Down goes the Dow

Timmy,

Theoretically target date funds are designed to create an allocation that produces an age appropriate risk adjusted return. The JP Morgan 2020 Fund has a 62.5% allocation to stock, and the bond allocation contains a 5% position in high yield. So the effective allocation to stocks is 67.5%. This allocation is way too aggressive for someone retiring in 5 years. Other fund companies have similar allocations as the vendors feel compelled to compete for investor dollars thru short term returns. I agree with the concept of target date funds but feel in practice the fund managers take far too much risk.

TT

Actually most target funds have tiny, if any, allocations in junk bonds. Still, they are an important asset and deserve a spot.

Good to know. Thanks.

Timmy,

Check the performance of target date funds during the next downturn and see if your onservations prove correct.

TT

How can an observation be incorrect?

Wondering,

I observed a naked woman. No, it is Bruce "Caitlyn" Jenner.

TT

Pics or it didn't happen.

Hard,

Purely theoretical. Scary thought though.

TT

Vanguard total stock market 15 yr returns up to 5.05% per year...Igy that's just going to go up and up even if this market goes nowhere.

Anyway, target date funds aren't perfect, but nothing is - for my money they are the best option for more than 50% of people - sure they are formulaic, but that's the point - you aren't relying on so-called 'experts' who flub up all the time.

But that was a good paper - I was aware of the sequence of returns problem in retirement but not in the accumulation phase - I thought the problem was when you start to sell things to pay for your life - but the math is even harsher than that. So much luck in life.

Valuation Doubters,

Bubble vision stock Valeant Pharmaceuticals hit a 52 week low of $101 after hitting a $263 high in August. Will Chipotle Mexican Grill cause more investor indigestion after falling from $760 in August to as low as $657 today. More high valuation stocks set to follow these losers.

Igy

agip,

I would expect the Vanguard Total Stock Market fund to continue to go up if the market trends as it has the past three weeks. I am skeptical since only 37% of the stocks in the S&P 500 are above the 200 day moving average. Credit spreads continue to widen. Corporate revenues are disappointing even after lowered guidance. The averages continue to be supported by a very narrow groups of stocks and rotation into energy and commodities. High multiple and story stocks that garnered support from hedge funds and retail have underperformed as dramatically on the downside as they have on the upside. The story of where we are going short term is not yet written.

Igy

Ghost of Igloi wrote:

agip,

Corporate revenues are disappointing even after lowered guidance.

Igy

this is correct, albeit in a a small way - this, from 5 days ago:

Percentage of Companies Beating Revenue Estimates (50%) is Below 5-Year Average

In terms of revenues, 50% of companies have reported actual sales above estimated sales and 50% have

reported actual sales below estimated sales. The percentage of companies reporting sales above

estimates is below both the 1-year (53%) average and the 5-year average (57%).

agip,

Revenue is the most important factor and trumps earnings per share and sales in terms of market predictability. I would consider the earnings report from GOOG and AMZN and the market reaction to them, to be most important for the short term direction of the market. Coach d often draws a comparison to today and the 1999-2000 period. Having worked those years in the industry, like yourself, I see a few similarities but certainly not the mania of that time. Also look at the performance of IPOs lately, nowhere near 1999-2000. If anything that seems similar, is the willingness of corporations to push ethical bounds to give Wall Street what it wants (share buybacks, non-GAAP reporting, mergers and acquisitions). These activities are more indicative of late cycle activities. The questions that has not been answered is do we have one more push higher? Possibly, but one is picking up pennies in front of a steamroller.

Igy

Who are the "valuation doubters"?

Say,

You tell me, many who post here are unregistered names so your guess is as good as mine. There are posters that do not believe stock valuations are an adequate indicator of future stock market performance. I disagree.

Igy

Which posters don't believe that?

Say wha? wrote:

Which posters don't believe that?

I don't believe you can say that the stock market's short term (1-3 years) performance can at all be predicted via valuation.

I also don't believe that this market is all that expensive. It's cheaper than its average over the last 25 years, for example.

I do believe that something like 10 year return will depend heavily whether you bought cheap or expensive.

Say,

There you go (see the agip post above), and there are others. Valuation as a market predictor is subject to investor risk preferences. At some point investors learn that stock prices are inversely correlated to expected return. A stock is more than a ticker, and is representative of a stream of income delivered to investors over time. That is no different than any other investment and it can be demonstrated thru cash flow analysis. One can speculate that AMZN stock will rise in price after earnings are announced at the close of the market Friday. However, AMZN has negative earnings and it is unlikely to reward buy and hold investors that purchase the stock at $550 a share.

Igy

Well that depends on how long you "hold". I has some Amazon stock for a couple of years and made a nice profit when I sold it.