[Hell_Is_Like_Newark]

(08-29-2018 05:50 AM)Australia Sucks Wrote:  

With the caveat that nobody can consistently time markets, I cannot see any reason for an imminent market collapse. To me it looks like business as usual at this point. Keep investing (intelligently) no need for panic (or excessive pessimism) just yet.

I have two areas of concern:

Real estate: Sale prices vs. rent equivalent value are skewed. The government and the Fed re-inflated the housing bubble via bank bailouts and the Fed buying up mortgage debt. This time though, the mortgage note holder have better credit, so it may not be repeat of the 2007 crash. It might be a slow bleed in prices.

I have been a real estate investor since 1997. Since early 2003, I have not been able to buy, renovate, and rent with a positive cash flow; unless I go for the real high end market. I have seen the 'high end' collapse multiple times. Even a mild recession causes prospective tenants to downgrade.

Debt: In particular, public pensions. IL, NJ, and RI are looking at defaults by the early 2020s. Few states have pension systems that are even 50% funded. The $trillions needed to bail out the pensions would have to come from printing money or issuing massive amounts of debt on the Federal level. I fear this could blow up interest rates, which would have a cascade effect on other debt (mortgages, student loan, etc.).

These two above I see as giant sea mines that could sink the economy quickly.

[Australia Sucks]

Real estate valuations are not low but they are certainly nowhere near bubble levels (of course there are certain pockets that are frothy). Household incomes are rising, employment growth is solid and there is no looming oversupply in the housing market and affordability while not as good as 5 years ago is still quite good when looking at a longer term (multiple decades) trends. Please refer to the chart on page 3 of the PDF https://www.yardeni.com/pub/houseafford.pdf

As for the debts you are talking about even if you assume they will cause a problem (that is arguable), it is 2018 and 2020 is still some time away so its a little premature to be worrying now.

[godzilla]

(08-29-2018 07:27 AM)Hell_Is_Like_Newark Wrote:  

(08-29-2018 05:50 AM)Australia Sucks Wrote:  

With the caveat that nobody can consistently time markets, I cannot see any reason for an imminent market collapse. To me it looks like business as usual at this point. Keep investing (intelligently) no need for panic (or excessive pessimism) just yet.

I have two areas of concern:

Real estate: Sale prices vs. rent equivalent value are skewed. The government and the Fed re-inflated the housing bubble via bank bailouts and the Fed buying up mortgage debt. This time though, the mortgage note holder have better credit, so it may not be repeat of the 2007 crash. It might be a slow bleed in prices.

I have been a real estate investor since 1997. Since early 2003, I have not been able to buy, renovate, and rent with a positive cash flow; unless I go for the real high end market. I have seen the 'high end' collapse multiple times. Even a mild recession causes prospective tenants to downgrade.

Debt: In particular, public pensions. IL, NJ, and RI are looking at defaults by the early 2020s. Few states have pension systems that are even 50% funded. The $trillions needed to bail out the pensions would have to come from printing money or issuing massive amounts of debt on the Federal level. I fear this could blow up interest rates, which would have a cascade effect on other debt (mortgages, student loan, etc.).

These two above I see as giant sea mines that could sink the economy quickly.

Prices haven't come down yet but you're seeing this year a large drop in mortgage applications as prices and rates go up. A lot of mortgage brokers are complaining about there business, plus all their refi business is gone.

[smashley]

(08-29-2018 05:30 AM)Australia Sucks Wrote:  

Also as I mentioned before I am not a bull market Johnny-come-lately. I invested in the market well before 2008 and survived that downturn. I have seen both bull and bear cycles.

Will only make one last comment and i'm out of this circle jerk i've lost hours of my life with arguments like this. Is it possible to beat the index? Yes! Is it likely if you're a betting man? Hell No! I'll stick with a 90% chance plus of winning with index funds. Thanks.

Yes you may have seen the 2008 downturn, but based on your age that would make you 18 or less? I'm pretty sure your stock portfolio at 18 didn't have 100's of thousands of dollars in the account. Pretty easy to accept losses when its 50% of $5,000 as apposed to 50% of $500,000. Do you think you would have made the same decisions about buying and selling had the stakes been as high as they could have been for higher net worth individuals? Why do you think hedge fund managers and large funds (with great education and years of experience) make poor trades? Emotion's and pressure affect active traders whether one can admit it or not. And i'm not just talking about selling in a downturn. And i'm not talking about funds with liquidity problems. I'm talking about actively trading individual companies stocks based on performance/fundamentals.

Your points about entry and exit are partly true, but it doesn't end the fact that even based on valuations sometimes stocks don't behave according to rules. It is what someones willing to pay or sell at whether they be smart or dumb money. Even with all the best fundamentals some stocks still drop.. It makes no sense analytically, and therefore logic cannot always predict movement. There is some inherent randomness, algorithmic trading, insider knowledge, or other outside factors that are sometimes beyond one man's analysis. So why not just diversity and eliminate all the b.s. and accept the overall movement of the market without the fees. i.e. indexing.

If it were so damn easy to beat the market year after year, there would be that guy promising 30% returns every year. Oh wait that does exist, I think his name is bernie madoff. Heard he'll get you great returns..

[CaptainChardonnay]

Quote:

Even with all the best fundamentals some stocks still drop.. It makes no sense analytically, and therefore logic cannot always predict movement. There is some inherent randomness, algorithmic trading, insider knowledge, or other outside factors that are sometimes beyond one man's analysis. So why not just diversity and eliminate all the b.s. and accept the overall movement of the market without the fees. i.e. indexing.

The reason theses gains and drops don't make sense analytically is because the people looking at them are looking at them from a point of view that is too analytical with too many assumptions such as every investor being rational. It is scary for the average person to think that they can make all the right moves and still be wrong.

Over the long term the intrinsic value of a security will reign true however in the heat of the moment, price is really a sentiment of the bidders and sellers and this is influenced by the emotions of the market which is more difficult to quantify (for example parabolic moves).

There is an emerging field in finance called behavioural finance which can explain a lot of what is going on. It is a field that is currently highly in demand with very little peer reviewed studies and looks at the biases of people when they make trading/investment decisions.

The randomness is really the hysteria of the masses. One cannot consistently predict the behaviour of individuals however the markets are a consensus of the mob and the mob is a lot more predictable.

Insider trading is an easy scapegoat because it takes blame off the individual investor/trader however initial price action is one of the biggest tells. If a stock has been inactive/channeling for a long time and suddenly gains in volume/price (with no news) the only thing that could be happening (all else equal) is that insiders (executives, CEOs, etc) know something and are in the process of accumulating it expecting prices to increase. This is a tell and can be acted upon by the trader/investor with experience.

Why not eliminate the BS? This is the whole point of this thread. It really comes down to risk tolerance and effort you are willing to expend. Are you willing to risk capital on your analysis. Are you willing to do your own research and come to your own conclusions and then bet on them. Most people are not and this is why most people are better off putting their money into an index. What OP is saying is that with a little bit of work they can do better than the index.

If you have a low risk tolerance and want something safe without the headaches (no thought input) then yes indexes are the way to go.

If you want to take on more risks for the possibility of making higher returns than the index then you will need to put in more though and work into the process.

Quote:

If it were so damn easy to beat the market year after year, there would be that guy promising 30% returns every year. Oh wait that does exist, I think his name is bernie madoff. Heard he'll get you great returns..

There are guys who promise high returns, the only thing is they don't take any person who invests with them. The difference is that Bernie Madoff will take anyones money however these high return guys will take money from only people they know and who have a big enough account.

[Excalibur]

This is a totally valid thread. My take on this is, AS started investing 10 years ago, most likely with a small amount of money. You caught the stock market rebound, and have out performed the market.

I do believe a certain segment of the forum reader should follow your advice. If you are young, and believe in the stock market it might not be a bad idea to start learning how to invest in stock. This is after learning personal finance. Personal finance is a big enough subject that many do not master before jumping into stock investing.

That being said, you are getting a lot of antagonism from guys who have much different background and experience from you.

In my case, I decided a long time ago that I probably do not have the emotional discipline and mental organization to invest a large portion of my hard earned net worth into a few stock picks. I may try to be disciplined and rational in the beginning, but most likely it will end up being a few hasty emotional decisions. I actually have performed pretty well in the market in the past with my stock picks. During the dot.com bubble, I entered at the right time and exited at the right time. I made a 40x return on one of my stocks. not 400% return, this is 4000% return. I was the only person among my peers to make a sizable profit when the market finally crashed. Even with that experience, I still do not trust my ability.

Another reason is that I decided the ability to pick stocks, although is a lucrative skill, is not a skill I want to spend time cultivating. You can invest your time learn how to mix computer, be a doctor, learn about law, be a martial arts expert. All those can also translate to monetary rewards.

It's true that out performing the market by 2% on a $1 million dollar portfolio can give you a much greater reward and busting you butt doing a side gig repairing computers. However that stock picking is quite nebulous and difficult to measure. In a bull market, over the last 10 years, it is very easy to confuse skill with luck. Let's say in the event the portfolio you so proudly put together eventually returned to the mean and barely out perform the market in 20 years, how will you look back and justify the thousand of hours lost in researching stocks when you could have learned another trade, hobby, language.

I gave 3% of my portfolio to be managed by a financial advisor. He was very intelligent, understood all the nuances of our financial system, and the global economy. In the end I lost 40% of the money I invested with him.

I think you message is valid based on your investment and life experience. And I think what you preach is applicable to certain people. And believe me I am very envious of guys like you sometimes. I know a guy in his fifties with a $20 million stock portfolio. He is just a small time investor, investing for himself. He reads all the books, investment magazine. Yes guys like that exist, and his story tempts to try my luck with stock picking again. But I had to remind myself to be humble. Accept my broad market return.

[Kid Twist]

(08-29-2018 07:56 AM)Australia Sucks Wrote:  

Real estate valuations are not low but they are certainly nowhere near bubble levels (of course there are certain pockets that are frothy). Household incomes are rising, employment growth is solid and there is no looming oversupply in the housing market and affordability while not as good as 5 years ago is still quite good when looking at a longer term (multiple decades) trends. Please refer to the chart on page 3 of the PDF https://www.yardeni.com/pub/houseafford.pdf

As for the debts you are talking about even if you assume they will cause a problem (that is arguable), it is 2018 and 2020 is still some time away so its a little premature to be worrying now.

We still sticking to the 2025 +/- as the next big one, AS?

[Alpone]

Let's talk about culture wars and stocks.

Individual stocks are far less predictable than index funds, even if you know everything about the company. This has always been the case, but it's compounded now by culture wars playing out in boardrooms across the country. Do you feel safe having a big % of your money invested in a company whose high-performing CEO may get #metoo'd and fired because of 'inappropriate' eye contact with a secretary? Who may be replaced by a far less qualified person simply because of their sex/race?

What about tech companies who are in the red or barely profitable, being kept afloat by VCs purely for ideological/cultural reasons? What about censorship by tech oligarchs and the consequences of regulating them, or even breaking them up? Trump is even calling out Google on censorship.

What about senior corporate staff trying to close the 'wage gap' by fast tracking barely competent female hires into management positions? What about qualified potential hires being passed over for more politically correct candidates who check off the proper identity boxes? This will have major consequences in 5-10 years, both in terms of corporate performance and stock performance.

The culture wars add a whole new level of complexity and unpredictability into the market. Culture turns into policy, policy turns into hiring decisions, and hiring decisions turns into corporate performance.

[Australia Sucks]

There are a lot of people making invalid assumptions about me.

I started investing in the stock market in 2006. I convinced my parents in early 2008 when i was still very young to allow me to manage a substantial portion of their retirement savings. Given the bear market that ensued their retirement nest egg rapidly proceeded to shrink by a 6 figure amount during the financial crises (but has since more than fully recovered and is now doing well and hitting all time new highs). So I did not just lose a few thousand of my own money in the last bear market as people presume. And being responsible for your parents retirement nest egg shrinking is far more sobering than incurring losses on your own portfolio. So believe me I understand first hand the impact of a bear market.

smashley market sentiment can affect stock prices short-term more than earnings in some cases. However my time frame is long enough for that to not be relevant. My largest stock position is a stock I have owned for more than 10 years, I have never sold a single share and have added to my position over time and get rising dividends from the stock. When you hold stocks for that length of time its the earnings that the company generates that make or break the investment.

Yes Kidtwist I still think sometime in the middle of the next decade is when the next big crash is more likely to occur but I cannot say that with confidence.

However between 6 and 18 months out from the next big crash I expect numerous indicators to be flashing red. That is what I will be looking out for. For example warning signs I will be looking out for during the next crash are U.S. interest rates being at a high level, U.S. land prices having declined over a 6-12 month period (with other housing market indicators such as construction and affordability, etc also being weak), an inverted yield curve, the completion (or near completion) of record breaking skyscapers (or other record breaking globally important constructions), weak outlook statements/guidance by companies for the year ahead, frenzied and irrational speculative hysteria by the masses, record breaking (largest in history) takeover deals and IPOs, the majority of asset classes (most major stock and property markets in the world) all hitting record highs together and riskier assets (emerging and frontier markets, etc) enjoying turbocharged returns, higher inflation. There are also some other indicators I will be following as well.

The above being said nobody can time the market 100% but if I start to see the indicators start to flash red in a major way (higher probability of a downturn) I will hedge my bets somewhat and position my portfolio more conservatively to be prepared for the downturn. I do not proclaim to be a market timing guru with a crystal ball. Besides my investing is mostly bottom up (but overlaid with a bit of macro analysis).

Alpone I do not think the culture wars should be high on anybody's list as something that will affect corporate earnings. There are a lot of real risks to corporate earnings but that is not one of them. And if a CEO gets fired for political reasons and replaced with an incompetent idiot (a rather unlikely scenario) I will sell my shares and buy something else.

As for breaking up the tech giants (or at the very least more heavy handed regulation) that is a real risk but anti trust laws etc are nothing new. The Rockfellers got affected by it way back!! I would not invest in those types of tech giants anyway (partly for that reason and partly for other reasons) so it does not affect me too much investment-wise.

The culture wars are nothing new and I do not think it will change all that much. In any case just avoid companies with dud management (and if they replace a good management with dud management then sell).

[smashley]

(08-31-2018 06:00 AM)Australia Sucks Wrote:  

I started investing in the stock market in 2006. I convinced my parents in early 2008 when i was still very young to allow me to manage a substantial portion of their retirement savings.

So your parents allowed a roughly 16 y/o with zero stock trading experience to manage a hundreds of thousands/million dollar retirement account they saved their whole working life for and which they plan to retire on?

This is either the dumbest thing i've ever heard, or you're making it up conveniently to back-peddle and justify your argument..

(08-31-2018 06:00 AM)Australia Sucks Wrote:  

There are a lot of people making invalid assumptions about me.

The above being said nobody can time the market 100% but if I start to see the indicators start to flash red in a major way (higher probability of a downturn) I will hedge my bets somewhat and position my portfolio more conservatively to be prepared for the downturn. I do not proclaim to be a market timing guru with a crystal ball. Besides my investing is mostly bottom up (but overlaid with a bit of macro analysis).

And if a CEO gets fired for political reasons and replaced with an incompetent idiot (a rather unlikely scenario) I will sell my shares and buy something else.

And you don't think that the market would have already knocked the stock price down 20%-50% after the CEO incident (markets move in seconds) making it way to late to get out without losing all your gains?

You say you're not claiming to be timing the market, however all of your methods and analysis are all doing exactly that... Literally contradicting yourself the next sentence.. I'm not timing the market, but when I FEEL the market is at an expensive/bad/troublesome time I will get out. That's timing the market my friend..

We know you're smarter than everyone else and it will never happen to you... You're not saying this directly but if you read between the lines it's exactly what you're saying...

Best of luck to you

[Australia Sucks]

Firstly smashley I am not making that up. My parents did (and still have) other financial assets outside of their retirement funds but they allowed me to manage a portion of their retirement funds. To date the returns have been good. Also I was somewhat older than 16. I never mentioned 16 anywhere and I am not going to give my exact age other than to say I was under 20 at the time. I know it is a little hard to believe but it is the truth. As the old saying goes, truth is stranger than fiction. I was a bit overly cocky at the time and my parents were a little too trusting of me. Fortunately things worked out okay in the end.

And you are actually missing the nuance in what I am saying. I do not jump in and out of stock markets every year. In fact I have been relatively fully invested for many, many years now, but if there are clear indications of the outlook being terrible coupled with stocks in my portfolio being substantially overvalued and I cannot find good opportunities to invest, then I will reduce increase my cash waiting until better opportunities arrive. Also if you read my thread on the Australian stock market I mention plenty of individual stocks in there in a way that has little to do with market timing.

thread-58229.html

I am a bottom up stock picker at heart but I do keep in the back of my mind the broader context/economy in which companies operate.

https://qz.com/1268066/bankers-say-that-...-industry/
By the way the above article shows American banks were making paltry returns on equity in 2017 (albeit it may have improved somewhat since then). If we were in full bubble mode and the banks were taking crazy risks returns on equity would be much higher. Go and look at previous historical cycles and you will see what I am talking about.

[Teutatis]

(09-01-2018 03:43 PM)smashley Wrote:  

(08-31-2018 06:00 AM)Australia Sucks Wrote:  

I started investing in the stock market in 2006. I convinced my parents in early 2008 when i was still very young to allow me to manage a substantial portion of their retirement savings.

So your parents allowed a roughly 16 y/o with zero stock trading experience to manage a hundreds of thousands/million dollar retirement account they saved their whole working life for and which they plan to retire on?

This is either the dumbest thing i've ever heard, or you're making it up conveniently to back-peddle and justify your argument..

(08-31-2018 06:00 AM)Australia Sucks Wrote:  

There are a lot of people making invalid assumptions about me.

The above being said nobody can time the market 100% but if I start to see the indicators start to flash red in a major way (higher probability of a downturn) I will hedge my bets somewhat and position my portfolio more conservatively to be prepared for the downturn. I do not proclaim to be a market timing guru with a crystal ball. Besides my investing is mostly bottom up (but overlaid with a bit of macro analysis).

And if a CEO gets fired for political reasons and replaced with an incompetent idiot (a rather unlikely scenario) I will sell my shares and buy something else.

And you don't think that the market would have already knocked the stock price down 20%-50% after the CEO incident (markets move in seconds) making it way to late to get out without losing all your gains?

You say you're not claiming to be timing the market, however all of your methods and analysis are all doing exactly that... Literally contradicting yourself the next sentence.. I'm not timing the market, but when I FEEL the market is at an expensive/bad/troublesome time I will get out. That's timing the market my friend..

We know you're smarter than everyone else and it will never happen to you... You're not saying this directly but if you read between the lines it's exactly what you're saying...

Best of luck to you

Unlike you Australia Sucks has been respectful throughout this thread, you can disagree with him without being a twat. It's like you're one of those guys who simply can't believe that there are other ways to make money in the market other than indexing. Indexing is great, you're getting the market returns without lifting a finger so you can focus on other things like your job, career, business, whatever, but for those who are willing to put in the work, time, effort and risk in order to achieve higher returns then indexing is not the best option, it's not that hard to understand that both options are valid depending on your circumstances, personality, etc.

[Excalibur]

If I have a kid, I would teach him to invest also. 16 is probably a good age to start. Help him start a small portfolio.

My parents are getting older and senile, and I see all these financial advisors hitting them up. Sometimes I worry they they'll get taken advantage.

I am humble enough to accept that even if I am healthy, by the time I am 75 y/o, I would trust my kid's sharper younger brain than my own assuming he has had a good track record. Maybe he or she will manage 50% of my assets by then. So if in my mildly demented state someone took me to the cleaner, my kid will keep the other half safe.

[Kid Twist]

(08-31-2018 06:00 AM)Australia Sucks Wrote:  

Yes Kidtwist I still think sometime in the middle of the next decade is when the next big crash is more likely to occur but I cannot say that with confidence.

However between 6 and 18 months out from the next big crash I expect numerous indicators to be flashing red. That is what I will be looking out for. For example warning signs I will be looking out for during the next crash are U.S. interest rates being at a high level, U.S. land prices having declined over a 6-12 month period (with other housing market indicators such as construction and affordability, etc also being weak), an inverted yield curve, the completion (or near completion) of record breaking skyscapers (or other record breaking globally important constructions), weak outlook statements/guidance by companies for the year ahead, frenzied and irrational speculative hysteria by the masses, record breaking (largest in history) takeover deals and IPOs, the majority of asset classes (most major stock and property markets in the world) all hitting record highs together and riskier assets (emerging and frontier markets, etc) enjoying turbocharged returns, higher inflation. There are also some other indicators I will be following as well.

Interesting, I'm wondering what the currency collapses occurring outside the USD will do ... those are knocking on the door. Most non-US stock markets (looks like all except the Nikkei) are down for the year too.