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I see all sorts of signs of a market top or at least a 5% to 10% pullback. The problem is too many others do too. And won't we get that infamous 3 steps and a stumble rule come Wednesday (or is that outdated)
A good mention @Tony The WSJ audio clip I received (subscription service) sounds like the same article you're referencing - but I can't read it online either. It's a 6-8 minute clip laying out the bear case which we're all by now familiar with from various sources.
Summary
- Stocks have increased about 250% from the end of '08 when (according to the article) "nobody" wanted them.
- As always, the mom & pop / momentum crowd come late to the party and drive the "euphoric" stage for an indeterminable number of additional years.
- Serious investors face a tough decision whether to hang on to equities longer hoping to reap the big gains that come in the final "blowoff' stages of a market top or to sell now locking in gains before stocks plummet.
I know. "Same Old" - "Same Old" that we've all been hearing for the past few years. I'm not saying the analysis is correct. And I haven't a clue what anyone should do. Just wanted to help clarify the focus of the WSJ piece you appear to be referencing. Thanks again for sharing.
Excerpt: Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria—Sir John Templeton. Eight years ago today, investors were more pessimistic than they had been in many decades. Stocks had crashed back to where they stood almost 13 years earlier, banks were failing and comparisons to the Great Depression of the 1930s were routine. It was a great time to buy."
Some snippets of interest ... the rest is comments from investors/analysts about staying diversified and knowing that a 'correction' will come sometime.
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Investors have poured money into stocks through mutual funds and exchange-traded funds in 2017, with global equity funds posting record net inflows in the week ended March 1 based on data going back to 2000, according to fund tracker EPFR Global. Inflows continued the following week, even as the rally slowed. The S&P 500 shed 0.4% in the week ended Friday.
The investors’ positioning suggests burgeoning optimism, with TD Ameritrade clients increasing their net exposure to stocks in February, buying bank shares and popular stocks such as Amazon.com Inc. and sending the retail brokerage’s Investor Movement Index to a fresh high in data going back to 2010. The index tracks investors’ exposure to stocks and bonds to gauge their sentiment.
“People went toe in the water, knee in the water and now many are probably above the waist for the first time,” said JJ Kinahan, chief market strategist at TD Ameritrade.
< - >
That brings individual investors increasingly in line with Wall Street professionals. A February survey of fund managers by Bank of America Merrill Lynch found optimism about the global economy improving while investors were holding above-average levels of cash, leaving room for them to drive stocks still higher. Bullishness among Wall Street newsletter writers reached 63.1%—the highest level since 1987—a week ago in a survey by Investors Intelligence, before falling to 57.7% this past week.
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Not sure "being in line" with Wall street professionals is always a good idea. That usually happens late in the game when retail/dumb money climbs on the bandwagon and helps form that proverbial blow-off top. Institutions trim their holdings and lock in gains while selling to the exuberant and retail investors eager to get in on the action --- but at the top, as usual.
Thanks for that link, @djchappy. Some interesting info about rate hikes in the 1970's and effect on the market. For a raft of reasons (Nixon, Watergate, horrible market, and leisure suits) I sure hope we never have a decade like that one.
Ted linked an interesting, though mis-titled article this morning..."Beat the Wealth-Effect Trap". It discusses where we are in this business cycle in a manner very much related to this thread.
As summarized in this excerpt, "At high prices, where everything is priced for perfection in a harsh and uncertain world, there is no margin of safety when volatility strikes. Best to remember at such times the wise advice to leave the last 10% for the next guy."
Thanks, @PRESSmUp, I skipped that article because of the title, but went back to it because of new. Lesson seems to be: if you're not sure if it's the 7th or 9th, best to assume it's the 9th...
Haven't posted here in quite awhile. I was 5% cash as of January 1 and have gone to 60% bonds and cash starting around Valentine's Day. Finally sold my railroads (hated to do it) due to valuation concerns (CSX, NSC and TRN), but kept railcar builders/leasors ARII and GBX. Keeping AAPL, but added HII and PFN. Keeping a lot of cash on the sideline in government MMFs. And so it goes...
Like I said in the other thread. Start wimping out and start wimping back in. No need to sell out/buy in to the market all at once.
This is not "market timing". It is not sticking your head in the mud or try to justify some ANALysis of undervalued or overvalued. It does not matter one bit what experts say or what you think. All that matters is whether investors as a whole are getting in / out of the market.
We hire managers to do it, but we never think we should also do it?
Anyways, as long as XLE keeps going down, there is not going to be a market top. That's my ANALysis and don't ask me to explain it because we don't ask experts to either. I could provide statistically evidence based on the PAST, but that would mean diddly. Because remember, past performance is not a predictor of future returns. Same disclaimer should apply to predictions of market tops or bottoms.
Very few leading indicators are signaling a market top at this time. There is not much exuberance, and a lot of former investors are still in that category. I can tell you that we have had NO clients or potential clients tell us they want to put more of the money at risk. It just is not happening. Unless your are trying to time the market, and assuming you have an asset allocation that allows you to sleep at night, don't do anything. Remember that a lot of folks have been telling of impending doom for quite a few months now. Could we have a 10% correction? Of course we could. That's a possibility ANY time.
I'm pretty much with you on the subject ... as I average in (or down) when making changes within my portfolio; and, I also keep some powder dry (cash) for the unexpected pullbacks that most did not see coming in the markets. When stocks are selling towards their lows I hold more and when they are pricey I hold less. Currently, based upon the TTM P/E Ratio of 24.4 (April 21st) for the S&P 500 Index they are pricey in my book. And, if you buy on the come line of forward estimates ... you are buying just that estimates. Most times these forward looking estimates get revised downward and although you may win some come line investments often times you'll lose by buying when they were very richley priced.
Before, someone calls me out on the TTM P/E Ratio for the S&P 500 Index I'm linking my reference source(s).
Yep, I'm thinking stock prices are extended and they usually by history go soft during the summer months and rally during the winter months. Still with my plan to reduce my equity allocation towards its low range during the summer. Come late summer or early fall I'll let my market barometer and equity weighting matrix be my guide as to when to start to average back upward. And, I also know that some say that this strategy (Sell in May) does not work in modern day investing. The below link will provide an article that explains the Sell in May strategy in some detail.
Perhaps, this is Old_School investment mythology ... but, for me, it has worked more times than not. With this, I plan to "keep on keepin' on."
Old_Skeet
Trailing Note: Since, comments were made below about bond duration and maturity I thought I post mine. My portfolio as a whole bubbles, according to Morningstar Portfolio Manager, with a bond duration of 3.4 years and an average maturity of 5.9 years while my fixed income sleeve bubbles with a duration of 2.71 years and an average maturity of 4.91 years. So my hybrid funds seem to be carrying longer durations and maturities and run the overall numbers upward for the portfolio as a whole.
I'm still concerned about market valuations here, and May is around the corner. Examples of high current price to historical TTM free cash flow ratios (data from Morningstar): MCD 28.7; AMZN 45.2; CSX 52.3; FB 36.9. I'm whittling away at my equity allocation, being up to about 66% bonds/cash now. Although I'm 64, I'll weight back into equites when valuations are more reasonable. I've been on this train ride before when derailments can happen quickly. And so it goes...
I hope your bonds a short-duration and/or short-maturity. There is no imaginable reward for owning long-term bonds, especially long-term U.S. government bonds.
My bonds have about 3.5 years of effective duration and my cash is in U.S. Government MMFs for now. I'm up to 74% bonds/cash now after a little trading today (incuding a little tax loss harvesting to offset some LT capital gains I took back in February). Thanks for your input, and I agree on avoiding long-term bonds or even intermediate-term bonds that are on the long-term end of the scale.
I'm still concerned about market valuations here, and May is around the corner. Examples of high current price to historical TTM free cash flow ratios (data from Morningstar): MCD 28.7; AMZN 45.2; CSX 52.3; FB 36.9. I'm whittling away at my equity allocation, being up to about 66% bonds/cash now. Although I'm 64, I'll weight back into equites when valuations are more reasonable. I've been on this train ride before when derailments can happen quickly. And so it goes...
Market Valuations were higher 1 month back. They may be higher 1 month in future.
Every prediction is based on hindsight. Based on what happened in the past. I'm the last one to ask anyone to ignore history. They do so at their own peril. However it is not about identifying market tops or market bottoms. It is about gradually buying in and gradually fading out. There was a time when you could just plonk money into balanced fund. Not sure that will work any more, and *this* is not about past history, but about future. Past history says invest in balanced funds if you are wimp because it was predicated on interest rates going lower and lower. So it is important for one to be able to manage his/her cash position.
I'm not 25 years old. I can't keep DCAing into VFINX. Between 2000 and 2013 index went nowhere. I'm not going to waste my time figuring out how DCA worked because each situation is different. Maybe someone can calculate $100 invested each month in that interval and find out how much money they had in 2013, then we can discuss. In 13 years I might be dead, so I will not bother making that calculation.
Comments
Regards,
Ted
Summary
- Stocks have increased about 250% from the end of '08 when (according to the article) "nobody" wanted them.
- As always, the mom & pop / momentum crowd come late to the party and drive the "euphoric" stage for an indeterminable number of additional years.
- Serious investors face a tough decision whether to hang on to equities longer hoping to reap the big gains that come in the final "blowoff' stages of a market top or to sell now locking in gains before stocks plummet.
I know. "Same Old" - "Same Old" that we've all been hearing for the past few years. I'm not saying the analysis is correct. And I haven't a clue what anyone should do. Just wanted to help clarify the focus of the WSJ piece you appear to be referencing. Thanks again for sharing.
Edit/Additional
Source: WSJ March 9 2017, Author: James Mackintosh, Title: "This Crazy, Expensive Stock Market Is for Speculators, Not Investors" https://www.wsj.com/articles/this-crazy-expensive-stock-market-is-for-speculators-not-investors-1489078334?tesla=y
Excerpt: Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria—Sir John Templeton. Eight years ago today, investors were more pessimistic than they had been in many decades. Stocks had crashed back to where they stood almost 13 years earlier, banks were failing and comparisons to the Great Depression of the 1930s were routine. It was a great time to buy."
Re: James Makintosh http://topics.wsj.com/person/M/james-mackintosh/8338
(I made a couple minor corrections to original summary based on a second listening.)
< - >
Investors have poured money into stocks through mutual funds and exchange-traded funds in 2017, with global equity funds posting record net inflows in the week ended March 1 based on data going back to 2000, according to fund tracker EPFR Global. Inflows continued the following week, even as the rally slowed. The S&P 500 shed 0.4% in the week ended Friday.
The investors’ positioning suggests burgeoning optimism, with TD Ameritrade clients increasing their net exposure to stocks in February, buying bank shares and popular stocks such as Amazon.com Inc. and sending the retail brokerage’s Investor Movement Index to a fresh high in data going back to 2010. The index tracks investors’ exposure to stocks and bonds to gauge their sentiment.
“People went toe in the water, knee in the water and now many are probably above the waist for the first time,” said JJ Kinahan, chief market strategist at TD Ameritrade.
< - >
That brings individual investors increasingly in line with Wall Street professionals. A February survey of fund managers by Bank of America Merrill Lynch found optimism about the global economy improving while investors were holding above-average levels of cash, leaving room for them to drive stocks still higher. Bullishness among Wall Street newsletter writers reached 63.1%—the highest level since 1987—a week ago in a survey by Investors Intelligence, before falling to 57.7% this past week.
< - >
Not sure "being in line" with Wall street professionals is always a good idea. That usually happens late in the game when retail/dumb money climbs on the bandwagon and helps form that proverbial blow-off top. Institutions trim their holdings and lock in gains while selling to the exuberant and retail investors eager to get in on the action --- but at the top, as usual.
As summarized in this excerpt, "At high prices, where everything is priced for perfection in a harsh and uncertain world, there is no margin of safety when volatility strikes. Best to remember at such times the wise advice to leave the last 10% for the next guy."
Regards,
Ted
This is not "market timing". It is not sticking your head in the mud or try to justify some ANALysis of undervalued or overvalued. It does not matter one bit what experts say or what you think. All that matters is whether investors as a whole are getting in / out of the market.
We hire managers to do it, but we never think we should also do it?
Anyways, as long as XLE keeps going down, there is not going to be a market top. That's my ANALysis and don't ask me to explain it because we don't ask experts to either. I could provide statistically evidence based on the PAST, but that would mean diddly. Because remember, past performance is not a predictor of future returns. Same disclaimer should apply to predictions of market tops or bottoms.
I'm pretty much with you on the subject ... as I average in (or down) when making changes within my portfolio; and, I also keep some powder dry (cash) for the unexpected pullbacks that most did not see coming in the markets. When stocks are selling towards their lows I hold more and when they are pricey I hold less. Currently, based upon the TTM P/E Ratio of 24.4 (April 21st) for the S&P 500 Index they are pricey in my book. And, if you buy on the come line of forward estimates ... you are buying just that estimates. Most times these forward looking estimates get revised downward and although you may win some come line investments often times you'll lose by buying when they were very richley priced.
Before, someone calls me out on the TTM P/E Ratio for the S&P 500 Index I'm linking my reference source(s).
http://online.wsj.com/mdc/public/page/2_3021-peyield.html?mod=wsj_mdc_additional_ustocks
and, here ...
https://www.advisorperspectives.com/dshort/updates/2017/04/04/is-the-stock-market-cheap
Yep, I'm thinking stock prices are extended and they usually by history go soft during the summer months and rally during the winter months. Still with my plan to reduce my equity allocation towards its low range during the summer. Come late summer or early fall I'll let my market barometer and equity weighting matrix be my guide as to when to start to average back upward. And, I also know that some say that this strategy (Sell in May) does not work in modern day investing. The below link will provide an article that explains the Sell in May strategy in some detail.
http://www.etf.com/sections/features-and-news/should-you-sell-may-go-away?nopaging=1
Perhaps, this is Old_School investment mythology ... but, for me, it has worked more times than not. With this, I plan to "keep on keepin' on."
Old_Skeet
Trailing Note: Since, comments were made below about bond duration and maturity I thought I post mine. My portfolio as a whole bubbles, according to Morningstar Portfolio Manager, with a bond duration of 3.4 years and an average maturity of 5.9 years while my fixed income sleeve bubbles with a duration of 2.71 years and an average maturity of 4.91 years. So my hybrid funds seem to be carrying longer durations and maturities and run the overall numbers upward for the portfolio as a whole.
My bonds have about 3.5 years of effective duration and my cash is in U.S. Government MMFs for now. I'm up to 74% bonds/cash now after a little trading today (incuding a little tax loss harvesting to offset some LT capital gains I took back in February). Thanks for your input, and I agree on avoiding long-term bonds or even intermediate-term bonds that are on the long-term end of the scale.
Every prediction is based on hindsight. Based on what happened in the past. I'm the last one to ask anyone to ignore history. They do so at their own peril. However it is not about identifying market tops or market bottoms. It is about gradually buying in and gradually fading out. There was a time when you could just plonk money into balanced fund. Not sure that will work any more, and *this* is not about past history, but about future. Past history says invest in balanced funds if you are wimp because it was predicated on interest rates going lower and lower. So it is important for one to be able to manage his/her cash position.
I'm not 25 years old. I can't keep DCAing into VFINX. Between 2000 and 2013 index went nowhere. I'm not going to waste my time figuring out how DCA worked because each situation is different. Maybe someone can calculate $100 invested each month in that interval and find out how much money they had in 2013, then we can discuss. In 13 years I might be dead, so I will not bother making that calculation.