Down goes the Dow

Sorry here's the second article:

http://www.theglobeandmail.com/globe-investor/infographic-the-two-minute-portfolio/article22389562/

long time $hitty investor wrote:

I'm not sure why I should worry about the potential for a losing year, or even for several losing years. I don't think any investment approach avoids that possibility, and in any case that would be no different than my actual experience, both involving periods of being overinvolved with my portfolio and periods where I just held a diverse mix of mutual funds.

fear is a hell of a drug, is all I am saying

agip,

And greed is a powerful drug. Just look at the FANG stocks. Plenty of examples in biotech and other story stocks.

Reid

agip wrote:fear is a hell of a drug, is all I am saying

Yeah, I hear what you're saying. As I wrote earlier I'm DELIGHTED to have lost 2.7% last year because I can compare it with what the market did, and because I can also look back and compare it to bigger past losses and keep it in context.

I'm careful not to put all the eggs in one basket... if we lose everything in the portfolio (an impossibility I think), AND if we lose everything in our house (also an impossibility, although we could lose all our equity I suppose if the market loses half its value), AND if my company goes under and my shares become worthless, AND if I lose my job and my wife loses here job, we will still have a pension big enough to live a meagre existence, well above the pverty line but well below our current standards.

But if in 10-15 years the market contiues to generally trend upward, I retire with a nice cushy lifestyle. So for me, the fear you reasonably point out is counterbalanced by some basic logic and hard-earned living experience. I'm a little afraid, but I consider most alternatives to be more risky. At least until I see a five year losing run I suppose... ;-)

Ghost of Igloi wrote:

agip,

And greed is a powerful drug. Just look at the FANG stocks. Plenty of examples in biotech and other story stocks.

Reid

no doubt, Igy

here, look, $hitty - the strategy outpeformed 5 years in a row through 2014. Wonderful. What's not to like?

But look back in time - it underperformed 4 of 5 years in 95-99 and 5 of 6 years in 2004-2009.

that is totally normal for quant strategies. and that really, really hurts when you feel like a total idiot for relying on some stupid formula when you would be hundreds of thousands of dollars richer if you had just bought the index.

The point is that most investors throw in the towel during those periods and never get the benefit of the outpeformance that follows the fallow years.

I don't know you obviously, but steel your backbone.

Judging a quant formula after 5 good years is really dangerous.

Ask yourself if you would have bought it at 2007 after four consecutive years of underperformance. The answer is probably no, eh?

agip wrote:(1) it underperformed 4 of 5 years in 95-99 and 5 of 6 years in 2004-2009.

(2) you feel like a total idiot for relying on some stupid formula when you would be hundreds of thousands of dollars richer if you had just bought the index.

(1) Not sure you are looking at the same graph as me? It outperformed stright through 95-99.

(2) I AM an idiot. And there is no risk of by bets making a difference of several hundreds of thousands...

long time $hitty investor wrote:

agip wrote:(1) it underperformed 4 of 5 years in 95-99 and 5 of 6 years in 2004-2009.

(2) you feel like a total idiot for relying on some stupid formula when you would be hundreds of thousands of dollars richer if you had just bought the index.

(1) Not sure you are looking at the same graph as me? It outperformed stright through 95-99.

(2) I AM an idiot. And there is no risk of by bets making a difference of several hundreds of thousands...

rats

yer right

but it did underperform five of six years 2004-09

Ghost of Igloi wrote:And greed is a powerful drug.

long time,

From John Hussman's weekly commentary:

"The other major failure was one that we see again today - a striking willingness of the financial community to ignore a simple question: what is the historical relationship between the valuation measure you are using, and the actual subsequent return on the investments you are encouraging other people to hold? Two bubbles, two crashes, and at the peak of the third bubble, the answer hasn’t changed at all."

Igy

Ghost of Igloi wrote:

long time,

From John Hussman's weekly commentary:

"The other major failure was one that we see again today - a striking willingness of the financial community to ignore a simple question: what is the historical relationship between the valuation measure you are using, and the actual subsequent return on the investments you are encouraging other people to hold? Two bubbles, two crashes, and at the peak of the third bubble, the answer hasn’t changed at all."

Igy

er you lose on this one Igy, no?

PEs of 18 and CAPES of 23 and Price to sales of 1.7 just aren't indicative of scary bubbles and they don't predict terrible losses.

agip wrote:

[quote]Ghost of Igloi wrote:

PEs of 18 and CAPES of 23 and Price to sales of 1.7 just aren't indicative of scary bubbles and they don't predict terrible losses.

Did you -- or this methodology -- predict the 2000 and 2008 bubbles popping?

I suspect not. Most people got caught in those downturns.

WE,

Yes John Hussman's valuation models did predict the 2000 and 2007 bubbles. Even if one wants to discount his view, he is one of the most prolific market commentators and a very interesting read. Also, there is a history of his writings prior to each time period. Here is his weekly commentary for 1/4/2016. The rest is well documented on his site.

http://www.hussmanfunds.com/wmc/wmc160104.htm

Igy

Please do not engage K5 (aka "WE could"). Thank you.

Ghost of Igloi wrote:

WE,

Yes John Hussman's valuation models did predict the 2000 and 2007 bubbles. Even if one wants to discount his view, he is one of the most prolific market commentators and a very interesting read. Also, there is a history of his writings prior to each time period. Here is his weekly commentary for 1/4/2016. The rest is well documented on his site.

http://www.hussmanfunds.com/wmc/wmc160104.htm

Igy

ah Igy?...prolific isn't usually a way to praise a market analyst

his archive is indeed fun to peruse tho - he is of course bearish at all times so his predictions shouldn't be minded. Especially since his fund HSGFX has underperformed the bond market *10 consecutive years* 10!

$hitty - not a bad example of knowledge leading to terrible returns, eh?

And really...polemicists always bore me. They have a view and they find facts to support that view. They don't give you the other side, they shade their interpretations, they hide data that goes against them.

It's just meant to stoke greed or fear...I can do without, grazie.

Unless I want to see just how wrong prognosticators can be.

agip,

No, you are wrong. I think you are using operating earnings rather than reported earnings. LTM Q3 S&P 500 earnings $90.33, S&P 500 2,000/90.33 = PE of 22.14 (Data S&P Capital IQ). CAPE 10 ratio as of the close 12/31/2015 25.93, there is a chart on the Yale website that shows a historical relationship as well as the data. The relationship for CAPE 10 is at extreme levels, Robert Shiller has said as much if not more.Price to sales is a poor predictor of future market performance.

But believe what you wish, we will see.

Igy

Ghost of Igloi wrote:

agip,

No, you are wrong. I think you are using operating earnings rather than reported earnings. LTM Q3 S&P 500 earnings $90.33, S&P 500 2,000/90.33 = PE of 22.14 (Data S&P Capital IQ). CAPE 10 ratio as of the close 12/31/2015 25.93, there is a chart on the Yale website that shows a historical relationship as well as the data. The relationship for CAPE 10 is at extreme levels, Robert Shiller has said as much if not more.Price to sales is a poor predictor of future market performance.

But believe what you wish, we will see.

Igy

I stand corrected

22 is high yes

I don't pay much attention to CAPE anymore.

I don't know why you don't respect the price to sales number tho.

And price to book is within historical median levels.

Anything to do with earnings is so iffy...sales especially and book value are much more stable.

But I am probably rationalizing.

agip,

But polemicists are on both sides of the argument. Today in the media the number of analysts trumpeting the virtues of the market outnumbers those on the other side. The industry of stock ownership has far more to gain from not being cautious.

Igy

IMO in investing, there is significant merit to KISS.

I don't claim any genius or inside information in investing, but I have been able to avoid both the .com crash and the subprime crash. The .com was the same as when I got out this time, years with insane gains and some stocks that were skyrocketing. Too good to be true IMO, and I got out. Back then, like now, I got out maybe a bit "early", but in hindsight it looks brilliant.

The subprime, I got out "very early". Again, I missed out on some potential gains, but again I looked brilliant. I first got out of bonds when I got jittery talking to a banker, after having talked to a mortgage originator and a realtor/broker who were total morons and who knew absolutely nothing...that, and constantly receiving unsolicited mortgage offers for, no kidding, 8-10x as much as I had taken as a mortgage in 2000, along with all sorts of other credit solicitations. That's when I first talked to a local bigwig banker about the mortgage industry, and the credit industry more specifically, and really learned about margin. Honestly, that freaked my wife out, and we got out of US equities, too.

Nothing genius, just KISS. If it sounds too good to be true, it is.

The only question is how the markets will adjust, on what time-frame. Will they idle along for long enough that fundamentals and the economy catch up to the valuations, or will they crash and reset? I'm hoping for yet another crash and reset, then I can get back in...and then back out when the BS meter registers again.

Mark my words today: currencies will be the next horizon of insanity. I have already said that I don't trade FX, but I do hold cash in several currencies. Those who know what they are doing and are lucky will get rich on currencies in the next 5 years. As I said before, I look for control, and stability, because the 2 together give predictability, IMO a necessary precondition for business investment. Places like Switzerland are interesting in this respect. Also, the alternative of just completely packing it in and doing nothing/travelling becomes a viable option in a time of great turmoil and unpredictability, IMO.

Things have gone to hell in a handbasket in the USA, IMO. What needs to happen to right the ship, will not happen IMO. The USA might be an OK place to live, but it will not be the best place to make money, or to keep money.

No way would I touch the markets at these index levels.

Ghost of Igloi wrote:

agip,

But polemicists are on both sides of the argument. Today in the media the number of analysts trumpeting the virtues of the market outnumbers those on the other side. The industry of stock ownership has far more to gain from not being cautious.

Igy

true

I don't trust many wall street analysts either