Down goes the Dow

Ranking companies solely by how many employees they have is not a sound investment strategy. Some people have never been to a WalMart, yet are on Facebook multiple times each day. The latter company easily has more value to more people.

You are most likely not from my generation which is fine. I just don't see the attraction of putting my personal information for the world to see and Facebook to use. Getting back to the investment of FB versus WMT, as long as this momentum market continues FB will thrive and WMT will lag to a certain extent. When it ends however, FB will be "unfriended" and WMT will be "liked." The love of story stocks is another symptom of an overvalued market.

All stocks have their highs and lows. Tell us something we don't know.

Simple views of the markets do nothing for the conversation. I am afraid you will learn the hard way.

What will I learn? That the market will eventually go down? I already know that.

No, that stocks with excessive valuations are poor investments. FB for example trades at 86.10 price to earnings ratio, WMT on the other hand trades at a PE of 14.56. One stock trades at dramatically higher price to earnings ratio (over 4 times) than the market, the other trades at substantially under the average S&P PE ratio. Historically high valuation stocks prove to be poor investments.

See you just learned something you did not consider. Your welcome.

"the prediction, if you wish to call it that, is that society will continue to function, the economy will continue to grow, and businesses will continue to try to maximize their profits"

Very coarse, very incomplete, and very inadequate. That is merely a child's starting point.

The predictions are that society will not only "continue to function", but will continue to function in the manner in which it has in the past 40 yrs, and that the economy will continue to grow more or less as it has over the past 40 years, and that businesses will continue to try, and will in fact be able to, maximize their profits, the same as they have tried over the past 40 yrs.

Bollocks to all that. Things are fundamentally changing, and dinosaurs like you will get left behind.

QE's and massive price supports, asset inflation, viable emerging challenges to the global reserve currency, shifting demographics in the developed world, mis-allocation of resources and environmental degradation, critical infrastructural lifecycle points, dark pools, increasing corruption, decreasing oversight, critically soaring unfunded liabilities, massive unmanaged migration, critically changing taxation strategies, etc., etc., etc.

There is a fundamental change going on, such that much of the basic historical information upon which you rely from the last 40 years will not be reflected going forward. Not only that, but the markets themselves have changed, and will continue to change, meaning that it is not just a question of re-allocating smartly to reflect the happening changes. One small example of this is how fundamental mean absolutely nothing anymore, except to insider trading.

A time of radical sea change is not a time to rely on the long-term, or even the medium-term, it is a time to dip in and out and quickly and deftly as possible. THAT is the way to actually minimize risk. If you cannot do it sufficiently quickly and deftly, don't do it at all. If this kind of long-term "investment" strategy is something that you are into, I would suggest that you decrease its representation in your total portfolio, and shift more to other types of business or investment properties.

STOP RELYING ON THE PAST. IT'S OVER, AND IT WILL NOT BE REPEATED. YOU WILL GET, AND ARE GETTING, LEFT BEHIND.

Yep. Seems the dissenter has been effectively rebuffed by several now. We heard that it was "different this time" back when the Down sank to ~6400 in March 2009. Pretty glad (and no chance of it) that I didn't listen to that noise then and not only kept my investments where they were but continued to add to them, dumping a little extra a couple of times when I had it.

As has been said, people who continue to invest do NOT expect the future to be the same as the past. I have gotten ~11% annual return since I started investing in 1989, and my spreadsheet has future models from 0% to 9% and it stops there. I very well MIGHT get 11% until I retire and beyond, but I am not planning on it. I always plan conservatively and have been pleased with the results because of it.

Finally and again, investing is just one piece of a financial puzzle. There are experts out there who say you should continue to have a mortgage even in retirement. I disagree with that and believe that puts too much pressure on the market continuing to perform well for you. I accept that the market could have an extended down period, so I always recommend that when people retire that they have ZERO debt including a paid for house that they live in (or enough extra in savings so that they can pay for rent increases the rest of their lives). When you have zero debt, you greatly limit outgo and can live very cheaply for a while if you need to. Most Americans (married couples) could actually live on Social Security for a while why they wait for the market to bounce back if they have zero debt. Every year US News and World Report puts out a list of decent retirement places where the average cost of living is equal or less than a combined SS payout for a married couple. Easier to do that with no debt.

Interesting, and I cannot argue with your points. Nasim Taleb, author of the Black Swan and other thoughtful books offers the concept of the "anti-fragile." A portfolio based on this concept may have 10% invested in out of consensus investments, while the other 90% would be in T-Bills or cash like investments.

"Seems the dissenter has been effectively rebuffed by several now. We heard that it was "different this time" back when the Down sank to ~6400 in March 2009. Pretty glad (and no chance of it) that I didn't listen to that noise then and not only kept my investments where they were but continued to add to them, dumping a little extra a couple of times when I had it.

As has been said, people who continue to invest do NOT expect the future to be the same as the past. I have gotten ~11% annual return since I started investing in 1989, and my spreadsheet has future models from 0% to 9% and it stops there."

Rebuffed? Yes. Rebuff: "an abrupt or ungracious refusal or rejection"

Certainly rebuffed, which is something that reflects poorly on those doing the rebuffing. Most interesting is the abruptness, the slavish adherence to convention, without thoughtful or enlightened consideration of the issues, an abruptness that your continuing posting evidences in abundance.

You think that your projection of returns maxxing at 9 rather than 11 reflects any meaningful understanding of how the fundamental of society and the market are changing? That's like somebody trying to claim that they changed the color of their walls because they went from sky blue to cerulean.

You have a spreadsheet that uses a model? And what data and assumptions are incorporated in that model, pray tell?

Those who were calling the change in 2009 were right. All we have done is to have kicked the can down the road. Both of our investments since that time have gone up, but at what cost? If you and I were made to bear the cost of the rise in the particular assets we own, do you think we would have shown any profit? Do you really think that this type of landscape will remain substantially unchanged for the next 40 years, or even 20?

You need to get your head out of your axx.

I'm not advocating that people not invest, I'm also not advocating that they not invest in the markets--I'm advocating that they don't just adhere to the mantra of a self-interested industry that moves at glacial speed. "Modern" portfolio theory? In other areas, we have gone far past "modern", to post-modern, deconstruction, reconstruction, etc. "Modern" portfolio theory is every bit as current as "modern" architecture, or "modern" art--which is to say, obsolete and out-of-time, now of mostly historical interest.

I would agree with most of what you say. At current valuation levels, it is hard to see how a traditional stock and bond portfolio will perfom to historical levels, at least over the next ten years.

I miss CR, he was the only one here who talked about anything actual and forward-looking.

Back to the drivel...

What is your obsession with the last 40 years?

I advise anyone investing to consider what can be learned from the longest period for which adequate records are available. That certainly goes back to at least 1926. And yet your posts seem to suggest that you are only looking at market information since 1975. Why is that?

Also, going back to 1926 we capture the Great Depression, WWII, Vietnam era, Watergate, Cold War, Dot Com bubble, McCarthyism, the "War on Terror", the upending of the old order by the Internet, The Great Recession, untold thousands of scandals, catastrophes and assorted falling skies... But somehow NOW is a "time of fundamental change" the likes of which we have never seen before (at least not since 1926) and the effects of which will apparently dwarf the effects of all of the above? Count me as a doubter.

One thing that is different from a financial sense is the unprecedented monetary policy coming from world central banks. Quanitative easing, central bank purchase of equities, negative interest rates, etc., these policies can create situations that may difficult to unravel.

These are not just my ideas, here is an article by Gretchen Morgenstern in the New York Times.

http://www.nytimes.com/2015/06/21/business/high-tech-fantasy-accounting.html?ref=topics&_r=0

+1

I think the guy hasn't read a good history of wall street/finance. The biz has changed from day one - massive changes that often seemed to signal the end of an era...yet the world keeps chugging along. Even accelerating as billions come into the middle class.

geez - the problems today vs. the problems of 1932 or 1942 or 1974 or 1980? Bloody hell today is a walk in the park.

FAGP0LE wrote:

I'm not advocating that people not invest, I'm also not advocating that they not invest in the markets--I'm advocating that they don't just adhere to the mantra of a self-interested industry that moves at glacial speed.

Well, then, you and I are in agreement. I never embrace hype whether it be negative or positive. I continue to attack debt (less than three years left on my house and no other debt), and I continue to put 15% or more into retirement accounts made up of stock mutual funds, and I plan to retire with zero debt, 100% stocks in my investments (within mutual funds) and 3 YEARS of expenses in cash, CDs or some other liquid vehicle which I don't plan to make money from but is there in case I need to use it to offset a down market.

If I ONLY believed in a market that would only go forward at "glacial speed", I would take the equity in my home and throw it at the market and never let any meaningful equity build up in my home. Obviously I am not doing that.

Not just Igy:

Carl Icahn warned investors on Wednesday that he believes the market is "extremely overheated—especially high-yield bonds."

"I think the public is walking into a trap again as they did in 2007," the activist investor told CNBC's "Fast Money Halftime Report." "I think it's almost the duty of well-respected investors, like myself I hope, to warn people, to tell people, that really you are making errors."

Icahn compared the current market situation to the prerecession days, when mortgage-backed securities were being widely sold. "It's almost deja vu," he said. Many companies are selling at huge multiples and reporting earnings that are "sort of fudged" due to various accounting methods, he said.

Flagpole--yes.

To others, I spoke about the last 40 years because that is often roughly one lifetime of investment, from when one makes enough to invest, to when one is nearer the end. And unlike today, people did not used to live to 90 all the time.

Also, the last 40 years saw regulatory change unlike any period before that, and we are again in a period of regulatory change.

Yes, there have been social upheavals in the past...but when has there been uncontrolled migration? When in peacetime has debt servicing cost exceeded GDP? When have unfunded liabilities been totally unfulfillable and unsustainable? When has there been a lower proportion of gainfully employed? When has there been the mentality that conflicts can only be managed, and war not won? When have there been below zero interest rates? When has there been similar scale QE? When has there been a president who has ruled by executive order? When has there been mandated health care in the USA? When has there been a generation that has had a reasonable expectation of never getting the social security they paid into? When has the USD reserve currency actually met a real challenge? When has there been an inflection point where the existing whites in developed countries have become a minority? When has anyone really questioned what "the USA" means? When have the election laws permitted what they now do? When has there been such a large civil service? When was the average civil service salary, not to mention total compensation, greater than comparable salaries in the private sector? When was there a massive exit tax to deter expatriation? When was the international competition to sell citizenships and residencies in full swing?

I could go on, but you get the picture.

If you don't, you're screwed. "Long-term investing" in securities will be a different game, we are starting to see that now; short-term trading will similarly change, as it already has indicated. If you don't believe me, you can easily find any number of "recognized experts" who have recently said that we need to adjust our expectations going forward, to a lower yield environment. That's only the very beginning of all this, the child's first step, because they typically don't look any farther.

As for using historical patterns as a guide, yes, there are only so many things under the sun in human affairs. Modeling can take things into account, but the success is determined by both the skill, perceptiveness, and the thoughtfulness of the modeler--one or more of which are in the vast majority of cases, woefully inadequate, which is why we constantly hear the mantra that nobody can predict the market.

If nobody can predict the market, why expose yourself for a long time? Because you think the various risks will even out and it will inexorably rise over time? Is there not less risk in being in for shorter periods, and trading events that have well-defined outcomes, as long as those outcomes continue to be predictable? I liked chemical reagent's frankness, that he could predict what was going to happen only so long as the current pattern held.

The macroscopic historic pattern is gone. Things will have to be re-examined, models re-worked, the meaning of data re-interpreted; all of this is in fact occurring even as we speak, but the change is sufficiently rapid that validation isn't good, and even good models are quickly outdated.