ROTH IRA Question-Calling LetsRun Investing Gurus

Figure it out on you own:

"The characteristic feature of a bubble is that the long-term return implied by discounted cash flows becomes detached from the higher, temporarily self-reinforcing return that is imagined by investors. As a result, the bubble component accounts for an increasingly large proportion of the total price, and becomes progressively vulnerable to collapse. It is in this precise sense that the current speculative episode can be characterized as a bubble, just as I (and Modigliani) characterized the bubble that ended in 2000."

By John P. Hussman, Ph.D.

President, Hussman Investment Trust

John Aich wrote:

Jiminy wrote:

This supports John's point that valuations don't matter over a long segment.

It was actually Ghost who pointed out that valuations haven't negatively affected prices in the long term.

Ok got it now

Okay, I just reread our conversation and see one spot where I might have misunderstood something. So if you don't mind clarifying, roughly how long do you feel the market has been overvalued...days, weeks, months, or years? Thanks for your help.

S&P 500 EPS is at the same level as 6/30/2014 when the index traded at 1,972 and at the GAAP PE of 19.01. The index today is around 2,425 and a GAAP PE of about 24. So several years.

Then we do agree. Valuations have been high for several years while prices have increased. The logical conclusion is that high valuations do not negatively affect prices in the long term (years).

Assuming I want to be an investor in a business that delivers cash flow, how many businesses would yield an attractive proposition at todays prices? If I were to keep this business forever and not worry about profits from capital gains, how many public companies show a great return of investment? I am worried that the price of stocks today is too high for it to be worth this type of buy.

Unless the company reinvests its capital, its a ponzi scheme hoping that the prices keep rising, hoping that the next guy bails me out. The risk grows far out of proportion. Quantitative easing, along with the invention of the 401k where everyone becomes an "investor," seems like money has been pouring into the market unbiasedly raising prices far beyond what it ought to be.

What about the baby boomer generation hitting retirement age? Once they turn 70 arent they required to start liquidating assets. So wont there be a glut of sellers vs buyers? It seems top heavy, Millions of baby boomers who need to sell and not many millennial's buying due to college debt.

This is from my elementary understanding of the market. If anyone has some feedback to assuage my worries I would be extremely grateful to hear.

I think you hit on the issues facing investors. Most investors will not apply fundamentals to their process, and a reason their performance is so poor.

You are not most investors. Stop projecting your own poor performance onto the rest of us.

You will learn the hard way you are liquidity for the algos.

But good luck.

valuation fundamentals wrote:

What about the baby boomer generation hitting retirement age? Once they turn 70 arent they required to start liquidating assets. So wont there be a glut of sellers vs buyers? It seems top heavy, Millions of baby boomers who need to sell and not many millennial's buying due to college debt.

This is from my elementary understanding of the market. If anyone has some feedback to assuage my worries I would be extremely grateful to hear.

Thank you for your question. As I understand it, the required distributions beginning at age 70.5 (not 70) apply only to traditional IRAs. It does not apply to Roth IRAs.

Also, taking a RMD does not mean those monies are necessarily removed from the investment world. Many folks take those distributions and immediately reinvest them in another instrument. In effect, they act as a seller and a buyer almost simultaneously. It's a wash.

John Aich wrote:

Then we do agree. Valuations have been high for several years while prices have increased. The logical conclusion is that high valuations do not negatively affect prices in the long term (years).

this

if we stayed out of the stock market because of a high 10 year CAPE, we would have been out since oh 1990.

clearly the CAPE is not very predictive.

Looks like Igy helped pop his own balloon. 🎈

"By 2007, yield-seeking speculation had driven stocks to a second bubble peak. A few weeks before that market extreme, which would be followed by a 55% plunge in the S&P 500, I reminded investors:

'Remember, valuation often has little impact on short-term returns (though the impact can be quite violent once internal market action deteriorates, indicating that investors are becoming averse to risk). Still, valuations have an enormous impact on long-term returns, particularly at the horizon of 7 years and beyond. The recent market advance should do nothing to undermine the confidence that investors have in historically reliable, theoretically sound, carefully constructed measures of market valuation.

'Indeed, there is no evidence that historically reliable valuation measures have lost their validity. Though the stock market has maintained relatively high multiples since the late 1990's, those multiples have thus far been associated with poor extended returns. Specifically, based on the most recent, reasonably long-term period available, the S&P 500 has (predictably) lagged Treasury bills for not just seven years, but now more than eight-and-a-half years. Investors will place themselves in quite a bit of danger if they believe that the ‘echo bubble’ from the 2002 lows is some sort of new era for market valuations.” '

John Hussman, Weekly Commentary 6/12/2017

Maybe it's different this time?

Even this won't change investors minds, but that is what happens in a bubble.

http://www.mauldineconomics.com/editorial/3-charts-that-show-how-enormously-overvalued-the-average-stock-is

Correlation is not causation.

John Aich wrote:

Okay, I just reread our conversation and see one spot where I might have misunderstood something. So if you don't mind clarifying, roughly how long do you feel the market has been overvalued...days, weeks, months, or years? Thanks for your help.

It's over-valued the day of declines. It's undervalued when valuations rise.

It's that simple.

No, what is simple is from 2,429 expected returns for the next ten years are rather low.

https://mobile.twitter.com/HussmanFunds/status/874248927041773568?p=v

Hi, Flagpole!