They're only down about 1%. Relax.
They're only down about 1%. Relax.
it is happening again.
The most hostile investment environments are overvalued, overbullish, and overbought markets. The actions of global central banks have pushed yield starved investors up the risk curve. The action today is a small move in a market that is substantially overvalued. Why should we be surprised? The domestic stock market has experienced two declines greater that 50% in the last fifteen years. The distortions today are greater in many cases than in the previous two declines.
well this is closer to what I thought would happen - around 2%. World stocks have given back three weeks of returns - we are right where we were 3 weeks ago if you count the month end dividend. which is probably about right.
The vix has gone nutsoid: +30%! That is extraordinary. Some very freaked out people. That is certainly bullish.
hmmm, by "crash" I meant something serious, 15% or more.
This 1.5-2%, it's nothing.
By definition a move greater than 10% is a correction. A sustained drop of more than 20% is a bear market. A crash would be a violent move down in a short period of time of 10% or more.
Ghost of Igloi wrote:
By definition a move greater than 10% is a correction. A sustained drop of more than 20% is a bear market. A crash would be a violent move down in a short period of time of 10% or more.
These are not unreasonable definitions. On the other hand, they are not universally agreed upon - not by a long shot.
Example: Bear market
Merriam Webster: a market in which securities or commodities are persistently declining in value
InvestorWords: A prolonged period in which investment prices fall, accompanied by widespread pessimism.
Wyatt Research: a downward trend in the stock market.
Note that none of these mention anything about 20%.
The definitions I am using are more industry benchmarks.
In my view it they are just terms thrown out by investors to describe market action. In the end they provide little predictive value for investors. Stock valuation and fundamental security analysis should become a larger part of the conversation.
Ghost of Igloi wrote:
The definitions I am using are more industry benchmarks.
In my view it they are just terms thrown out by investors to describe market action. In the end they provide little predictive value for investors. Stock valuation and fundamental security analysis should become a larger part of the conversation.
Agreed all around.
Several people opined against holding bonds, or bonds being in a bubble. I have argued for holding bonds as part of an asset allocation. As you saw today when there is a selloff in stocks you have fund flows into high quality bonds driving up prices. The S&P was down 2% today and high quality bonds were up over 2%.
And when people are buying stocks, what happens to bonds?
Not necessarily, generally bonds are more affected by interest rates. Bonds have done well since the financial crisis at the same time stocks have done well. However, when there are large redemptions in equity mutual funds or equity exchange trade funds those dollars have to go somewhere. Well large fund manager cannot buy enough CDs, so theose funds flow to the Treasury market. Again, I am not advocate one asset class over the other, just the logic to hold both. A coaching analogy would be, if you are to be a good middle distance runner you need both endurance and speed.
Ghost of Igloi wrote:
Not necessarily, generally bonds are more affected by interest rates. Bonds have done well since the financial crisis at the same time stocks have done well. However, when there are large redemptions in equity mutual funds or equity exchange trade funds those dollars have to go somewhere. Well large fund manager cannot buy enough CDs, so theose funds flow to the Treasury market. Again, I am not advocate one asset class over the other, just the logic to hold both. A coaching analogy would be, if you are to be a good middle distance runner you need both endurance and speed.
Bonds can be a valuable part of many investors' portfolios. However, for many, especially with a long term investment horizon, it would be difficult to make a case for diverting money that could be invested into equities toward debt instead. Perhaps there are emotional reasons. But on the risk/reward continuum with a long term time-frame equities dominate.
Like I said, "I meant something serious, 15% or more."
Learn to read. I don't give an effing crap what someone else means, when I said what I mean.
Do you understand this?
It could still "crash" Sweetie.
But, even over a long time horizon, a portfolio that has some bonds will outperform an all equity portfolio. Also, with the domestic stock market at a valuation top, it would be smarter to have a higher allocation to bonds and alternative investments.
“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.â€
- Peter Lynch
Be fearfull when others are greedy. Be greedy when others are fearful.
Warren Buffett
Buffett is saying buy low and not high. Duh.
So with the market at the upper valuation....ever...don't buy....