[2020] A little stock market sense

[CO skier]

There are a few running stock market threads. None of them mention a long term perspective, so here is a 20-year, long term chart 1999-present covering three Fed-induced bubbles and one idea:

The chart shows the dotcom bubble of 2000 and the housing bubble of 2008 -- and the super-duper bubble we are in now. Really, just look at the chart and use common sense!

This is not investment advice, but from one Tugger to another, anyone close to retirement or in retirement should look at this chart and consider how much they want to have invested in the current stock market (super-duper bubble) environment and the ramifications if the selloff reaches the 50% level. (The top of long term support on the chart is 1500 -- more than a 50% decline from the 2020 market top. If this market bubble bottoms where the other bubbles did that would be in the range of S&P 500 at 700. Sure, everyone laughed at S&P 700 in 2000 and 2007, but it happened.)

Sell now to protect your retirement and reinvest at much lower levels. ymmv

 

[Brett]

There are a few running stock market threads. None of them mention a long term perspective, so here is a 20-year, long term chart 1999-present covering three Fed-induced bubbles and one idea:

The chart shows the dotcom bubble of 2000 and the housing bubble of 2008 -- and the super-duper bubble we are in now. Really, just look at the chart and use common sense!

This is not investment advice, but from one Tugger to another, anyone close to retirement or in retirement should look at this chart and consider how much they want to have invested in the current stock market (super-duper bubble) environment and the ramifications if the selloff reaches the 50% level. (The top of long term support on the chart is 1500 -- more than a 50% decline from the 2020 market top. If this market bubble bottoms where the other bubbles did that would be in the range of S&P 500 at 700. Sure, everyone laughed at S&P 700 in 2000 and 2007, but it happened.)

Sell now to protect your retirement and reinvest at much lower levels. ymmv

OK, so you believe the stock market will keep going lower and now is the time to sell
Not sure that's a good long term strategy but ...... YMMV

 

[bogey21]

Anyone close to retirement or in retirement should look at this chart and consider how much they want to have invested in the current stock market...

I made the decision when I retired. My answer was zero. Foregoing appreciation was immaterial. Avoiding the mental anguish from market gyrations was paramount. I am still happy with my decision...

 

[HitchHiker71]

I think what the OP is getting at is about capital preservation. If anyone is at or near retirement age - capital preservation is important. Most baby boomers have may too much portfolio exposure in stocks vs other hedged investments. Therefore if we enter a secular bear market - their portfolios suffer significant capital degradation which can be dangerous. Anyone at or close to retirement, especially if you will be reliant on your capital for income, should have no more than 30% market exposure. Even if you are not reliant on your portfolio for income, I would not exceed 50% exposure. Of course this is just my opinion.

My portfolio is hedged fairly well right now - I exited stocks early last week on Tuesday except for a couple allocations in income funds which also focus on capital preservation. I’m still down about 3-4% at present - but that’s a helluva lot better than 28%. I will then buy back in when we see the volatility indexes ratchet down and start seeing a more steady trend that the fundamentals are heading in the right direction.

I’ve got friends who are more risk tolerant who bought into FAZ at the same time I got out, and are up well over 50% due to the market drops. Sigh...


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[Brett]

I think what the OP is getting at is about capital preservation. If anyone is at or near retirement age - capital preservation is important. Most baby boomers have may too much portfolio exposure in stocks vs other hedged investments. Therefore if we enter a secular bear market - their portfolios suffer significant capital degradation which can be dangerous. Anyone at or close to retirement, especially if you will be reliant on your capital for income, should have no more than 30% market exposure. Even if you are not reliant on your portfolio for income, I would not exceed 50% exposure. Of course this is just my opinion.

My portfolio is hedged fairly well right now - I exited stocks early last week on Tuesday except for a couple allocations in income funds which also focus on capital preservation. I’m still down about 3-4% at present - but that’s a helluva lot better than 28%. I will then buy back in when we see the volatility indexes ratchet down and start seeing a more steady trend that the fundamentals are heading in the right direction.

I’ve got friends who are more risk tolerant who bought into FAZ at the same time I got out, and are up well over 50% due to the market drops. Sigh...


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those with amazing clairvoyant foresight to "exit stocks" in the week before the "secular bear" market occurs are in a good position

 

[OutSkiing]

Look at the chart below and use your common sense. Over time, the market continues its upward trajectory. Because Co Skier's chart starts on 1/1999, it miss-leads by implying the market was 'flat' up until this recent bull market that began in 2009. In fact there has been constant upward movement in fits and spurts.

Sir John Templeton's famous saying was the 4 most expensive words in the English language are "this time Its different". Sitting on the sidelines for 20+ years of retirement could cause your nest egg to be worth significantly less in inflated dollars.

Bob

 

[HitchHiker71]

those with amazing clairvoyant foresight to "exit stocks" in the week before the "secular bear" market occurs are in a good position

I’ve managed to do this twice over the past 20 years - but I spend a TON of time on market analytics and it’s what I went to school to learn how to do (finance, economics and securities analysis). Ironically I work in technology now and finance and economics is my hobby. The most valuable commodity that I know of is information. Chance favors the prepared mind IME.

I didn’t call the bottom last time (Great Recession) but was within a 10% margin which is plenty good enough for me.

Wall Street will tell you - never time the market and always be invested - and then everyone on the street does the exact opposite to make real money. Don’t believe everything you hear - oftentimes what we are told is to give advantage to those who need the rest of us to “buy and hold” so that they can short the markets and make serious money on the way down. This is exactly how guys like Bloomberg and many others on the street made billions during down markets.

Read the book BullsEye Investing by John Mauldin - it will challenge a lot of the commonly accepted assumptions regarding what most people are told to do with regard to investing best practices. It certainly did for me many years ago.


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[Brett]

I’ve managed to do this twice over the past 20 years - but I spend a TON of time on market analytics and it’s what I went to school to learn how to do (finance, economics and securities analysis). Ironically I work in technology now and finance and economics is my hobby. The most valuable commodity that I know of is information. Chance favors the prepared mind IME.

I didn’t call the bottom last time (Great Recession) but was within a 10% margin which is plenty good enough for me.
Wall Street will tell you - never time the market and always be invested - and then everyone on the street does the exact opposite to make real money. Don’t believe everything you hear - oftentimes what we are told is to give advantage to those who need the rest of us to “buy and hold” so that they can short the markets and make serious money on the way down. This is exactly how guys like Bloomberg and many others on the street made billions during down markets.

Read the book BullsEye Investing by John Mauldin - it will challenge a lot of the commonly accepted assumptions regarding what most people are told to do with regard to investing best practices. It certainly did for me many years ago.


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so ironic - with your hobby skills you could make millions (billions?) as a hedge fund manager !

So you believe Michael Bloomberg made his billions timing and shorting the markets and not with Bloomberg Financial
https://nymag.com/intelligencer/2019/11/heres-why-mike-bloomberg-is-so-rich.html

 

[HitchHiker71]

Look at the chart below and use your common sense. Over time, the market continues its upward trajectory. Because Co Skier's chart starts on 1/1999, it miss-leads by implying the market was 'flat' up until this recent bull market that began in 2009. In fact there has been constant upward movement in fits and spurts.

Sir John Templeton's famous saying was the 4 most expensive words in the English language are "this time Its different". Sitting on the sidelines for 20+ years of retirement could cause your nest egg to be worth significantly less in inflated dollars.

Bob

View attachment 17841

Actually the chart you showed makes the point with regard to secular bull and secular bear markets. Not to be confused with the commonly termed bull and bear markets that we hear on the news shows. A secular market analysis has to do with PE ratios over time. The average cycle is about 20 years on average but it can vary. Secular bear markets are characterized by volatility and by declining macro PE ratios during the time period - PE ratios start out very high and decline to lows during the defined time period. Secular bull markets are characterized by upward PE ratios from low high.

Let’s look at the chart you shared with this in mind:

From 1910-1929 - the roaring 20’s as they were known - secular bull market.

1930-1950 - secular bear market
1950-1965 - secular bull market
1965-1980 - secular bear market
1980-2000 - secular bull market
2000-2010 - secular bear market
2010-???? - secular bull market

The last couple of decades don’t fit the pattern - but then again we had a major financial crisis and with the massive bailout by the Fed and massive QE we artificially propped up the markets and have caused bubbles to form that are unprecedented in history. So the pattens may change as a result. Past performance does not always predict future performance.

That said, we are near all time high PE ratios prior to the start of this latest shock. Why do secular markets matter? Because many people don’t really have a 40+ year investment horizon. Many realistically have 20 good years for their investments. Say you did what you were told and exercised “buy and hold” primarily in stocks from 1965-1985 - what was your total return over that 20 year time period? Zero. Same with pretty much all of the secular bear market time periods listed above.

So while the street will say it’s best to always be invested, and they will say that historically the market returns 10% per annum over the long term, and technically that may be true, the data teaches us that the timing and duration of your investments as it relates to secular markets is very important. Especially if you have a limited duration during which your retirement savings is invested in the stock markets.

If you are investing at the start of a secular bull market - buy and hold is everyone’s friend and index funds work best. If you are investing at the start of a secular bear market then buy and hold doesn’t work and index funds do not work well. Zero returns is often the result during secular bear markets since PE ratios are declining during that period of time. Therefore capital preservation during secular bear markets is especially important.

How can we validate that this all has some truth to it? Look at what accredited investors can access. One of the major advantages of hedge funds is that, unlike most mutual funds, hedge funds can employ leverage, shorts, options, really anything, and can go to 100% cash without any oversight. Mutual funds always must have a certain amount of their capital invested and can only invest based on the fund charter. This is in part why the rich get richer and the poor stay poor. The rich have accredited investor status and literally have access to hedged investments that the vast majority of normal investors cannot ever use. So when normal investors are losing money in a secular bear market, hedge funds are making money. In this respect, at least based upon my experience - there are two Americas out there - especially when it comes to investments.


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[HitchHiker71]

so ironic - with your hobby skills you could make millions (billions?) as a hedge fund manager !

So you believe Michael Bloomberg made his billions timing and shorting the markets and not with Bloomberg Financial
https://nymag.com/intelligencer/2019/11/heres-why-mike-bloomberg-is-so-rich.html

Ask anyone who actually works on the street how Bloomberg practically doubled his net worth during the Great Recession - he built a financial software empire and sure that’s a part of why he has done well. He also used that complex software to short the hell out of the market in 2008 - and made billions via shadow banking. He’s worth far more than whatever Forbes estimates - it’s just hidden. You have no idea how much wealth is out there that was created with shadow banking and investing over the past 20 years and is “off book” and hidden in offshore accounts and investments.


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[Brett]

Actually the chart you showed makes the point with regard to secular bull and secular bear markets. Not to be confused with the commonly termed bull and bear markets that we hear on the news shows. A secular market analysis has to do with PE ratios over time. The average cycle is about 20 years on average but it can vary. Secular bear markets are characterized by volatility and by declining macro PE ratios during the time period - PE ratios start out very high and decline to lows during the defined time period. Secular bull markets are characterized by upward PE ratios from low high.

Let’s look at the chart you shared with this in mind:

From 1910-1929 - the roaring 20’s as they were known - secular bull market.

1930-1950 - secular bear market
1950-1965 - secular bull market
1965-1980 - secular bear market
1980-2000 - secular bull market
2000-2010 - secular bear market
2010-???? - secular bull market

The last couple of decades don’t fit the pattern - but then again we had a major financial crisis and with the massive bailout by the Fed and massive QE we artificially propped up the markets and have caused bubbles to form that are unprecedented in history. So the pattens may change as a result. Past performance does not always predict future performance.

That said, we are near all time high PE ratios prior to the start of this latest shock. Why do secular markets matter? Because many people don’t really have a 40+ year investment horizon. Many realistically have 20 good years for their investments. Say you did what you were told and exercised “buy and hold” primarily in stocks from 1965-1985 - what was your total return over that 20 year time period? Zero. Same with pretty much all of the secular bear market time periods listed above.

So while the street will say it’s best to always be invested, and they will say that historically the market returns 10% per annum over the long term, and technically that may be true, the data teaches us that the timing and duration of your investments as it relates to secular markets is very important. Especially if you have a limited duration during which your retirement savings is invested in the stock markets.

If you are investing at the start of a secular bull market - buy and hold is everyone’s friend and index funds work best. If you are investing at the start of a secular bear market then buy and hold doesn’t work and index funds do not work well. Zero returns is often the result during secular bear markets since PE ratios are declining during that period of time. Therefore capital preservation during secular bear markets is especially important.

How can we validate that this all has some truth to it? Look at what accredited investors can access. One of the major advantages of hedge funds is that, unlike most mutual funds, hedge funds can employ leverage, shorts, options, really anything, and can go to 100% cash without any oversight. Mutual funds always must have a certain amount of their capital invested and can only invest based on the fund charter. This is in part why the rich get richer and the poor stay poor. The rich have accredited investor status and literally have access to hedged investments that the vast majority of normal investors cannot ever use. So when normal investors are losing money in a secular bear market, hedge funds are making money. In this respect, at least based upon my experience - there are two Americas out there - especially when it comes to investments.


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I guess it's all about getting "accredited" investor status and investing at the end of a "secular bear market" .... aka "shadow banking"
So that's how the Billionaires make their billions

 

[HitchHiker71]

I guess it's all about getting "accredited" investor status and investing at the end of a "secular bear market" .... aka "shadow banking"
So that's how the Billionaires make their billions

I value information and education, and sharing what I’ve learned. If you don’t like what I’m sharing, please move on and refrain from the backhanded compliments as they add zero value to these threads.


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[Brett]

I value information and education, and sharing what I’ve learned. If you don’t like what I’m sharing, please move on and refrain from the backhanded compliments as they add zero value to these threads.


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OK ... I'll continue to be a non-accredited, secular 'buy and hold' investor
(with periodic rebalancing from equities to fixed income)

 

[HitchHiker71]

OK ... I'll continue to be a non-accredited, secular 'buy and hold' investor
(with periodic rebalancing from equities to fixed income)

Sounds good - to each his own I always say. One persons trash is another persons treasure. Just because something works for you doesn’t mean it works for everyone else, because investors have different risk tolerances.

I’m glad to hear you are using rebalancing from equities into fixed income funds. That is a wise practice - but chances are it won’t work very well in a secular bear market - because unless you are a stock picking genius - and are willing to time the markets to capture equity capital appreciation at market highs and rebalance into fixed income - playing on the volatility that characterizes secular bear markets - then your approach won’t work. If you are actually doing this - then you are timing the markets as well - just in a different manner.

If you would like to actually provide a factual response that argues against what I’ve said - please feel free to do so. I’ve done the math, I clearly outlined that during secular bear markets the net return on equities (indexes) is zero - and the chart clearly shows that at various time periods throughout market history this is 100% accurate - anyone can see it. When you take into account inflation - it’s actually less than zero.

What I do isn’t for everyone, I wouldn’t recommend it for everyone either. But many people on the street do this every day - that’s how Wall Street has created such large amounts of wealth over time, especially the investment houses.

Do you think Warren Buffett, the king of long term value investing, solely employs buy and hold? Look at how much cash BH is sitting on right now compared to ten years ago - because the market is overvalued - BH dumped the majority of their holdings and took profits over the past several year years, and he’s waiting to buy back in once PE ratios come back to earth. My style is similar to how Warren Buffett invests. So I ask, what is your issue?


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[Brett]

Sounds good - to each his own I always say. One persons trash is another persons treasure. Just because something works for you doesn’t mean it works for everyone else, because investors have different risk tolerances.

I’m glad to hear you are using rebalancing from equities into fixed income funds. That is a wise practice - but chances are it won’t work very well in a secular bear market - because unless you are a stock picking genius - and are willing to time the markets to capture equity capital appreciation at market highs and rebalance into fixed income - playing on the volatility that characterizes secular bear markets - then your approach won’t work. If you are actually doing this - then you are timing the markets as well - just in a different manner.

If you would like to actually provide a factual response that argues against what I’ve said - please feel free to do so. I’ve done the math, I clearly outlined that during secular bear markets the net return on equities (indexes) is zero - and the chart clearly shows that at various time periods throughout market history this is 100% accurate - anyone can see it. When you take into account inflation - it’s actually less than zero.

What I do isn’t for everyone, I wouldn’t recommend it for everyone either. But many people on the street do this every day - that’s how Wall Street has created such large amounts of wealth over time, especially the investment houses.

Do you think Warren Buffett, the king of long term value investing, solely employs buy and hold? Look at how much cash BH is sitting on right now compared to ten years ago - because the market is overvalued - BH dumped the majority of their holdings and took profits over the past several year years, and he’s waiting to buy back in once PE ratios come back to earth. My style is similar to how Warren Buffett invests. So I ask, what is your issue?


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hey, you're the king of timing the market, - selling right before the downturns, buying before the upturns and making loads of $$ - congratz
I'm just a lowly buy and hold long term investor - that's all
(with periodically rebalancing from equities to fixed income)

 

[CO skier]

Look at the chart below and use your common sense. Over time, the market continues its upward trajectory. Because Co Skier's chart starts on 1/1999, it miss-leads by implying the market was 'flat' up until this recent bull market that began in 2009. In fact there has been constant upward movement in fits and spurts.

Sir John Templeton's famous saying was the 4 most expensive words in the English language are "this time Its different". Sitting on the sidelines for 20+ years of retirement could cause your nest egg to be worth significantly less in inflated dollars.

Bob

You completely missed the point of my post. My point is that "this time is the same as 2000 and 2008." Sell high, buy low. It is not difficult to see this for the current situation looking at a long term chart. Those who are at or near retirement should preserve the excellent gains they have enjoyed, and not wait for the S&P to drop to 1500 or 700.

There is also something wrong with the data for the chart you posted. I distinctly remember the S&P 500 bottoming at 666 (for coincidental, unrelated reasons) in March, 2009. The graph you posted shows the S&P 500 bottoming out in the 900-ish area.

 

[CO skier]

One of the major advantages of hedge funds is that, unlike most mutual funds, hedge funds can employ leverage, shorts, options, really anything, and can go to 100% cash without any oversight.

Educated, individual investors enjoy the same privileges.

I sold everything with a click of a button, then dollar cost averaged into QID over two days. Sold the QID today at the click of a button for a 39% gain in less than two weeks -- no reason to get greedy. Now I will sit in cash until this selloff reaches the 40% mark, and start to dollar cost average back into the market for the upside swing. If the market does not sell off to the 40% level, I will get back into the market when it moves upward 10% on low volatility from the lows. Mutual funds do not have that luxury.

 

[HitchHiker71]

Educated, individual investors enjoy the same privileges.

Yes they do - that’s what I’ve done as well. It would be nice to have access to a hedge fund with a good manager that could do this on my behalf though.

I lost a bit two Monday’s ago - but otherwise I’m on the sidelines waiting. By sidelines I don’t mean cash - I’m actually holding an absolute return fund with a good track record.

I could change my mind based upon market research and changes in the leading and lagging indicators, but at the present time I’m of the mind that until we see Q1 2020 GDP advance estimates, I will remain on the sidelines. I suspect advance GDP estimates will come in lower across the globe, along with the continued proliferation of COVID-19, makes for continued downward overall market trends Ofer the next few months. I’m sure we will continue to see volatile market swings largely based upon the news cycles day to day and week to week in the interim.


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[OutSkiing]

My point is that "this time is the same as 2000 and 2008." Sell high, buy low.

Got it. I thought you were advocating to 'sell out of stocks and never return'. I think a buy and hold investor would be better off waiting for a market recovery. It would be a huge mistake to miss out on the rebound of a V shaped recovery if you've already followed it this far down.

I sold everything with a click of a button, then dollar cost averaged into QID over two days.

You can dollar cost average over two days? What is the frequency of buys when you do that? Can you cancel out of your remaining buys if things turn south (or north as the case may be). You must have been pretty confident of a continued drop.

Sold the QID today at the click of a button for a 39% gain in less than two weeks -- no reason to get greedy.

So you do think the market could bounce back quickly.

Now I will sit in cash until this selloff reaches the 40% mark, and start to dollar cost average back into the market for the upside swing. If the market does not sell off to the 40% level, I will get back into the market when it moves upward 10% on low volatility from the lows. Mutual funds do not have that luxury.

Neither do funds managed by a money manager, where most of mine is. It's tempting to be more more self sufficient though I worry I would not be watching the market closely enough.

Bob

 

[OutSkiing]

A secular market analysis has to do with PE ratios over time.

I see what you are saying and agree that hedge funds and sharp investors can work around what you call a 'secular bear' market in ways that outperform the buy and hold strategy during those periods.

I have also read just about every book that Ken Fisher has written and tend to trust his thinking. He has 'debunked' the widely held and intuitive belief that low PE ratios are a value and buying stocks with high PE ratios is 'expensive'. He literally cannot find a correlation that says buying stocks (or in markets) with low PE ratios leads to higher returns than buying those with high PE ratios. He has also similarly 'debunked' the theory that there are secular bear markets. Also, he has shown evidence that investors who attempt to 'work the market' tend to earn on average a lower return than the market as a whole.

Interesting stuff.

Bob

 

[easyrider]

I think Exon was a good deal this morning. It might go lower but geezy peezy, its over 50% lower than the 52 week high. I was thinking about Royal Caribbean. Maybe by Tuesday if I'm bored.

Bill

 

[geekette]

I think Exon was a good deal this morning. It might go lower but geezy peezy, its over 50% lower than the 52 week high. I was thinking about Royal Caribbean. Maybe by Tuesday if I'm bored.

Bill

RCL will likely be a good buy. Cruising may take a hit for a while, but so many people love cruising that I don't see permanent harm to the company. Not sure what, if anything, they are doing for idled employees. I hope they have committed to paying them through this, especially the contract workers.

 

[Big Matt]

Is Warren Buffet selling?

 

[Brett]

Is Warren Buffet selling?

maybe ... does it matter?
https://www.fool.com/investing/2019/12/22/5-reasons-warren-buffett-didnt-beat-the-market-ove.aspx

 

[bogey21]

I value information and education, and sharing what I’ve learned. If you don’t like what I’m sharing, please move on and refrain from the backhanded compliments as they add zero value to these threads.

IMO your opinions. positions or whatever one wants to call them are a heck of a lot more right than wrong. I used to be heavily involved in markets/investing but since I retired 20 years ago it has passed me by. I live in a CCRC where most of my fellow residents are between 80 and 100 years old. Most have more a lot money than they need. When they ask me for investment advice I usually (there are exceptions) tell them if I were in their shoes I would have everything in a FDIC Insured CDs regardless of their rate of return or, for those who don't trust Banks, in Low Duration Bond Funds or sometimes in GNMA Pass Throughs. Most of the time my advice is based on their understanding what I am talking about. For the record when I retired I had the option of a large lump sum or monthly Pension payments (essentially and annuity) for life with a Survivor Benefit for my ex-wife. I chose the annuity and am happy I did...

George