Down goes the Dow

You have not been rude so I apologize for the Smarty comment. For the rude I reserve the right to use more civilized words than what are thrown at me.

That said it appears you are using "constant maturity" data for your ten year bond calculation. Using that as your benchmark would prove your point, but would not include the capital appreciation on the bond side.

Here are some calculations made near the last market top, in which data would be more favorable to stocks than bonds.

http://allfinancialmatters.com/2007/04/13/100-stocks-vs-9010-portfolio/

That's not "data supporting (your) general comments." That's opinion.

Are you saying the annual report from the Bank of International Settlements is not data? Whatever you say.

I'm saying the quotations you provided are opinion. Stop trying to dance around the facts.

The quotes are from the report...I didn't invent them....

They are obviously opinion, not data as you claim. Surely you can see that.

Ghost of Igloi wrote:

You have not been rude so I apologize for the Smarty comment. For the rude I reserve the right to use more civilized words than what are thrown at me.

That said it appears you are using "constant maturity" data for your ten year bond calculation. Using that as your benchmark would prove your point, but would not include the capital appreciation on the bond side.

From the link previously provided:

"the treasury bond return includes coupon and price appreciation. It will not match the treasury bond rate each period"

Peter's Principle #2:

Gentlemen who prefer bonds don't know what they're missing.

{Peter Lynch goes on to point out that equities beat bonds over any long-term timeframe}

Peter's Golden Rules of Investing...

#18 There is always something to worry about. Avoid weekend thinking and ignore the latest dire predictions of the newscasters. Sell a stock because the company's fundamentals deteriorate, not because the sky is falling.

#19 Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what's actually happening to the companies in which you've invested.

--Beating The Street

The key with bonds is long-term. We have had periods like 1996-2008, where you weren't compensated for the extra risk in stocks over bonds, and there have been periods like 2007-2008 where tactical (short term) allocation in favor of bonds paid off,

When GOI can show audited results where he has outperformed Peter Lynch long-term, I'll be sure to listen to him.

Peter Lynch is retired so by proxy I am victorious.

For the record, I have never provided investment advice. I have only offered a view that is "it is not stocks all the time." I find it interesting the angst that this viewpoint engenders.

IMO, this thread is a contrarian indicator. It has been quiet lately, hence the Dow is overvalued. When there are tons of posts here, it is time to buy?

bottom indicator? wrote:

IMO, this thread is a contrarian indicator. It has been quiet lately, hence the Dow is overvalued. When there are tons of posts here, it is time to buy?

I tend to use investing posts on letsrun as contrary indicators--the more bears the better. There's have already been a couple of posts calling a crash over the Grexit. We clearly need more of this activity before the market can go higher.

AAT wrote:

So I should increase my cash holdings which earn diddly and reduce my bonds which are guaranteed and my stocks which earn 6-10% annually just because the market will go down someday? What kind of nonsense is that?

Stocks don't earn 6-10% annually from these valuations.

Sally V wrote:

What kind of Chicken Little bullshit is this. We all know the market will go down. But trying to predict when is a fool's game. Just read the first post in this thread, if you don't believe me. There's always someone saying to cash out because the end is near. And they're all considered idiots except the lucky one who makes his prediction on the eve of a downturn.

Now if you want to show some real balls, give us a date for this "selling panic". If you nail it within 4 weeks of either side, I'll certify you a genius. If you're wrong, or too cowardly to back up what you say, then you're a certified loser. Put up, or shut up.

There is a huge difference between timing the market and valuing the market. Your "within 4 weeks" demand is ridiculous, unless somebody is actually claiming to be able to pick a top. Igloi isn't doing that.

Valuing the market, or individual stocks that make up that market, is entirely possible. And, you don't have to be anywhere near to 4 weeks "right" to make out big time. Is it coincidence in your mind that Berkshire Hathaway has repeatedly had their largest cash positions right around the big stock market tops?

So now GOI is Warren Buffett? Look, I'm all for diversification. What gets me going is these low level investment "experts" recommending a reduced position in stocks because of an impending correction or worse.

Are stocks overvalued? Maybe. If so, does that mean prices are going down in the near future? Maybe.

Simply saying that stocks will go down is the act of someone who likes to hear themself talk. It's like saying the sun will rise in the morning. It's not news. If you want to tell us something we don't know, tell us WHEN this hit is coming.

There is not a "huge difference between timing the market and valuing the market". If there was, why would GOI recommend a pullback in stocks based on his perception of overvaluation?

My view is that it does not matter which direction the market moves. Your return in stocks or bonds on the other hand is determined by the valuation of the asset class.

My view is that central banks have flooded the the financial system with cheap money. One result of these policies is inflated asset prices.

My view is that governments have taken on large amount of debt in a Keyensian attempt to stimulate economic growth.

My view is that corporations have used cheap debt to buyback stock and increase dividends.

My view is that in developed markets have aging populations with falling consumer demand. In our country there is a lack of savings and far too much consumer debt.

My view is that Greece, Puerto Rico, and China are symptoms of larger problems.

My view is that in a market sell off few will hold their investment positions. A diversified portfolio lowers volatility and allows better compounded returns.

My view is that we have had two market drops of more than 50% in the last 15 years. I see no reason not to prepare for another.

Dude, do you listen to yourslf wrote:

AAT wrote:

So I should increase my cash holdings which earn diddly and reduce my bonds which are guaranteed and my stocks which earn 6-10% annually just because the market will go down someday? What kind of nonsense is that?

Stocks don't earn 6-10% annually from these valuations.

Mine do...at least some of them.

Ghost of Igloi wrote:

My view is that we have had two market drops of more than 50% in the last 15 years. I see no reason not to prepare for another.

I see no reason not to prepare for another big drop also. What that means though is different for people. Here's what it means to me.

1) If you are not within 5 years of retirement, (and I am not) then everything remains the same. Continue to put money in your retirement accounts, and if the market does tank a lot and you have EXTRA money, then, unless we are in a Mad Max situation, you should be HAPPY to put that extra in the market. In the big drop from October 2007 to March 2009, it took me less than 3 years to get back to where I had been, and that is ONLY with reinvested dividends and growth, NOT additions, so, since I WAS adding money unwaveringly during that down time, 3 years later, I was WAY up from where I had been.

2) IF you are within 5 years of retirement, I am STILL not a fan of moving things out of stocks. The fact remains that while a big drop is likely at some point, you STILL do not know when it will happen, how much it will go down, and how long it will stay down, and stocks remain the best investment over the long term. This is why I always recommend that you retire with ZERO debt and three YEARS of expenses liquid. If you retire much before age 60, you might need to up that expenses fund or just plan to have to go get a job if things go bad while you are relatively young. If, though, you plan to retire at age 60 and you have three YEARS of expenses saved, even if the market tanked on day 1, you could still make it until age 63 and (or just 62) and start taking Social Security if you want. If you are debt free, that combination of three years of expenses and then Social Security should enable you to make it 3-5 years from age 60 and even longer if you are old enough to already be getting Social Security.

I would probably be a little more conservative than you, and that is probably more a result of my experience working in the industry. That said, overall your thoughts contain generally good advice. Advice for the individual is much like coaching, there are truths that should act as a foundation, but much must be tailored to the person.