Down goes the Dow

Ghost of Igloi wrote:

Racket,

I think buy and hold is fine for a 30 year old with $20,000, but not so for a 60 year old with $200,000. Valuations do matter and your equity returns from here will be poor from a historical perspective. The other point I make is going from the 3/2000 top to the 9/2018 peak equity returns are well below their historical average. My view is this is a better reflection of the future than using 130 year historical return.

This is just a market view and not a religious crusade.

Igy

How can you say one's equity returns will be poor from a historical perspective? You have no idea. A 60-year-old who is getting 4% from bonds or 1% from CDs is a fool when he could be getting much much more from the market. He or she may live another quarter century and may be reducing his future income by 100s of thousands or more.

Sally,

C3/2000-1/2019 S&P 500 Index return +3.314%, with reinvested dividends +5.282% or bond like returns.

The debate should be about investing a dollar today and your expected return ten years from now. Keep in mind the 3/2009 low took the market all the way back to 6/1996 levels.

Most people believe like you at market tops but tend to re-evaluate the wisdom of that view at market bottoms. I prefer to take a balanced approach that looks at history and valuation to assess market risk versus return.

Igy

Sally,

Of course I wouldn’t advocate CDs for a quarter century. I am talking what is the best investment today.

In regards to expected return this is from Morningstar last month:

“In an interview this past October, the Vanguard founder continued to assert that future returns from the major asset classes will be muted. As always, Bogle backs into his return forecast by looking at the equity market's current dividend yield, then factors in expected earnings growth and P/E multiple expansion or contraction. The S&P 500 currently yields less than 2%, and Bogle expects that earnings growth will run in the range of 4%, down a bit from its current torrid pace. He then gives that 6% expected return (the 2% dividend yield plus 4% earnings growth) a haircut to account for expected P/E contraction, bringing his self-described "reasonable expectation" for stocks down to 4%.“

Igy

More on valuations and expected future returns:

https://www.advisorperspectives.com/dshort/updates/2019/02/05/market-remains-overvalued

Ghost of Igloi wrote:

Racket,

I think buy and hold is fine for a 30 year old with $20,000, but not so for a 60 year old with $200,000. Valuations do matter and your equity returns from here will be poor from a historical perspective. The other point I make is going from the 3/2000 top to the 9/2018 peak equity returns are well below their historical average. My view is this is a better reflection of the future than using 130 year historical return.

This is just a market view and not a religious crusade.

Igy

Buy and hold is fine for a 60 year old. It’s the allocations that should change, not an equity investment strategy that has stood the test of time.

J. Hardy wrote:

Ghost of Igloi wrote:

Racket,

I think buy and hold is fine for a 30 year old with $20,000, but not so for a 60 year old with $200,000. Valuations do matter and your equity returns from here will be poor from a historical perspective. The other point I make is going from the 3/2000 top to the 9/2018 peak equity returns are well below their historical average. My view is this is a better reflection of the future than using 130 year historical return.

This is just a market view and not a religious crusade.

Igy

Buy and hold is fine for a 60 year old. It’s the allocations that should change, not an equity investment strategy that has stood the test of time.

Peter Lynch knows quite a bit more than all of us combined. He always advocated stocks/mutual funds over any other type of investment. During his time at the helm of the Magellan fund, he produced an annualized return of over 29%. Think about that - 29%! If you had invested $20,000 in the fund when he took over, that would have grown to $560,000 in just a short 13 years.

J. Hardy wrote:

Ghost of Igloi wrote:

Racket,

I think buy and hold is fine for a 30 year old with $20,000, but not so for a 60 year old with $200,000. Valuations do matter and your equity returns from here will be poor from a historical perspective. The other point I make is going from the 3/2000 top to the 9/2018 peak equity returns are well below their historical average. My view is this is a better reflection of the future than using 130 year historical return.

This is just a market view and not a religious crusade.

Igy

Buy and hold is fine for a 60 year old. It’s the allocations that should change, not an equity investment strategy that has stood the test of time.

And I certainly agree with this. A 60-year-old who is in good health should keep a majority of his investment portfolio in equities but reallocating some of those to other investments is indeed wise as he or she gets older.

Average age of a retiree in America is 62. You and the other guy have never managed someone’s money in retirement. High allocation to stocks at retirement and in a down market can lead to catastrophic plan failure.

Sally Vix wrote:

J. Hardy wrote:

Buy and hold is fine for a 60 year old. It’s the allocations that should change, not an equity investment strategy that has stood the test of time.

And I certainly agree with this. A 60-year-old who is in good health should keep a majority of his investment portfolio in equities but reallocating some of those to other investments is indeed wise as he or she gets older.

Ghost of Igloi wrote:

Average age of a retiree in America is 62. You and the other guy have never managed someone’s money in retirement. High allocation to stocks at retirement and in a down market can lead to catastrophic plan failure.

Buy and hold does not have to mean 100% stock portfolio. A good strategy might be that as the investor gets closer and closer to retirement, they start using new capital to buy more and more fixed assets, bonds, CDs, etc., but still leave their equities intact within the buy and hold strategy. How much? Well, RothIRA.com recommends that a 60 year old be 50% to 60% in stocks. Link below. So, when J Hardy and Sally recommend that the majority of the retirees holding be in stocks, they are consistent with that recommendation (in that 50% or greater constitutes a majority).

Another thing to consider is when the assets will be needed, and for a higher net worth individual, a higher percentage could be invested in stocks because they will have the time necessary to ride out a downturn and not be forced to sell at a loss than would someone with less financial resources at their disposal.

link:

Ghost of Igloi wrote:...I use 2000 because that was the first of three Fed induced bubbles. The current one popped on 9/20/2018. Will see where we go, but in my view it won’t be pretty.

Igy

Igy,

repeating my naïve view, looking solely at the data, updating my last "prediction" from a couple of months back:

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After the end-December dip and January recovery, both of which can be viewed from a statistical point of view as random wandering about the mean, the US market has nearly reverted to the mean (where in this case "the mean" is the long term, post-1950, best fit trend).

From this point of view, "most likely" (median in this case) projection is to continue chugging happily along gradually upward, with still some possibility (as always) to crash back as low as 1300-1400 over the next year or so (that would constrain the markets within the observed historical range of past fluctuations; nothing to say it couldn't go lower, but the probability seems very low), and some equal) possibility to rocket upward past 5000 (again, constraining future markets within the observed range of past fluctuations; that's not a theoretical limit though). My median projection has the market at about 3000 by summer 2020, but with 50% chance of being higher than that and 50% chance of being lower than that.

I don't suggest anybody assign any particular weight to this naïve projection. But my own personal view (hardened by long experience being disappointed with my ability to draw meaning from financial news) is that this is likely no less reliable than guessing the future market direction based on "fundamental analysis."

Of course, I stand to be humbled and proven wrong, as we all do...

I like how I said you can't use past results to predict future market progression and your refutation is to dig up past results lol.

Why do you think the market will continue to consistently see 10% average returns over an arbitrary period of time? People in Japan thought that too before their literally unprecedented economic situation arose (economics didn't even think that level of stagflation was possible 20 years ago; in fact, stagflation was though to be impossible at all until it happened).

If you're gonna argue "only way is up!" then you need a better reason than "well that's what it's always done"

Theoretical, fine and dandy but the practical application less rosy. The person that retired in 2000 had a stock portfolio that shrank 59% by 2009, and withdrawals of the equity bucket during that period would have made it impossible to recover with the market some thirteen years later. I believe a current retiree faces a more dire scenario.

Idiot,

I am in the your Bearish scenario camp. Fundamentals are not a timing mechanism. However, at current valuations the price of equities does not support future high single digit return. Of course if one believes earning expand from here higher market prices would be supported. On the other hand, with higher input costs (labor and cost of funds) it is getting harder to invision that case. So the more likely path is down where equity prices contract making the market more attractive to investors. The move since December is a technical bounce back that will be sold over the coming weeks.

Igy

Ghost of Igloi wrote:

You and the other guy have never managed someone’s money in retirement.

Not true. Please stick to what you know and don’t project your mischaracterizations onto the rest of us.

the idiot wrote:

Of course, I stand to be humbled and proven wrong, as we all do...

Well! We know not ALL.

Ghost of Igloi wrote:

Idiot,

I am in the your Bearish scenario camp. Fundamentals are not a timing mechanism. However, at current valuations the price of equities does not support future high single digit return. Of course if one believes earning expand from here higher market prices would be supported. On the other hand, with higher input costs (labor and cost of funds) it is getting harder to invision that case. So the more likely path is down where equity prices contract making the market more attractive to investors. The move since December is a technical bounce back that will be sold over the coming weeks.

Igy

it's true that if you expect earnings to continue to grow, then the market is not expensive does support high single digit returns from stocks. JPM's guide to the markets does a regression that finds, based on forward PE, a 10% return for 5 years is a median guess.

So do you feel lucky, investors?

I saw Vanguard lowered expectations for the next 10 years. They were pretty much spot on in 2008 too.

Companies guiding down and firms like Vanguard sending out the warning signals.

Dow up over 1% right now lol

Racket wrote:

agip wrote:

it's true that if you expect earnings to continue to grow, then the market is not expensive does support high single digit returns from stocks. JPM's guide to the markets does a regression that finds, based on forward PE, a 10% return for 5 years is a median guess.

So do you feel lucky, investors?

I saw Vanguard lowered expectations for the next 10 years. They were pretty much spot on in 2008 too.

Companies guiding down and firms like Vanguard sending out the warning signals.

Dow up over 1% right now lol

in 2008 Vanguard predicted 15% per year returns for the US stock market? I'd be surprised if they made that prediction but that's what we've got right now.

Of course, that's 10 years from the bottom of the financial crisis, so it's a cherry picked number.