60-90% hmm. Maybe 60-70% tops if something really crazy happens within the market but I don't think this is likely. The 2008 recession was extremely bad and the sap500 lost what 50%? I feel the 2008 recession was really bad compared to other recessions over the last 20-40 years.

I don't see a great depression occuring again like after the roaring 20s... I think history helps prevent events like this. The whole banking system is controlled in a much better manner vs that of the past. The only way I could see market really tanking would be if there was a nuclear war or AI takes over human jobs and humans have trouble getting jobs and staying employed.

I think its best to be long the market over the long run. Technology improves, people stride for better lifes, etc.... The market is always going to go up over the long run and trend upward due to this motivation for people to improve their lifes. Shorting is great if you have inside information / wanna take a lot of risk betting against **** companies which really can be more lucrative than being long but I look at shorting as a much more short term prospect vs being long stock.

All you have to do is look at the data, be aware of interest rates and the business cycle, and use common sense. As pointed out earlier in this thread, PEs are high and, to use the SPX for example, we are starting to go ***** vertical.

Other than supply and demand, two things explain asset prices more than anything else, the supply of currency and interest rates. When rates are low you want to hold onto cash and finance things (debtor). When rates are high you want to deploy cash and finance things (creditor).

So...

There are basically three cases:
1. you are positioned -- when do you consider asset class rotation?
2. you received some sort of windfall like OP -- when and how do you deploy the capital?
3. you have surplus income -- when and how do you invest it?

1. Asset class rotation
In my opinion this is actually a pretty good time to reduce equity exposure and lever up on real estate. Yes real estate prices are also high, but if you can secure favorable financing and secure cash flow this is a good spot.

2. My grandma just died and I won a poker tournament!
This relates to above. With let's say $666k of allocated capital and a $333k windfall, I would absolutely not park 1 / 3 of my net worth in equities that are at a PE 23 or w.e. with the plan of being a long term, passive investor.

I would (every so slightly) increase my exposure to PMs and crypto. And I would lever some real estate. The bulk of the cash I would keep in a money market or short term bonds (if I gave enough shits) and look for opportunities in the equities market or angel space.

3. This is your most typical case -- I work at KPMG and just made partner and have been consistently maxing my retirement accounts
DCA is a perfectly reasonable strategy and if you are risk adverse I see no need to rock the boat. I wouldn't try and rotate out of equities in retirement accounts and deal with taxes and paperwork, etc.

Didace, I know that might not have been what you are looking for. If you want to keep playing concoct a specific scenario.

I have no idea how they are calculating inflation, but this is a cool tool: https://www.macrotrends.net/2324/sp-...cal-chart-data, it has buttons for recessions, inflation, and log scale.

Wow, you're as bad as Tooth in being a biased blowhard. Let me be abundantly clear so you can't weasel out of this: What do you mean by S&P composite? Do you mean the S&P 1500?

Also, my point was to show TS was being dishonest: He said the S&P composite has NEVER shown a positive return over 20 years starting at a point with a Shiller P/E of over 23. I showed an instance (and there are others) to demonstrate that this was false. Now you try to handwave by saying "Yeah, well it had big downturns a couple times during that time. So you're actually a loser."

Just admit you're wrong.

rand - So you wouldn't put any cash into stocks right now. Cool. S&P is at about 3380. Let us know when it's a good time to get back in.

When you talk about trading/investing it's only worthwhile to talk in terms of risk reward. Are you 100% going to be right being cautious of stocks right now? No. Do I give a ****? No. Because I'm looking to be in assets/markets that have a strong probability of performing well.

I don't care if I'm right or wrong about some arbitrary market measure and an arbitrary time frame. I want to talk about when stocks are a goob buy. At these valuations they aren't. Period.

I didn’t say that, or didn’t really mean to if that is how you interpreted it. I wouldn’t just buy SPX or Vanguard or w.e.

There are always good moves. I’ve liked PODD and AYX for a long time now. I think marijuana stocks could become appealing again soon.

To reiterate, what I wouldn’t do is park a windfall in an index fund planning to never sell it. But I would never do that anyway...

Good catch. The graph I posted ends at 2014 I think (Schiller P/E is 32 now), looks like we have the first few positive data points from around 2017 20 year return. It weakens the case a bit but the average and trend of that graph is pretty clear. If you assume the data is valid or even roughly valid, what's your expected return going forward buying at this Schiller P/E, or even above 23? You're just not going to have a good outcome over 20 years in the average case and 90% of the time.

Yo Didace, I’m calling it, bearish until otherwise stated. This action w/ my perception of the virus. I think a lot needs to be discounted right now (Chinese demand, future growth, and supply chains).

I’m on my phone and don’t have a high probability target, but looking for a return to the mean.

To be fair, that scatterplot is somewhat misleading. It uses monthly data points on 10 and 20-year averages for both axes. By displaying 1000+ data points, it gives the appearance of a much larger effective sample size. In reality, every data point (average) shares data with hundreds of other points.

Looking at the graph of Shiller PE's plotted by time, we can see that the market has really only "tested" PE ratios of 23+ on three other separate occasions. All three instances resulted in underwhelming 20-year returns (-4.4%, -2.6%, and +3.4%).

I'm not arguing the high PE ratios are unconcerning, simply that we have a lot less historical data to draw from than it may initially appear.

I agree of course, we don't have a huge amount of data, particularly given the smallish number of cycles (10?) the economy has been through in this time.

The most compelling feature of the graph is not the data points above 23, but how the incredibly strong inverse relationship between 10 year P/E and 20 year returns validates those negative returns. I draw in a line of best fit:



It's a pretty amazing fit and there are no great outliers. If history is anything to go by, then buying now is going to see really terrible returns, very likely highly negative. Once you get above 17 your returns are in the toilet, a few slightly positive and most very negative.

To enter the market now you have to believe that we will not get reasonable P/Es again in the next five years or so, while continuing to go up over that time frame. How likely is that?

I posted the graph mostly as a counterpoint to this:
Since OP has a 20 year timeframe in mind.

21 SMA on the daily is like 3320 (ES), will look there first.

Are you saying a drop of less than 2% is your anticipated bottom? Not very bearish if so. Maybe I'm misunderstanding you.

First of all:
To communicate clearly:
No, you are conflating issues.

Second of all:
I never said that I am anticipating a bottom. I said that I wouldn't buy at these prices (especially not with a windfall). The two are very different. We could go on for years like this.

For a while (as in a while ago) I was saying that (cyclically) it was time to shake the money tree. But (as pointed out earlier) we did just (a year or so ago) get like a 25% correction.

What I am currently saying is that there is a tradeable move lower (though you are currently missing it) because we have to discount the stuff mentioned earlier (supply chain, chinese demand, etc) and the market is yet to do so.

This move could have legs because there is so much uncertainty in China. We are all (for better or worse) quite interlinked and if China crashes the rest of the world will certainly feel it.

Now, I believe, China has accepted the help of the US CDC. But bc of the incubation period, it may be too late. And lots more may fall sick or die, IDK.

An interesting twist is what this could imply for geopolitics, and it is very serious, was the virus from:
1. a meat market?
2. a weapons lab?

The more I learn, the lab seems more and more plausible.

So is China so incompetent as to have inadvertently created a global epidemic? What this implies for international relations given their other activities like shinning lasers at American military pilots, ignoring IP and pursuing outright theft, etc, is big IMO.

Did an adversary release it to make it look like the Chinese are incompetent? Could an adversary make it look like it was a from weapons lab (a la WMDs) to exploit the situation?

A lot of this is creative imagination, but it is also far from impossible.

If I built an AI that tried to make a thread title to bait out the largest # of redundant macro arguments, it'd prob be something similar to this one

rand - I'm just trying to nail down what conditions there needs to be for you to say "put your money in now". Because you always seem to be saying something along the lines of "But there is nothing wrong with being patient and having dry powder" clearly implying that if someone is smart - like you are! - they can beat a broad based fund. So I'm just searching for a way for you to prove you know what you're talking about.


Also, I can get behind this applying to most of your posting.

Ha, now you are putting words in my mouth. I dont think it is easy. But yes, people do consistently beat broad based funds all of the time.

I think you are going about it incorrectly or engaging in a fools errand, etc. I don't think that you can objectively define the conditions ahead of time for something like this other than to say stuff like, panic, capitulation, blood in the streets, etc.

There is both art and science to it (a lot like poker). If I were to say, ok back the truck up at 15%, well maybe we go 35%... But if you have experience, say in '08 and retail dumping IBM and Bear Sterns is filing, and Congress announces a bail out package you can see that that is an opportunity.

Use some common sense...does now seem like an opportunity? If so, what is your thesis? You can conform to efficient market theory all you want, but it is a bunch of academic BS.

The market can be beaten and it starts with believing that you can do it.

I know a trader that runs a small hedge fund in Austin that consistently crushes for over a decade now. No losing years. Earns something like 10x every single year.

Once you start managing more than like $10 - 100M or so it gets more difficult because your strategies affect real feedback. But you can definitely beat the market. It is not so much about intellectual intelligence as it is about emotional intelligence, risk management, etc.

Hedge fund you say... https://www.cnbc.com/2017/08/09/buff...-years-on.html

Berkshire’s Performance vs. the S&P 500

Compounded Annual Gain – 1965-2019 ......................................... 20.3% (Berkshire) VS. 10.0% (S&P)
Overall Gain – 1964-2019 .................................................. .. 2,744,062% (Berkshire) VS. 19,784% (S&P)

https://www.berkshirehathaway.com/letters/2019ltr.pdf

Its arguable that Buffett doesn't have anywhere near that edge anymore. Since the lows of 2009, BRK has underperformed quite a bit.

Would a 30 year old Buffett outperform for the next 50 years, even one who doesn't ignore tech companies?

In 30-50 years will we have another Buffett type who beat the market over their entire career?

It seems new GAAP accounting rules requiring unrealized capital gains to be reported with earnings are responsible for a chunk of the recent gains.

I do think someone will crush investment over a similar timeframe, maybe with radically different methods.

02-17-2020, 07:43 PM

Just for you Didace.

In case anyone was wondering, this qualifies as blood in the streets. The real question is, is it the beginning of a cyclical bear or will it blow over? I think somewhere in the between. We are correcting price quite violently right now. But we may need to correct time for a while too.

the 12% draw down in the S&P is insane and over blown imo, we'll see though. I'm young so i'm hoping it keeps going down

BUSINESS AS USUAL

If you had followed Rand’s advice in these threads in the last five years you would have missed out on maybe some of the best gains of your lifetime.