest2bfree wrote: Wed May 18, 2022 4:53 pm
William Million wrote: Fri May 06, 2022 7:22 pm After several tough investing years, when investors bemoaned how everything was overpriced,it seems we now have almost the perfect entry point for stocks and bonds:

- Many bond funds haven't reached levels this low since the Great Recession. Last time Vanguard Total Bond Index was this low was 2008.

- Some of the most dynamic companies are down 50% or so. NASDAQ has lost a quarter of its value. Among great companies,you can take your pick. For instance, Starbucks pays 2.5% dividend, after having steadily raised its dividend since 2010 from a nickel to.49. Does anyone seriously believe that company won't be profitably selling coffee 20 years from now?

- Want more international equity or REIT exposure? The US dollar is now almost at parity with the Euro. Amazing buying power.

- As soon as inflation tumbles, investors will flee TIPS with a vengeance.We might well soon see +2% real rates.

-10 year treasuries are back to where they were in 2011. If they rise to 5%, 1st time since 2007, they could prove a reliable long-term portfolio stabilizer.

In sum, the next year could bring the best forward investment climate in a decade or more. War in Ukraine, high inflation, lockdowns in China, COVID weariness, etc have spooked many investors when they should be strategically buying.


Just the fact you post this means we are nowhere near the bottom.

Go back and read up on the posts from 2008-2009 time-frame. The great Taylor Larimore in one post even had doubts on boglehead way of investing.
Keep in mind nothing says that we are required to have an enormous downdraw right now.

Lack of fear and negative sentiment doesn’t mean that the market will fall further. It may or it may not. There are a lot more 20% dips than 50% though.
Nathan Drake
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Re: What a Great Moment to Invest!

Post by Nathan Drake »

nigel_ht wrote: Wed May 18, 2022 6:00 pm
Nathan Drake wrote: Wed May 18, 2022 3:26 pm It’s not designed as a market timing or short term trading tool. Can it be useful in the presence of setting long term asset allocations? I believe so.
Homer is tilting at windmills (he will never convince CAPE enthusiasts that CAPE has a mediocre track record) but that is clearly using CAPE in a predictive manner.

Why are you dancing around trying not to admit to using it as a future forecast of expected performance ranges in order to set your AA?

Valuations matter. Is that so heretical to say around here that nobody wants to admit it?
I consider CAPE’s use probabilistic rather than predictive. Whether you think there’s a distinction between the two depends on your perspective

Just because you planned for a rainy day and it turned out to be sunny doesn’t mean the odds were in your favor for that outcome. Homer tends to be far more optimistic than me that recovery from overvaluation will always be swift
Last edited by Nathan Drake on Wed May 18, 2022 6:45 pm, edited 1 time in total.
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Firemenot
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Re: What a Great Moment to Invest!

Post by Firemenot »

an_asker wrote: Wed May 18, 2022 5:57 pm
invest2bfree wrote: Wed May 18, 2022 4:53 pm [...]
The great Taylor Larimore in one post even had doubts on boglehead way of investing.
Please share a link. That would be interesting to read.
Hopefully when things return to “normal” people go back and read their posts. There have been a lot of non-BH sentiments expressed as of late.
YeahBuddy
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Re: What a Great Moment to Invest!

Post by YeahBuddy »

Every day is a good day to invest if you're financially able to!
Light weight baby!
59Gibson
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Re: What a Great Moment to Invest!

Post by 59Gibson »

Broken Man 1999 wrote: Wed May 18, 2022 2:43 pm
JohnDoh wrote: Mon May 09, 2022 7:27 am
willthrill81 wrote: Sun May 08, 2022 3:04 pm
TomatoTomahto wrote: Sun May 08, 2022 11:52 am
willthrill81 wrote: Sat May 07, 2022 11:03 am Correct! I've often said in prior years that accumulators should be begging for times like this.
We are still accumulators, but relative to our existing portfolio new funds aren’t moving the needle much. I’m hoping that we recover before we become decumulators.
Even if the additional contributions aren't significant, the mere fact that you experience poor returns now vs. retirement is a significant benefit.
OTOH, I wonder if the fact that an ever-increasing share of the population is in retirement (and thus with relatively shortened time horizons) and actually living off their portfolios, will affect the course of events. It seems there's a greater chance of panic selling, etc. In any case, a 50/50 retiree would seem to be in a boatload of trouble at the moment.
Not necessarily. Whether the 50/50 retiree would be in a boatload of trouble at the moment would depend on the assets in the 50/50 portfolio, and the withdrawal they need to cover their expenses, no?

$5mil in equities and $5mil in fixed income with a need for $100,000/year would be in no trouble at all. Sadly that is not our portfolio. :D We don't have $10mil, OTOH we don't need $100,000/year either.

The amount needed for expenses in retirement are all over the place, as are the portfolio values needed.

I do wonder how the FIRE community might be faring. Some FIRE posts seemed really on the edge so far as being able to FIRE. Probably many can return to work easily at the moment. If we slip into a prolonged recession things might get ugly for them, especially if an important part of their Plan B was reentering the workforce.

Broken Man 1999
Yes I'd like to know how the FIRE group is feeling. Many are on a shoestring budget but that helps, they prob. only need to p/u a small pt job.
If they recently retired at 20-25X , age 35-40, stock heavy- maybe even some formerly highflying tech stocks, and in short order been cut by 20++%.. That's gotta have them thinking.
smectym
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Re: What a Great Moment to Invest!

Post by smectym »

Little_Carmine wrote: Fri May 06, 2022 9:20 pm All this talk of buying stocks at rock-bottom prices during a deep recession only really works if you’re fortunate enough to not get laid off. This tends to happen in recessions.

If I get to keep working, I’ll be gobbling up some sweet VTI.
Also, I can think of a better time to invest: when the Fed is aggressively cutting interest rates and pumping hundreds of billions of liquidity, rather than aggressively raising rates in half-point increments for the first time in decades.

If “great time to invest!” intends a call that “the bottom is in and this current correction/bear market is (or imminently will be) over,” then I’d question the basis for that assurance. If “great time to invest!” just means “a better time to invest than a few months back when stocks were 20% higher”—well, that’s a truism, not an actionable insight. If “great time to invest!” means “look, don’t know if this current bear market is over or not, but in the long run, stocks will move higher,” then OK—but that sort of merges into “ANY TIME is a great time to invest.” In which case, there’s nothing specific about *right now* as an especially favorable time to invest.
freyj6
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Re: What a Great Moment to Invest!

Post by freyj6 »

It’s always surprising how psychologically interesting these time periods are. As I prepare to deploy the last of my dry powder, each time the market rallies 5 or 10% I worry that I’ll miss the chance to buy cheap, but as it sinks back down, I worry about being 100/0 at the beginning of a drop that could go much deeper and longer.

I know that statistically lump sum is best, and I know that it’s virtually impossible to get the timing right, but I still find it fascinating watching my mind fluctuate both ways.
elderwise
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Re: What a Great Moment to Invest!

Post by elderwise »

oh boy we are going to get one too many moment(s) to invest :twisted:
surfinagin
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Re: What a Great Moment to Invest!

Post by surfinagin »

RobLyons wrote: Wed May 18, 2022 7:06 pm Every day is a good day to invest if you're financially able to!
-and some days are gooder than others! :wink:
"Jump in, the water's fine!"
While some in the pool jump out when they feel the water is getting too hot, others wait poolside to see it boil before jumping in!

And on that water are fortunate captains Staying The Course in their magnificent ships that confidently sail above it all with substantial payloads that prevent any maritime challenge from impacting their lifestyle!

Finally, there are the captains of smaller ships that also follow the Boglehead Maritime Rules. Their ships are more vulnerable and rock and take on some of that hot water in turbulent seas but they Trust The Process by Staying The Course to achieve their goal of sailing a magnificent ship one day.
nigel_ht
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Re: What a Great Moment to Invest!

Post by nigel_ht »

Nathan Drake wrote: Wed May 18, 2022 6:33 pm
nigel_ht wrote: Wed May 18, 2022 6:00 pm
Nathan Drake wrote: Wed May 18, 2022 3:26 pm It’s not designed as a market timing or short term trading tool. Can it be useful in the presence of setting long term asset allocations? I believe so.
Homer is tilting at windmills (he will never convince CAPE enthusiasts that CAPE has a mediocre track record) but that is clearly using CAPE in a predictive manner.

Why are you dancing around trying not to admit to using it as a future forecast of expected performance ranges in order to set your AA?

Valuations matter. Is that so heretical to say around here that nobody wants to admit it?
I consider CAPE’s use probabilistic rather than predictive. Whether you think there’s a distinction between the two depends on your perspective

Just because you planned for a rainy day and it turned out to be sunny doesn’t mean the odds were in your favor for that outcome. Homer tends to be far more optimistic than me that recovery from overvaluation will always be swift
If you are using the weather report to decide whether or not to bring an umbrella it’s using it as a predictive tool even when couched as “70% chance of rain tomorrow”.

I don’t think Homer believes that recovery from overvaluation will always be swift…that strikes me as a gross misrepresentation of his views and he and I argue quite a bit and I’m usually happy to misrepresent his views if it’s amusing…
nigel_ht
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Re: What a Great Moment to Invest!

Post by nigel_ht »

59Gibson wrote: Wed May 18, 2022 9:50 pm
Broken Man 1999 wrote: Wed May 18, 2022 2:43 pm
JohnDoh wrote: Mon May 09, 2022 7:27 am
willthrill81 wrote: Sun May 08, 2022 3:04 pm
TomatoTomahto wrote: Sun May 08, 2022 11:52 am
We are still accumulators, but relative to our existing portfolio new funds aren’t moving the needle much. I’m hoping that we recover before we become decumulators.
Even if the additional contributions aren't significant, the mere fact that you experience poor returns now vs. retirement is a significant benefit.
OTOH, I wonder if the fact that an ever-increasing share of the population is in retirement (and thus with relatively shortened time horizons) and actually living off their portfolios, will affect the course of events. It seems there's a greater chance of panic selling, etc. In any case, a 50/50 retiree would seem to be in a boatload of trouble at the moment.
Not necessarily. Whether the 50/50 retiree would be in a boatload of trouble at the moment would depend on the assets in the 50/50 portfolio, and the withdrawal they need to cover their expenses, no?

$5mil in equities and $5mil in fixed income with a need for $100,000/year would be in no trouble at all. Sadly that is not our portfolio. :D We don't have $10mil, OTOH we don't need $100,000/year either.

The amount needed for expenses in retirement are all over the place, as are the portfolio values needed.

I do wonder how the FIRE community might be faring. Some FIRE posts seemed really on the edge so far as being able to FIRE. Probably many can return to work easily at the moment. If we slip into a prolonged recession things might get ugly for them, especially if an important part of their Plan B was reentering the workforce.

Broken Man 1999
Yes I'd like to know how the FIRE group is feeling. Many are on a shoestring budget but that helps, they prob. only need to p/u a small pt job.
If they recently retired at 20-25X , age 35-40, stock heavy- maybe even some formerly highflying tech stocks, and in short order been cut by 20++%.. That's gotta have them thinking.
If they did 25X they’ve been reading the wrong FIRE sites.

If they did 20X they were simply doing it wrong and have a very large risk of failure.

33X folks with a reasonable X are probably mildly concerned but likely fine. They might trim some fat from their budgets for a little while…or not.

The shoestring folks are screwed because they have no fat in their budget so there is little to trim to offset inflation. Time to try to get a decent job in their old career and call the gap a “sabbatical”.
Nathan Drake
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Re: What a Great Moment to Invest!

Post by Nathan Drake »

nigel_ht wrote: Thu May 19, 2022 9:49 am
Nathan Drake wrote: Wed May 18, 2022 6:33 pm
nigel_ht wrote: Wed May 18, 2022 6:00 pm
Nathan Drake wrote: Wed May 18, 2022 3:26 pm It’s not designed as a market timing or short term trading tool. Can it be useful in the presence of setting long term asset allocations? I believe so.
Homer is tilting at windmills (he will never convince CAPE enthusiasts that CAPE has a mediocre track record) but that is clearly using CAPE in a predictive manner.

Why are you dancing around trying not to admit to using it as a future forecast of expected performance ranges in order to set your AA?

Valuations matter. Is that so heretical to say around here that nobody wants to admit it?
I consider CAPE’s use probabilistic rather than predictive. Whether you think there’s a distinction between the two depends on your perspective

Just because you planned for a rainy day and it turned out to be sunny doesn’t mean the odds were in your favor for that outcome. Homer tends to be far more optimistic than me that recovery from overvaluation will always be swift
If you are using the weather report to decide whether or not to bring an umbrella it’s using it as a predictive tool even when couched as “70% chance of rain tomorrow”.

I don’t think Homer believes that recovery from overvaluation will always be swift…that strikes me as a gross misrepresentation of his views and he and I argue quite a bit and I’m usually happy to misrepresent his views if it’s amusing…
He claims he doesn’t, but his rebuttal is always “a person investing at the peak of the tech bubble still made 8% after 20 years”

That’s only one market that had a favorable bubble to bubble reversion. Bubble to historical mean reversion would have done a lot less, and certainly that’s what many markets have encountered after a bubble popped
20% VOO | 20% VXUS | 20% AVUV | 20% AVDV | 20% AVES
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Re: What a Great Moment to Invest!

Post by nigel_ht »

Nathan Drake wrote: Thu May 19, 2022 10:00 am
nigel_ht wrote: Thu May 19, 2022 9:49 am
Nathan Drake wrote: Wed May 18, 2022 6:33 pm
nigel_ht wrote: Wed May 18, 2022 6:00 pm
Nathan Drake wrote: Wed May 18, 2022 3:26 pm It’s not designed as a market timing or short term trading tool. Can it be useful in the presence of setting long term asset allocations? I believe so.
Homer is tilting at windmills (he will never convince CAPE enthusiasts that CAPE has a mediocre track record) but that is clearly using CAPE in a predictive manner.

Why are you dancing around trying not to admit to using it as a future forecast of expected performance ranges in order to set your AA?

Valuations matter. Is that so heretical to say around here that nobody wants to admit it?
I consider CAPE’s use probabilistic rather than predictive. Whether you think there’s a distinction between the two depends on your perspective

Just because you planned for a rainy day and it turned out to be sunny doesn’t mean the odds were in your favor for that outcome. Homer tends to be far more optimistic than me that recovery from overvaluation will always be swift
If you are using the weather report to decide whether or not to bring an umbrella it’s using it as a predictive tool even when couched as “70% chance of rain tomorrow”.

I don’t think Homer believes that recovery from overvaluation will always be swift…that strikes me as a gross misrepresentation of his views and he and I argue quite a bit and I’m usually happy to misrepresent his views if it’s amusing…
He claims he doesn’t, but his rebuttal is always “a person investing at the peak of the tech bubble still made 8% after 20 years”

That’s only one market that had a favorable bubble to bubble reversion. Bubble to historical mean reversion would have done a lot less, and certainly that’s what many markets have encountered after a bubble popped
Not many lost decades in the dataset. That 20 year period also included the GFC.

Also the adjective “quick” isn’t applicable to “20 years” unless you are discussing really large timescales.

The worst case is 1968…and the time to recover to peak + inflation + 5% growth was 326 months…27 years.

That wasn’t a bubble though. We’ve had two clear historical popped bubbles: 1929 and 2000.

Image

For most bears the mean is 14 years from peak back to up 5%.

How 2022 will go is still TBD but if you have 20 years of accumulation left you’re pretty safe to ignore valuations until you get closer to retirement when figuring out your AA.
Nathan Drake
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Re: What a Great Moment to Invest!

Post by Nathan Drake »

nigel_ht wrote: Thu May 19, 2022 10:22 am
Nathan Drake wrote: Thu May 19, 2022 10:00 am
nigel_ht wrote: Thu May 19, 2022 9:49 am
Nathan Drake wrote: Wed May 18, 2022 6:33 pm
nigel_ht wrote: Wed May 18, 2022 6:00 pm

Homer is tilting at windmills (he will never convince CAPE enthusiasts that CAPE has a mediocre track record) but that is clearly using CAPE in a predictive manner.

Why are you dancing around trying not to admit to using it as a future forecast of expected performance ranges in order to set your AA?

Valuations matter. Is that so heretical to say around here that nobody wants to admit it?
I consider CAPE’s use probabilistic rather than predictive. Whether you think there’s a distinction between the two depends on your perspective

Just because you planned for a rainy day and it turned out to be sunny doesn’t mean the odds were in your favor for that outcome. Homer tends to be far more optimistic than me that recovery from overvaluation will always be swift
If you are using the weather report to decide whether or not to bring an umbrella it’s using it as a predictive tool even when couched as “70% chance of rain tomorrow”.

I don’t think Homer believes that recovery from overvaluation will always be swift…that strikes me as a gross misrepresentation of his views and he and I argue quite a bit and I’m usually happy to misrepresent his views if it’s amusing…
He claims he doesn’t, but his rebuttal is always “a person investing at the peak of the tech bubble still made 8% after 20 years”

That’s only one market that had a favorable bubble to bubble reversion. Bubble to historical mean reversion would have done a lot less, and certainly that’s what many markets have encountered after a bubble popped
Not many lost decades in the dataset. That 20 year period also included the GFC.

Also the adjective “quick” isn’t applicable to “20 years” unless you are discussing really large timescales.

The worst case is 1968…and the time to recover to peak + inflation + 5% growth was 326 months…27 years.

That wasn’t a bubble though. We’ve had two clear historical popped bubbles: 1929 and 2000.

Image

For most bears the mean is 14 years from peak back to up 5%.

How 2022 will go is still TBD but if you have 20 years of accumulation left you’re pretty safe to ignore valuations until you get closer to retirement when figuring out your AA.
14-20 years is a very long time to barely break above even

I don’t consider that “pretty safe”

And the late 60s certainly were a bubble
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nigel_ht
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Re: What a Great Moment to Invest!

Post by nigel_ht »

Nathan Drake wrote: Thu May 19, 2022 10:30 am
14-20 years is a very long time to barely break above even

I don’t consider that “pretty safe”

And the late 60s certainly were a bubble
Image

Whatever dude.

The 67-68 bull didn’t last that long or gain that much (50%). The average gains for a bull market is 112%.

How is the late 60s a bubble?
Nathan Drake
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Re: What a Great Moment to Invest!

Post by Nathan Drake »

nigel_ht wrote: Thu May 19, 2022 11:15 am
Nathan Drake wrote: Thu May 19, 2022 10:30 am
14-20 years is a very long time to barely break above even

I don’t consider that “pretty safe”

And the late 60s certainly were a bubble
Image

Whatever dude.

The 67-68 bull didn’t last that long or gain that much (50%). The average gains for a bull market is 112%.

How is the late 60s a bubble?
The definition of a bubble has nothing to do with a recent run up in price, it could be an extended slow creep far above fundamentals

All the nifty fifty stocks were trading at extremely high multiples
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Re: What a Great Moment to Invest!

Post by HomerJ »

nigel_ht wrote: Thu May 19, 2022 9:49 am I’m usually happy to misrepresent his views if it’s amusing…
Heh. :beer

And no, I don't expect all crashes to recover quickly. Stock investing is a long-term game.

It's why I'm 50/50... 50% of my money in cash/stable-value/Total Bond/I Bonds/CDs will last a LONG time while I wait for stocks to recover.

If I was sure all recoveries would be fast, I'd be 90/10.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
incognito_man
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Re: What a Great Moment to Invest!

Post by incognito_man »

RobLyons wrote: Wed May 18, 2022 7:06 pm Every day is a good day to invest if you're financially able to!
also:

Every day you're able to financially invest is a good day!
RadAudit
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Re: What a Great Moment to Invest!

Post by RadAudit »

It'll be a great time to invest when you get 50% of the members on this board posting like Sheepdog did in '08.

"I have been retired for 10 years. I am one who has said over and over again. Stay the course. Look for the long term. Yeah, sure. That's fine until today. Today did it. I am just starting to be scared so that I won't tell my wife what happened today...stocks down...bonds down...I'm down. Our retirement funds are sucking down the drain. I lost today alone a year's worth of normal distributions for expenses. I keep thinking tomorrow will be a turn around. I have said that for 30 days.
I am 25% capitulating tomorrow, maybe 50% to money markets....maybe all.

This is not me. I will see tomorrow."

Hope he still among the living and doing well
FI is the best revenge. LBYM. Invest the rest. Stay the course. Die anyway. - PS: The cavalry isn't coming, kids. You are on your own.
nigel_ht
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Re: What a Great Moment to Invest!

Post by nigel_ht »

RadAudit wrote: Thu May 19, 2022 11:45 am It'll be a great time to invest when you get 50% of the members on this board posting like Sheepdog did in '08.

"I have been retired for 10 years. I am one who has said over and over again. Stay the course. Look for the long term. Yeah, sure. That's fine until today. Today did it. I am just starting to be scared so that I won't tell my wife what happened today...stocks down...bonds down...I'm down. Our retirement funds are sucking down the drain. I lost today alone a year's worth of normal distributions for expenses. I keep thinking tomorrow will be a turn around. I have said that for 30 days.
I am 25% capitulating tomorrow, maybe 50% to money markets....maybe all.

This is not me. I will see tomorrow."

Hope he still among the living and doing well
Last active May 9, 2022.

memberlist.php?mode=viewprofile&u=465

I have that thread bookmarked…it’s my Memento Mori reminder when hitting ATH net worth…
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