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@Tony No doubt about it Tony, at some point the bull market will end. From today's Josh Brown article, that I will link later, nobody knows when. However, as indicated by the linked chart Blue line below – that’s the whole world ex-US breaking out into new ground. What else do you need to see to understand that a global breakout has occurred? It’s happening right before your eyes, month after month. Even Tyler sees it: “The MSCI World index had its 8th monthly rise in a row, its best run since 2003 and the fourth-longest monthly winning run on record” Regards, Ted
As someone in their mid-40s with nearly 100% of my investments in equities, now that it's no longer needed for parental care purposes, I will happily deploy my large cash pile to opportunistically pick up stocks I want to own or add to as they "go on sale." But since I'm already comfortably in the markets, I'm in no rush and won't just pay any price!
As someone in their mid-40s with nearly 100% of my investments in equities, now that it's no longer needed for parental care purposes, I will happily deploy my large cash pile to opportunistically pick up stocks I want to own or add to as they "go on sale." But since I'm already comfortably in the markets, I'm in no rush and won't just pay any price!
If you're "nearly 100%" equities, how do you have a large cash pile.....
@JoJo26: That's not what he said. Read it again: "nearly 100% of my investments in equities". Obviously he does not consider his cash to be "invested"... a perfectly reasonable perspective.
It sounds simple to buy during a bear market, but the facts are that people buy during the bull market, and will sell during and after a decline. I heard that a guy by the name of Robert Prechter has an amazing history, so he says, of predicting the stock market collapses.
A June 2015 profile of Robert Prechter, the world’s foremost proponent of Elliott Wave technical analysis, turned out to be the most popular investing story on MarketWatch for the week in which it was published.
One of the reasons is that, at the time, Prechter said the bull market in U.S. stocks was in a “precarious position” as a “mania” gripped investors, who pushed stocks to sky-high levels of overvaluation. The market has only risen since then, and it even got a bump from the November 2016 election of businessman Donald Trump as president.
Prechter has the distinction of being bearish since late 1987. His fame came from some prescient bullish calls in the mid 80s. Since then he has been among the most vociferous bears on the planet.
True story and I am NOT referencing Prechter here. I once spoke at a seminar. One of the other speakers was a well known perennial bear. He told me in private that he actually was never as bearish as his public persona just that doom and gloom sold more subscriptions.
The par value of a stock is basically nil because unlike a bond it has no par value. Nothing whatsoever is legally promised to investors. The whole stock market is built on a hope and a prayer, and on relative valuations to bonds that can disappear like vapor the moment a company misses an earnings estimate. To me bond investing is far more rational. You know exactly what you're legally promised via covenants before you invest. You just have to analyze the balance sheet and think about where interest rates are heading. That's it.
Stocks by contrast are mysterious. "Mysterious" could be a euphemism for much more malevolent terms to describe how the market functions. How did the issuers of Facebook come up with a $75 maximum offering price when the par value is nil? I imagine they got together and plugged in various models and projections and price-per-click calculations to speculate that it should top off at $75. Is that what it was worth then? Is this what the stock market is worth in total today? Anyone who says they have a definitive answer is lying.
@JoJo26: That's not what he said. Read it again: "nearly 100% of my investments in equities". Obviously he does not consider his cash to be "invested"... a perfectly reasonable perspective.
But then the performance of your "investments" is not an accurate representation or apples to apples comparison to how it stacks up versus broader index performance... If you have cash that you'd actually deem as investible, then it should be a part of your portfolio, and be a boon in down markets and drag in up markets.
Well ... If everyone buys, than the market won't go down. Will it? ---
Edit: The above was a quick shoot from the hip reaction to the thread. No intent to disparage anyone.
Truth is, you really don't know what you'll do until it happens. In '08 the picture was bleak. Hank Paulson, Treasury Secretary, was on TV trying to reassure a panicked public. Lehman Brothers - a giant financial institution - had crumpled in days. Money market funds, previously considered safe, were on the ropes and might well have collapsed without emergency government backing. As bad as it was here, international markets plummeted even more. I saw people who were retired and thought they were smart investors literally in tears after watching their retirement nest egg disintegrate 50% in a year's time.
There are options other than simple buy or sell. If you think the sell-off is overdone consider rotating out of conservative funds and into more aggressive ones at a slow and steady pace. Also, if your money is in Traditional IRAs, consider converting to a Roth while markets are depressed. Personally, I'm mostly buy and hold, but do adjust cash position upward or downward a bit as markets evolve (risk on/risk off). Generally, cash stays between 10% and 25% - so there's not a lot of leeway there to buy equities.
@JoJo: Yes, I believe cash is a portfolio 'position' (so to speak) but I don't consider cash as part of my portfolio return calculations. It's just an idle resource waiting to be used. But each to their own....
@JoJo26: That's not what he said. Read it again: "nearly 100% of my investments in equities". Obviously he does not consider his cash to be "invested"... a perfectly reasonable perspective.
But then the performance of your "investments" is not an accurate representation or apples to apples comparison to how it stacks up versus broader index performance... If you have cash that you'd actually deem as investible, then it should be a part of your portfolio, and be a boon in down markets and drag in up markets.
Since late 2014 I have gradually reduced my risk by reinvesting dividends in a short term bond fund rather than the stock fund that produced them . It has hurt performance but helped my calmness. In the event the bear appears I will NOT buy the dip until its fairly large. i.e something like 4000 dow points but I probably won't do much selling o the way down..
Good discussion on the reporting of cash held within a portfolio. For years I counted cash as a part of my portfolio and factored it in with portfolio performance reporting since cash is an asset class. My brokerage firm still reports performance with cash being considered. However, Morningstar's portfolio manager does not factor cash into portfolio performance reporting. So, with this, it is very easy for me see both ways what the cash drag or its benefit is and by how much. Thus, I started tracking portfolio performance reporting with and without cash. If I report portfolio performance it is for everthing held (including cash) and for investment returns it is for everything held without cash. Because I am holding about 20% cash within my portfolio returns as a whole are currently about 20% behind investment returns. However, should we get into a market downdraft I'm thinking the amount of cash held will help soften the performance decline.
In addition, I do not factor cash as a part portfolio principal to compute retirement withdrawals. This is done on invested assets only. Generally, I take no more than one half of my five year average investment return. In this way, principal grows over time.
So, when the "Bear Comes Calling" ...
By keeping a good store of cash and the fact I've not overdrawn my portfolio in retirement I should be OK when the bear comes calling with an ample amout of cash "on hand" to invest for the rebound. And, my dividend and interest payments should (for the most part) keep rolling on in. In addition, my asset allocation is also something for me to consider and will also play a role in how I fair in a bear market.
Also, one problem with using cash as part of your portfolio calculations comes from examining asset allocation, such as in M* XRay. With a large cash position in one of the accounts, it skews the percentages bigtime and doesn't give me an accurate portrayal of what I'm holding and where.
Removing (or not including) cash in AA calculations gives me a better overview of how my portfolios are positioned in tangible terms, plus other metrics - ROA, ROI, etc, etc.
"Thus, I started tracking portfolio performance reporting with and without cash. If I report portfolio performance it is for everything held (including cash) and for investment returns it is for everything held without cash."
@Old_Skeet- that's exactly what I do also. Thanks for mentioning this approach.
Cash has the element of stable value ... generally, bonds do not have this stable value feature. So, in stock market swoons fixed income investors could be impacted as well as equity investors who are scrambling to raise capital (sell bonds) to meet equity margin calls. Simply stated, bonds have their own asset class.
@Old_Skeet I don't know and can't predict whether large organizations and likely not individual investors would be selling "enough" bonds to meet margin calls. If equity markets are headed to the toilet, generally speaking; at least U.S. gov't. Treasury issues find favor which of course, translates into pricing increases (spell that profit trajectory). Fidelity's cash account has a current 7 day yield of .68%. We'll stay with our current bond holdings of 98% corporate bonds for our "cash" position.
Chart: SPY versus LQD (corp. bds) versus IEF (Treasuries 7-10 year) versus EDV (extended duration government bonds). One may move the slider at either end to narrow the time frame for a closer look at a specific time period. This chart is from Dec. 13, 2007 through August 2, 2017.
Hi @expatsp Currently, FCBFX . Chose for active managed during the potential updraft in yields over the past year or so. We use this particular fund as our accounts are with Fidelity.
One can not take issue with the chart ... but, let me ask a question. How much of the reflected outsized performance for the securities shown in the chart was the result of the FMOC's bond buying program? Generally, back then most bond yields fell as bond valutations increased. I'm thinking this performance would be hard to repeat again in the nearterm to midterm based upon current low bond yields.
Hi @Old_Skeet You noted: "but, let me ask a question. How much of the reflected outsized performance for the securities shown in the chart was the result of the FOMC's bond buying program? Generally, back then most bond yields fell as bond valutations increased. I'm thinking this performance would be hard to repeat again in the nearterm to midterm based upon current low bond yields." >>>From the market melt in 2007/2008 through today; global central bank policies have indeed "perverted" returns in both equity and bond sectors. This perversion remains today. I have noted before (2009 FundAlarm) and still maintain that "this time is different". Consumer side economic damage took place during the market melt and many folks, IMO; have not fully recovered. For a very short list, the continued low interest rate policies from central banks and technology advances will maintain pressures going forward to determine the winners and losers in the equity and bond arenas. While interest rates are indeed low and the potential for out sized returns likely no longer exists as related to the market melt returns; financial or political events would likely push up prices on investment grade bonds, being corporate and more so U.S. government issues. While the current view of policies and politics, as viewed from outside the U.S., is likely not as favorable as with past administrations; future turmoil globally, be it economic or military will still find the large money buying the safety of U.S. treasury bond issues.
What will I do? -- I will probably buy some equities. Though will not buy too much, too suddenly.
But "buying low" is only possible if one has access to liquidity. If one is fully (or nearly fully) invested in equities at the start of a bear, there is nothing with which to buy. (unless one decides to employ leverage)
Comments
Regards,
Ted
MSCI World Index & S&P 500 Chart:
http://ep60qmdjq8-flywheel.netdna-ssl.com/wp-content/uploads/2017/08/acwi.png
@JoJo26: That's not what he said. Read it again: "nearly 100% of my investments in equities". Obviously he does not consider his cash to be "invested"... a perfectly reasonable perspective.
True story and I am NOT referencing Prechter here. I once spoke at a seminar. One of the other speakers was a well known perennial bear. He told me in private that he actually was never as bearish as his public persona just that doom and gloom sold more subscriptions.
https://sec.gov/Archives/edgar/data/1326801/000132680114000059/prospectussupplementwhatsa.htm
Class A Common Stock, $0.000006 par value
Amount to be Registered
162,698,114
Maximum
Offering Price
Per Share
$75.19
The par value of a stock is basically nil because unlike a bond it has no par value. Nothing whatsoever is legally promised to investors. The whole stock market is built on a hope and a prayer, and on relative valuations to bonds that can disappear like vapor the moment a company misses an earnings estimate. To me bond investing is far more rational. You know exactly what you're legally promised via covenants before you invest. You just have to analyze the balance sheet and think about where interest rates are heading. That's it.
Stocks by contrast are mysterious. "Mysterious" could be a euphemism for much more malevolent terms to describe how the market functions. How did the issuers of Facebook come up with a $75 maximum offering price when the par value is nil? I imagine they got together and plugged in various models and projections and price-per-click calculations to speculate that it should top off at $75. Is that what it was worth then? Is this what the stock market is worth in total today? Anyone who says they have a definitive answer is lying.
---
Edit: The above was a quick shoot from the hip reaction to the thread. No intent to disparage anyone.
Truth is, you really don't know what you'll do until it happens. In '08 the picture was bleak. Hank Paulson, Treasury Secretary, was on TV trying to reassure a panicked public. Lehman Brothers - a giant financial institution - had crumpled in days. Money market funds, previously considered safe, were on the ropes and might well have collapsed without emergency government backing. As bad as it was here, international markets plummeted even more. I saw people who were retired and thought they were smart investors literally in tears after watching their retirement nest egg disintegrate 50% in a year's time.
There are options other than simple buy or sell. If you think the sell-off is overdone consider rotating out of conservative funds and into more aggressive ones at a slow and steady pace. Also, if your money is in Traditional IRAs, consider converting to a Roth while markets are depressed. Personally, I'm mostly buy and hold, but do adjust cash position upward or downward a bit as markets evolve (risk on/risk off). Generally, cash stays between 10% and 25% - so there's not a lot of leeway there to buy equities.
Just some rambling thoughts.
https://www.washingtonpost.com/news/business/wp/2017/08/02/dow-jones-crosses-over-22000-for-first-time
@JoJo: Yes, I believe cash is a portfolio 'position' (so to speak) but I don't consider cash as part of my portfolio return calculations. It's just an idle resource waiting to be used. But each to their own....
Good discussion on the reporting of cash held within a portfolio. For years I counted cash as a part of my portfolio and factored it in with portfolio performance reporting since cash is an asset class. My brokerage firm still reports performance with cash being considered. However, Morningstar's portfolio manager does not factor cash into portfolio performance reporting. So, with this, it is very easy for me see both ways what the cash drag or its benefit is and by how much. Thus, I started tracking portfolio performance reporting with and without cash. If I report portfolio performance it is for everthing held (including cash) and for investment returns it is for everything held without cash. Because I am holding about 20% cash within my portfolio returns as a whole are currently about 20% behind investment returns. However, should we get into a market downdraft I'm thinking the amount of cash held will help soften the performance decline.
In addition, I do not factor cash as a part portfolio principal to compute retirement withdrawals. This is done on invested assets only. Generally, I take no more than one half of my five year average investment return. In this way, principal grows over time.
So, when the "Bear Comes Calling" ...
By keeping a good store of cash and the fact I've not overdrawn my portfolio in retirement I should be OK when the bear comes calling with an ample amout of cash "on hand" to invest for the rebound. And, my dividend and interest payments should (for the most part) keep rolling on in. In addition, my asset allocation is also something for me to consider and will also play a role in how I fair in a bear market.
Skeet
Also, one problem with using cash as part of your portfolio calculations comes from examining asset allocation, such as in M* XRay. With a large cash position in one of the accounts, it skews the percentages bigtime and doesn't give me an accurate portrayal of what I'm holding and where.
Removing (or not including) cash in AA calculations gives me a better overview of how my portfolios are positioned in tangible terms, plus other metrics - ROA, ROI, etc, etc.
@Old_Skeet- that's exactly what I do also. Thanks for mentioning this approach.
We're about 30% "cash" at this time.
Cash has the element of stable value ... generally, bonds do not have this stable value feature. So, in stock market swoons fixed income investors could be impacted as well as equity investors who are scrambling to raise capital (sell bonds) to meet equity margin calls. Simply stated, bonds have their own asset class.
Something to think on.
Skeet
I don't know and can't predict whether large organizations and likely not individual investors would be selling "enough" bonds to meet margin calls. If equity markets are headed to the toilet, generally speaking; at least U.S. gov't. Treasury issues find favor which of course, translates into pricing increases (spell that profit trajectory).
Fidelity's cash account has a current 7 day yield of .68%. We'll stay with our current bond holdings of 98% corporate bonds for our "cash" position.
Chart: SPY versus LQD (corp. bds) versus IEF (Treasuries 7-10 year) versus EDV (extended duration government bonds). One may move the slider at either end to narrow the time frame for a closer look at a specific time period. This chart is from Dec. 13, 2007 through August 2, 2017.
http://stockcharts.com/freecharts/perf.php?SPY,LQD,IEF,EDV&n=2426&O=011000
Currently, FCBFX . Chose for active managed during the potential updraft in yields over the past year or so. We use this particular fund as our accounts are with Fidelity.
One can not take issue with the chart ... but, let me ask a question. How much of the reflected outsized performance for the securities shown in the chart was the result of the FMOC's bond buying program? Generally, back then most bond yields fell as bond valutations increased. I'm thinking this performance would be hard to repeat again in the nearterm to midterm based upon current low bond yields.
Skeet
You noted: "but, let me ask a question. How much of the reflected outsized performance for the securities shown in the chart was the result of the FOMC's bond buying program? Generally, back then most bond yields fell as bond valutations increased. I'm thinking this performance would be hard to repeat again in the nearterm to midterm based upon current low bond yields."
>>>From the market melt in 2007/2008 through today; global central bank policies have indeed "perverted" returns in both equity and bond sectors. This perversion remains today. I have noted before (2009 FundAlarm) and still maintain that "this time is different". Consumer side economic damage took place during the market melt and many folks, IMO; have not fully recovered. For a very short list, the continued low interest rate policies from central banks and technology advances will maintain pressures going forward to determine the winners and losers in the equity and bond arenas.
While interest rates are indeed low and the potential for out sized returns likely no longer exists as related to the market melt returns; financial or political events would likely push up prices on investment grade bonds, being corporate and more so U.S. government issues.
While the current view of policies and politics, as viewed from outside the U.S., is likely not as favorable as with past administrations; future turmoil globally, be it economic or military will still find the large money buying the safety of U.S. treasury bond issues.
World Largest Economies, 2017
https://www.weforum.org/agenda/2017/03/worlds-biggest-economies-in-2017/
Yes, we live during interesting times, eh?
Regards,
Catch
But "buying low" is only possible if one has access to liquidity. If one is fully (or nearly fully) invested in equities at the start of a bear, there is nothing with which to buy. (unless one decides to employ leverage)