Dow posts worst Opening Day in 8 years

[facted]

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It's still coming. I believe I said I don't know exactly when, and you can't know exactly when, but it's pretty inevitable.

If you're arguing that at some point in the future history of the stock market, there will be a 15% correction, then almost by definition you are correct. However, as mman already pointed out, given that you have no clue as to when that will actually be, your prediction is utterly ridiculous.

I will argue even further that while you miss the current gains waiting for your drop, you are just as likely to miss the upswing in the market once the market reaches what you think is bottom. Market research has demonstrated that investors are TERRIBLE at predicting market peaks and valleys and by trying to time the market, they miss out on significant gains in their portfolios.

 

[Mman]

If you're arguing that at some point in the future history of the stock market, there will be a 15% correction, then almost by definition you are correct. However, as mman already pointed out, given that you have no clue as to when that will actually be, your prediction is utterly ridiculous.

I will argue even further that while you miss the current gains waiting for your drop, you are just as likely to miss the upswing in the market once the market reaches what you think is bottom. Market research has demonstrated that investors are TERRIBLE at predicting market peaks and valleys and by trying to time the market, they miss out on significant gains in their portfolios.

To be correct on a bearish projection, you need to both be right about the direction of the market and when it will happen. It's useless to be correct about what will happen if you don't know when. This is in contrast to bullish predictions which don't require you to get the timing right at all as long as you plan on holding long term.

Short positions are always inherently riskier than long positions given the long term upward trend in the stock market.

As to your last point...it's time in the market, not timing the market, that best predicts your long term investment performance.

 

[Matty44]

To be correct on a bearish projection, you need to both be right about the direction of the market and when it will happen. It's useless to be correct about what will happen if you don't know when. This is in contrast to bullish predictions which don't require you to get the timing right at all as long as you plan on holding long term.

Short positions are always inherently riskier than long positions given the long term upward trend in the stock market.

As to your last point...it's time in the market, not timing the market, that best predicts your long term investment performance.

I agree with your statement, if your goal is to avg 6 to (maybe) 8% a year dollar cost averaging over the course of your life. But I'd sure prefer to not be a part of the big down swings if I can avoid them. Your statement about being right about the direction and WHEN it will happen is a very vague statement. What defines "when"? You gotta pick the exact day to be "correct"? What if you chose to be on the sidelines for an entire year, and that year turns out to be an overall bearish year for the Dow, is that not "correct"? Wouldn't you have been better off not having your money in equities during '00, '01, '02, '08?

 

[facted]

I agree with your statement, if your goal is to avg 6 to (maybe) 8% a year dollar cost averaging over the course of your life. But I'd sure prefer to not be a part of the big down swings if I can avoid them. Your statement about being right about the direction and WHEN it will happen is a very vague statement. What defines "when"? You gotta pick the exact day to be "correct"? What if you chose to be on the sidelines for an entire year, and that year turns out to be an overall bearish year for the Dow, is that not "correct"? Wouldn't you have been better off not having your money in equities during '00, '01, '02, '08?

Again, the evidence out there strongly suggests you will not pull out your money at the top of the market and you won't put it in at the bottom. You will miss out on plenty of gains in the process and your returns will be lower than if you had just kept your money in to begin with on average.

Looking at your previous predictions months ago, you're clearly not Nostradamus. I'm going to go on a limb and assume your next prediction (or next 100) will be just as inaccurate.

Strongly suggest you read this:
Market Timing is Almost Always a Losing Game | Cash Cow Couple

Well sourced with plenty of evidence in there.

 

[pgg]

I agree with your statement, if your goal is to avg 6 to (maybe) 8% a year dollar cost averaging over the course of your life. But I'd sure prefer to not be a part of the big down swings if I can avoid them. Your statement about being right about the direction and WHEN it will happen is a very vague statement. What defines "when"? You gotta pick the exact day to be "correct"? What if you chose to be on the sidelines for an entire year, and that year turns out to be an overall bearish year for the Dow, is that not "correct"? Wouldn't you have been better off not having your money in equities during '00, '01, '02, '08?

Of course you'd have been better off ...

The point is, you're not smart enough to correctly pick the "whens" to move in and out of the market. No one is.

 

[Mman]

I agree with your statement, if your goal is to avg 6 to (maybe) 8% a year dollar cost averaging over the course of your life. But I'd sure prefer to not be a part of the big down swings if I can avoid them. Your statement about being right about the direction and WHEN it will happen is a very vague statement. What defines "when"? You gotta pick the exact day to be "correct"? What if you chose to be on the sidelines for an entire year, and that year turns out to be an overall bearish year for the Dow, is that not "correct"? Wouldn't you have been better off not having your money in equities during '00, '01, '02, '08?

It's not vague to say you have to get the timing right if you are calling down turns. Projecting a 30% downturn doesn't help if it takes 5 years to come to fruition and the market rises 80% before then. And not only does it not help, it hurts if you sat on the sidelines the whole time because of your prediction.

That's why sure it'd be nice to not have been in equities in those 4 years you mention, but you probably also would've been out in 1998, 1999, 2003, 2004, 2007, 2009, 2010, and 2011 and on and on and on. You can't time the top or the bottom. Nobody gets it right consistently enough. If you look at the investment performance of those that think they can, they do even worse than the market overall. Go look at John Hussman, mr bear himself. His fund has underperformed the S&P for the last 1, 3, 5, 10, and on and on years. But he writes a nice bearish newsletter for people to gobble up his gloom. At some point the market will tank and he will get to say I told you so. And his investors will still have underperformed the S&P even including when he gets it right.

 

[Matty44]

It seems to me that you all think that the very best anyone can possibly do is hold an index fund for 30 years and be satisfied with the gains. I strongly disagree with that, but if that's the best strategy for you, that's fine. If you are happy riding every up and down swing and hoping for 6-8% avg returns over 20-30 years, that's fine. I'm not. I pulled 90% outta stocks and placed most of it in silver back in early December. I have no problem checking back when I sell my positions and we can see where I would've been had I just kept it all in my group issued 401k. I never intended to come on here and brag about my investments or anything like that, but you all got your heads in the sand if you think that no one in the world is capable of out performing an index fund. And its pretty presumptuous and condescending to talk down to me like I have no clue what I'm doing and that the only way to invest is a long-term buy and hold strategy.

 

[G-Man82]

If there's a downturn and equity prices drop, well then, I see a sale [emoji48]

I think Mr. Bogle and Mr. Larimore are all extremely smart men. So is Dr. Dahle (White Coat Investor). If buy and hold is their strategy, then I see it as a win. Go to the Bogleheads forum and search for quotes by Taylor Larimore. He can list very smart people who all agree that market timing is useless. Also, those super smart and very rich people present evidence that it is VERY difficult to best the index over the long term. A few do, but can you pick those ahead of time? Nope. I'd rather accept what the market gives me more or less, and take my small bet in SCV for a twist.

Why spend so much time and energy trying to beat the market? The chances of doing so over the long term are too low to make that risk worthwhile to me.

Total stock market
Total international stock market
Total Bond market + G-Fund
SCV


Sent from my iPhone using SDN mobile

 

[facted]

It seems to me that you all think that the very best anyone can possibly do is hold an index fund for 30 years and be satisfied with the gains.

Warren Buffett bet a group of hedge funds 1 million dollars that over 5 years, that is the best way to go. 4 years in, he's crushing them. But you're probably a better investor then hedge fund managers who do it for a living.

 

[Mman]

It seems to me that you all think that the very best anyone can possibly do is hold an index fund for 30 years and be satisfied with the gains. I strongly disagree with that, but if that's the best strategy for you, that's fine. If you are happy riding every up and down swing and hoping for 6-8% avg returns over 20-30 years, that's fine. I'm not. I pulled 90% outta stocks and placed most of it in silver back in early December. I have no problem checking back when I sell my positions and we can see where I would've been had I just kept it all in my group issued 401k. I never intended to come on here and brag about my investments or anything like that, but you all got your heads in the sand if you think that no one in the world is capable of out performing an index fund. And its pretty presumptuous and condescending to talk down to me like I have no clue what I'm doing and that the only way to invest is a long-term buy and hold strategy.

1) I personally do not place all my money in an index fund and hold it for 30 years and I have never suggested that is the only way to successfully invest
2) I'm not sure why you keep referencing 6-8% since nobody else has mentioned those numbers
3) you seem awful confident of your ability to time the market which is basically a skill nobody can be confident of

I quoted your old posts in this thread from last year because I had earlier mentioned that vague bearish predictions about the market are very popular to make and almost never get called out when they are wrong. You specifically said you didn't want to be vague in your bearish predictions so you could be called out on it.

 

[Matty44]

I don't understand why you seem to be so hostile about all this, and I honestly don't care what you think about my investing, but I'll just say it again, you got your head in the sand if you truly believe that no one has ever been able to make more than 6-8% per year consistently. I hope your investments meet whatever goals you have and you're happy with them, but you don't need to bash on someone else just cause you refuse to believe that anyone is capable of investing more profitably than with a passive long term strategy.

 

[G-Man82]

It's not that we don't believe it's possible to beat the market, it's just that evidence points against it.

People do beat the market, but can it be done successfully over 30 years? Takes me 15 mins a month to manage my investment strategy of passive index investments. I am not interested in spending hours a day with day-trading or any more than that when the market returns are otherwise excellent over a long-term.


Sent from my iPhone using SDN mobile

 

[deleted126335]

It seems to me that you all think that the very best anyone can possibly do is hold an index fund for 30 years and be satisfied with the gains. I strongly disagree with that, but if that's the best strategy for you, that's fine. If you are happy riding every up and down swing and hoping for 6-8% avg returns over 20-30 years, that's fine. I'm not. I pulled 90% outta stocks and placed most of it in silver back in early December. I have no problem checking back when I sell my positions and we can see where I would've been had I just kept it all in my group issued 401k. I never intended to come on here and brag about my investments or anything like that, but you all got your heads in the sand if you think that no one in the world is capable of out performing an index fund. And its pretty presumptuous and condescending to talk down to me like I have no clue what I'm doing and that the only way to invest is a long-term buy and hold strategy.

That is not what some of us are saying. It is not just pick a cap weighted index fund, hold for 30 years and be done with it.
It is, pick a passive strategy that is broadly diversified. Be mindful of the academic financial literature, Manage costs, tax manage, rebalance. Adjust equity allocation downward as your need to take equity risk diminishes. This will outperform 99.9% of investors on a risk adjusted basis.

 

[pgg]

I don't understand why you seem to be so hostile about all this,

We're hostile to homeopaths and snake oil salesmen too, even if we don't personally fall for their wares.

and I honestly don't care what you think about my investing,

Of course you do. 🙂 Everyone who posts anything on the internet does it for other people to read. What's the point if you don't care about how it's received?

 

[WholeLottaGame7]

I don't understand why you seem to be so hostile about all this, and I honestly don't care what you think about my investing, but I'll just say it again, you got your head in the sand if you truly believe that no one has ever been able to make more than 6-8% per year consistently. I hope your investments meet whatever goals you have and you're happy with them, but you don't need to bash on someone else just cause you refuse to believe that anyone is capable of investing more profitably than with a passive long term strategy.

I don't think people are being hostile, I think you're just taking it that way because you're in the minority. It's a numbers game, not a personal insult on your character. There is lots of evidence that over long time-frames (15-30 years), very few (if any) individuals or funds are able to beat the market. Most of us will look at the data and say, "99 out of 100 individuals cannot beat the market over a long timeframe, including people who spend their whole lives doing it, so I likely won't either".

You just happen to be the kind of guy that says, "Screw those guys, I'm going to be that 1 guy in a 100." That's admirable, and maybe you will be that 1 guy, and there are plenty of guys out there who think they're that 1 guy, but math says you probably won't. Again, it's not an ad hominem attack, it's statistics and probability.

Likewise, you're not going to be able to convince most people on a forum full of scientists to "believe you" when you have no evidence and the evidence that does exist is overwhelmingly against you.

 

[Mman]

I don't understand why you seem to be so hostile about all this, and I honestly don't care what you think about my investing, but I'll just say it again, you got your head in the sand if you truly believe that no one has ever been able to make more than 6-8% per year consistently. I hope your investments meet whatever goals you have and you're happy with them, but you don't need to bash on someone else just cause you refuse to believe that anyone is capable of investing more profitably than with a passive long term strategy.

I think it's not that hard to make more than 6-8% annually and I expect to do so by a decent margin myself (I personally target somewhere in the 10-12% range as a long term average). I also don't employ a passive purely passive strategy myself. I just think you are inexperienced and overconfident in your ability to predict future happenings with the market and that combination tends to lead to disappointment. As physicians, we earn enough salary to not need to be terribly risky in our investments and still be able to retire wealthy. Unfortunately too many of our colleagues over the years have gotten greedy with their investments and lead themselves to financial ruin that they didn't need to have.

 

[Matty44]

1) I personally do not place all my money in an index fund and hold it for 30 years and I have never suggested that is the only way to successfully invest
2) I'm not sure why you keep referencing 6-8% since nobody else has mentioned those numbers
3) you seem awful confident of your ability to time the market which is basically a skill nobody can be confident of

I quoted your old posts in this thread from last year because I had earlier mentioned that vague bearish predictions about the market are very popular to make and almost never get called out when they are wrong. You specifically said you didn't want to be vague in your bearish predictions so you could be called out on it.

I mention 6-8% because, adjusted for inflation, that's about the average return for index funds each year. And Warren Buffet, who was previously brought up as saying holding an index fund is the best way to go, says you can expect 6-7% per year. I never claimed that I can call every high and low and exactly when they will happen. You guys keep saying that I think I can time the market perfectly, not me. Now, intra-day, you CAN time the market (and I mainly trade foreign currencies) and predict where and when price will move with a decent degree of accuracy. Additionally, and I pointed this out a while ago in this thread, you don't even need to be right all the time to significantly outperform index funds, etc. You can easily be wrong 50% of the time and still make double, even triple digit returns with pretty low risk, like 2% or less per trade. Obviously this involves more time and effort than what most of you seem to want to do, and that's fine. But it does seem like some of you are pretty condescending in your remarks that its pretty much impossible to do, and anyone who thinks they can is a lunatic.

And to your last point, I never made vague predictions of "oh, the market will for sure drop 10-15% sometime in the future....even if it goes up 80% before the drop" (like at least two of you have implied). I made very clear predictions for the Dow and for Silver, and even posted charts of where I believe they will go. Did I ever claim I got out of the stock market right at the peak? No. But if I miss the last move up before a big crash, I'm cool with that. Same with silver, I didn't buy at the very bottom, but I got in fairly close in what I believe will be a long upward move. Specific levels and charts. Not vague bear predictions. Just sayin...

 

[Matty44]

Of course you do. 🙂 Everyone who posts anything on the internet does it for other people to read. What's the point if you don't care about how it's received?

So you must care deeply about what I think of you, right? 😉

 

[pgg]

So you must care deeply about what I think of you, right? 😉

I care deeply for your future and well being and hope you re-examine your life and the choices you have made, repent of your sinful financial habits before they become your undoing, and live a long fruitful life and well-funded retirement. 🙂

And it's because of the untrue things you have written about the risk you neither acknowledge or appreciate, that I even care what other people think of you too.

Really - it comes down to this:

If someone posts something about the practice of anesthesia that is clearly risky, wrong, unsupported by mountains of quality literature ... we all tend to step in and offer corrections and actual facts. When you post things as ridiculous as the assertion that foreign currency day trading has insignificant risk ("2%") but a huge up side ("triple digit returns") it's really no different than saying it's OK to do elective spinals in thrombocytopenic yellow patients on Plavix because you've gotten away with it so far in your own practice.

 

[sevoflurane]

Really - it comes down to this:

If someone posts something about the practice of anesthesia that is clearly risky, wrong, unsupported by mountains of quality literature ... we all tend to step in and offer corrections and actual facts. When you post things as ridiculous as the assertion that foreign currency day trading has insignificant risk ("2%") but a huge up side ("triple digit returns") it's really no different than saying it's OK to do elective spinals in thrombocytopenic yellow patients on Plavix because you've gotten away with it so far in your own practice.

Wait....people do that?



Nice post...

 

[Matty44]

When you post things as ridiculous as the assertion that foreign currency day trading has insignificant risk ("2%") but a huge up side ("triple digit returns") it's really no different than saying it's OK to do elective spinals in thrombocytopenic yellow patients on Plavix because you've gotten away with it so far in your own practice.

You control your exposure to the market. You control your % risk per transaction in the form of a stop loss. You risk 2% per trade and frame your set-ups as a 1:3 risk to reward. You take only 1 trade a week (which is pretty minimal trading for someone who is day trading). 50% win rate equals 25 trades making 6% per trade (+150%), and 25 trades losing 2% per trade (-50%). Net return = 100%. I think that's 3 digits, right? Granted, if you adjust your risk % based of the new equity after every trade, its not gonna be exactly 100%, and of course the order of the wins and losses would factor in, but you get the point.....I hope. That's not factoring in trades that offer much higher reward:risk and how quickly those kind of trades can compound your equity. I would spend about an hour total per week (if that) if I was just looking for one trade setup, and only have to be right half of the time in order to see that kind of return. Max risk at any time is 2% of my account. You mind explaining the ridiculousness in that???

 

[deleted87051]

You control your exposure to the market. You control your % risk per transaction in the form of a stop loss. You risk 2% per trade and frame your set-ups as a 1:3 risk to reward. You take only 1 trade a week (which is pretty minimal trading for someone who is day trading). 50% win rate equals 25 trades making 6% per trade (+150%), and 25 trades losing 2% per trade (-50%). Net return = 100%. I think that's 3 digits, right? Granted, if you adjust your risk % based of the new equity after every trade, its not gonna be exactly 100%, and of course the order of the wins and losses would factor in, but you get the point.....I hope. That's not factoring in trades that offer much higher reward:risk and how quickly those kind of trades can compound your equity. I would spend about an hour total per week (if that) if I was just looking for one trade setup, and only have to be right half of the time in order to see that kind of return. Max risk at any time is 2% of my account. You mind explaining the ridiculousness in that???

Sounds foolproof. What are you doing here?

 

[facted]

You control your exposure to the market. You control your % risk per transaction in the form of a stop loss. You risk 2% per trade and frame your set-ups as a 1:3 risk to reward. You take only 1 trade a week (which is pretty minimal trading for someone who is day trading). 50% win rate equals 25 trades making 6% per trade (+150%), and 25 trades losing 2% per trade (-50%). Net return = 100%. I think that's 3 digits, right? Granted, if you adjust your risk % based of the new equity after every trade, its not gonna be exactly 100%, and of course the order of the wins and losses would factor in, but you get the point.....I hope. That's not factoring in trades that offer much higher reward:risk and how quickly those kind of trades can compound your equity. I would spend about an hour total per week (if that) if I was just looking for one trade setup, and only have to be right half of the time in order to see that kind of return. Max risk at any time is 2% of my account. You mind explaining the ridiculousness in that???

Wow, didn't know Bobby Axelrod hangs out on SDN.

 

[pgg]

You mind explaining the ridiculousness in that???

The market has deeper pockets than you do, placing a limit on the number of bets you can make ... unless you continually fund a losing bankroll with new money.

Absent a net trend in one direction between currencies (which you successfully predict and time), over time odds favor far more 2% losses than 100% wins.

What you're doing is just another flavor of the Martingale betting system, with the added penalty of transaction fees. Instead of hoping one big win will make up for a series of increasing losses before you go bankrupt (as in the classic Martingale scheme), you're hoping that big wins will make up for a series of small losses.

What's ridiculous is that you've been suckered by an ancient gambler's fallacy that four minutes on Wikipedia could've explained to you.

 

[coroner]

The Martingale theoretically could work in gambling, but it doesn't for two reasons: 1. Very few people have an unlimited bankroll 2. Max bet limit

Aside from that, eventually the dealer will bust in Blackjack, Player/Bank will win in Baccarat, and the roulette ball will land on red/black...

Disclaimer: I do not endorse or employ this strategy in gambling or investing.

 

[Matty44]

The market has deeper pockets than you do, placing a limit on the number of bets you can make ... unless you continually fund a losing bankroll with new money.

Absent a net trend in one direction between currencies (which you successfully predict and time), over time odds favor far more 2% losses than 100% wins.

What you're doing is just another flavor of the Martingale betting system, with the added penalty of transaction fees. Instead of hoping one big win will make up for a series of increasing losses before you go bankrupt (as in the classic Martingale scheme), you're hoping that big wins will make up for a series of small losses.

What's ridiculous is that you've been suckered by an ancient gambler's fallacy that four minutes on Wikipedia could've explained to you.

First, what I explained is nothing like a Martingale system, its just sound trading strategy. Would you think it more wise to risk 2% per trade and try and shoot for a 1% profit? By framing trades where the risk/reward is at minimum 1:3, it takes the pressure off to not be correct 70%+ in order to be profitable. You don't even need to be right the majority of the time in order to have a net positive year. It has nothing to do with HOPING for a huge win to make up for bad trading (which is what a Martingale does). Second, trends are absolutely not necessary to be profitable (unless you are passively holding an asset for years at a time), you just have to adjust the way you trade in range bound markets. I could go into lots of detail about my system, and how risk can be even more tightly controlled w/partial profits, break-even trades, and avoiding full stop out losses, etc. However, I really have no desire to because y'all obviously have your mind made up about this. And as I've said all along, that's fine. My results are really the only thing that matters to me, despite how many times you tell me I'm naive, or a sucker, or whatever. But good luck in all your investing, I'll just encourage you to keep your mind open and not be so quick to judge something just cause you don't understand it, or because the "financial authorities" tell you the only smart way to invest is passive and long-term. Cheers.

 

[fakin' the funk]

First, what I explained is nothing like a Martingale system, its just sound trading strategy. Would you think it more wise to risk 2% per trade and try and shoot for a 1% profit? By framing trades where the risk/reward is at minimum 1:3, it takes the pressure off to not be correct 70%+ in order to be profitable. You don't even need to be right the majority of the time in order to have a net positive year. It has nothing to do with HOPING for a huge win to make up for bad trading (which is what a Martingale does). Second, trends are absolutely not necessary to be profitable (unless you are passively holding an asset for years at a time), you just have to adjust the way you trade in range bound markets. I could go into lots of detail about my system, and how risk can be even more tightly controlled w/partial profits, break-even trades, and avoiding full stop out losses, etc. However, I really have no desire to because y'all obviously have your mind made up about this. And as I've said all along, that's fine. My results are really the only thing that matters to me, despite how many times you tell me I'm naive, or a sucker, or whatever. But good luck in all your investing, I'll just encourage you to keep your mind open and not be so quick to judge something just cause you don't understand it, or because the "financial authorities" tell you the only smart way to invest is passive and long-term. Cheers.

Every post TL;DR wall of text dude

 

[Matty44]

Every post TL;DR wall of text dude

Uh.......Ok.

 

[Mman]

First, what I explained is nothing like a Martingale system, its just sound trading strategy. Would you think it more wise to risk 2% per trade and try and shoot for a 1% profit? By framing trades where the risk/reward is at minimum 1:3, it takes the pressure off to not be correct 70%+ in order to be profitable. You don't even need to be right the majority of the time in order to have a net positive year.

So you take trades that pay out 3:1 with implied chance of being correct of somewhere in the 30% range (because of fees and what not) and have to be right at least 33% of the time to break even?

Of course you don't have to be right "70%+ to be profitable", because the trades aren't set up that way. That's akin to saying if you bet on a number in roulette that pays out 35:1 you don't have to be right that often to be profitable. No, you don't, but you still lose money.

 

[Matty44]

So you take trades that pay out 3:1 with implied chance of being correct of somewhere in the 30% range (because of fees and what not) and have to be right at least 33% of the time to break even?

Of course you don't have to be right "70%+ to be profitable", because the trades aren't set up that way. That's akin to saying if you bet on a number in roulette that pays out 35:1 you don't have to be right that often to be profitable. No, you don't, but you still lose money.

Implied chance of being correct 30%? It's not a random coin flip or roll of a dice. Price isn't random.

 

[Mman]

Implied chance of being correct 30%? It's not a random coin flip or roll of a dice. Price isn't random.

Price isn't random, but when you pay a transaction fee you have a negative expected return on your wager unless the party on the other side is a sucker, so if it pays 3:1 when correct it will be correct less than 1/3 of the time.


And if you don't know who the sucker in the bet is....

 

[epidural man]

I guess I'm arguing valuations right now are nothing like 2007. At that point you could get a 10 year US treasury with a yield > 5%. This was with an S&P earnings yield of like 5.5% which is nearly identical. Right now stocks yield more than double the 10 year treasury. 2007 was also a time of falling corporate earnings from a peak of 2006. We appear to be still on an upswing of corporate earnings with 2017 > 2016 > 2015.


If yield on treasury = yield on stock, buy the treasury. If yield on stocks >>>> yield on treasury, buy the stocks. That simple math would've kept you out of harms way on 2001/2002 and 2008.

How do you define or know what stocks are yielding? Maybe that is the problem. I can't seem to find anywhere or anyone that will tell me what my stocks will yield.

Also, people keep mentioning Warren Buffet. The problem is, although he is certainly a long term investor, he also tries to time the market. He moves money around much more than what he is public about. So there is that...

 

[facted]

I'm

How do you define or know what stocks are yielding? Maybe that is the problem. I can't seem to find anywhere or anyone that will tell me what my stocks will yield.

Also, people keep mentioning Warren Buffet. The problem is, although he is certainly a long term investor, he also tries to time the market. He moves money around much more than what he is public about. So there is that...

Mutual funds have a yield on them that's easy to access on the fund website.

As for Warren Buffett, his recommendations are for the masses clearly. None of us have the capital, connections, or opportunities to mimic his investment strategy at Berkshire (nor his access to insurance float...)

 

[Mman]

How do you define or know what stocks are yielding? Maybe that is the problem. I can't seem to find anywhere or anyone that will tell me what my stocks will yield.

Also, people keep mentioning Warren Buffet. The problem is, although he is certainly a long term investor, he also tries to time the market. He moves money around much more than what he is public about. So there is that...

The earnings yield on a stock (or an entire market) is the inverse of the P/E ratio, E/P. Earnings divided by price. PE of 10:1 is 10% earnings yield. PE of 20:1 is 5% earnings yield. PE of 33:1 is 3% earnings yield. When treasury's yield 2% (or slightly more) and bonds aren't yielding much either, you gotta get to a PE ratio of 33:1 (3%) or 40:1 (2.5%) before stocks start to look even remotely as expensive.

At the height of the dot-com bubble, the PE ratio of the S&P was 60:1, for a yield of less than 1.7%. This was in comparison to a treasury yield at the time of nearly 6% which was essentially risk free. WTF anybody was going crazy buying stocks (which by definition have some risk) for >4% less yield than you could get risk free is beyond me.

That's why when people talk about the market right now like stocks are crazy expensive, they've got to explain to me in relation to what other option you have. Because treasurys and bonds sure don't like better options to be pouring into right now either.

And when people mention Buffett it is true that he feels the average investor should park their money in low cost mutual funds/etfs. But it's also true that he said if he was only managing a small sum like $1M or so, that he could produce returns averaging 50% per year. It's just as you get larger and larger sums of money, you can't find the same transactions.

 

[BLADEMDA]

S and P of around 2150 looks like a nice spot to buy US equities; Let's see if we correct to that level which would be around election time levels.

 

[epidural man]

The earnings yield on a stock (or an entire market) is the inverse of the P/E ratio, E/P. Earnings divided by price. PE of 10:1 is 10% earnings yield. PE of 20:1 is 5% earnings yield. PE of 33:1 is 3% earnings yield. When treasury's yield 2% (or slightly more) and bonds aren't yielding much either, you gotta get to a PE ratio of 33:1 (3%) or 40:1 (2.5%) before stocks start to look even remotely as expensive.

At the height of the dot-com bubble, the PE ratio of the S&P was 60:1, for a yield of less than 1.7%. This was in comparison to a treasury yield at the time of nearly 6% which was essentially risk free. WTF anybody was going crazy buying stocks (which by definition have some risk) for >4% less yield than you could get risk free is beyond me.

That's why when people talk about the market right now like stocks are crazy expensive, they've got to explain to me in relation to what other option you have. Because treasurys and bonds sure don't like better options to be pouring into right now either.

And when people mention Buffett it is true that he feels the average investor should park their money in low cost mutual funds/etfs. But it's also true that he said if he was only managing a small sum like $1M or so, that he could produce returns averaging 50% per year. It's just as you get larger and larger sums of money, you can't find the same transactions.

I don't care (as you have indicated you don't either) what earnings yield of a stock is because that is earnings of the company. Not MY yield.

When I buy a bond, that yield is MY yield.

So take me through this. I want to buy Apple on Monday and know exactly what my yield will be in one month and I will sell in a month. What mutual fund should I look at that will correctly tell me TODAY what MY yield will be in one Month?

 

[Mman]

I don't care (as you have indicated you don't either) what earnings yield of a stock is because that is earnings of the company. Not MY yield.

When I buy a bond, that yield is MY yield.

So take me through this. I want to buy Apple on Monday and know exactly what my yield will be in one month and I will sell in a month. What mutual fund should I look at that will correctly tell me TODAY what MY yield will be in one Month?

When you buy a stock, you are buying fractional ownership of the company. What the company earns per share, you earn per share. Now some or all of none of that money may be paid back to you as cash and the rest will be retained to help grow the profitability of the company (of which you are still owner). Now as we all know, what someone else in a market is willing to pay you for your portion of a given company can fluctuate wildly over the short term. But over a long enough time horizon, your return on that ownership portion of the company will approximate the earnings generated by that company over that time frame.

Nobody should buy stock (or mutual fund) to speculate as to what the actual return might be in "one month". That'd be ludicrous. Not a single dollar of money should ever be put into stock that you'd need or want in that short of a time frame. Stock ownership is company ownership. There is no other way to view it. You should buy stock in the same way you'd evaluate purchasing some or all of a privately run small business. Earnings statements, balance sheets, etc.

But that's why paying attention to the earnings yield of the market (or even a single stock) is important as it gives you a good idea of what sort of earnings you are buying with your share of investment and it is a good way to compare to things like bonds and treasury's. The predictive power of earnings yields for stocks compared to other investments is quite strong. I like to compare the earnings yield of the stock market as a whole to other classes of investments. It is a useful and predictive marker to follow. Individual companies obviously need a little more nuanced evaluation.

 

[BLADEMDA]

Good analysis

 

[BLADEMDA]

The Fed will likely pull back to only one more hike this year if there is any hint that the economy is reacting badly to the March increase. But if the economy keeps growing as expected, then the FOMC expects three quarter-point increases in 2018 and three more in 2019, bringing the federal funds rate to 3%, the Fed’s preferred level. Yellen and her colleagues will also be on the lookout next year for any inflationary effects of President Trump’s proposed tax cuts and spending on the military and infrastructure, if those measures get through Congress.

We think the yield on the 10-year Treasury note will hit 3% by the end of 2017, up from 2.5% currently. While there is considerable uncertainty about how much inflation will pick up due to both higher energy prices and the ultimate economic impact of Trump’s spending policies, the trend in rates will be upward in the near term. If Trump gets the tax cuts and spending increases he wants, then rates might move up faster in anticipation of higher inflation.

Two More Fed Rate Hikes Likely in 2017

 

[epidural man]

So Mman,

Help me understand this. With consumer debt higher than it has ever been and real household median income relatively flat the last 10 years.....
(Household debt is dangerously close to 2008 levels)
(US Household Income | Department of Numbers)

and China's Debt to GDP is outrageous and on a step growth curve,

and US corporate debt is like China's debt - very high, and growing and a lot of this debt is Covenant-Lite... (may have shrunk recently, I'm not sure about that).

and the dollar still seems strong...

and understanding that a part of the reason for market run-up since ZIRP was from trillions of dollars from corporate stock buy backs (from the free money they received from the FEDS),

where is the continued market gain over the next decade going to come from? Where is this buying pressure going to come from?

People are in incredible amounts of debt (house loans are near the 2007 peak) and income isn't increasing. Asset to income is at an all time high (or near 2008 peak). Maybe business can borrow more money and continue buy backs? But does that really help them grow fundamentally? Eventually, that is a loosing game. What about foreign money? Perhaps China? What happens when that fiasco crashes? Maybe a tax rebate of $120 dollars to everyone (isn't that what Bush did?) Is that where the stock buying pressure will come?

 

[Mman]

where is the continued market gain over the next decade going to come from? Where is this buying pressure going to come from?

Stock market gains come from combination of inflation and increased corporate profits. Increased corporate profits come from either selling more on the top line (increased revenue) or better profit margins (becoming more efficient) or paying less taxes, or some combination of the 3. I'm not sure what something like the ratio of debt to GDP in China has to do with corporate profit margins in the US, but I could just be a simpleton.


If you don't like stocks, I'm open to analysis of superior investment avenues right now whether they be bonds or TIPS or whatever. I just can't find them. Stocks are on the high side of fair price right now, but appear cheap compared to other investments, especially with an economy that is doing just fine. Unemployment doing well, inflation appropriate, corporate profits rising at highest rate in years, etc. Will the good run go forever? Of course not, but the end certainly isn't likely to be near at hand. Stocks tend to crash after a massive run up or in a recession. We haven't had much run up in prices recently and recession nowhere near at this point.

Also, your numbers on debt are kinda misleading. US household debt to GDP ratio is lowest it has been in a long time.

The basic argument against stocks is either 1) CAPE or 2) the world sucks and stocks have to fall. That's pretty much it. Neither is very nuanced. Neither cares that corporate profits are increasing at a rapid rate. Neither cares that the US economy actually isn't that bad right now, nor is the immediate future in much danger. Neither cares to examine alternative investments to stocks with as critical an eye.


edit: another fun graph showing US industrial production heading higher after a 2015 downturn

 

[epidural man]

Stock market gains come from combination of inflation and increased corporate profits. Increased corporate profits come from either selling more on the top line (increased revenue) or better profit margins (becoming more efficient) or paying less taxes, or some combination of the 3. I'm not sure what something like the ratio of debt to GDP in China has to do with corporate profit margins in the US, but I could just be a simpleton.


If you don't like stocks, I'm open to analysis of superior investment avenues right now whether they be bonds or TIPS or whatever. I just can't find them. Stocks are on the high side of fair price right now, but appear cheap compared to other investments, especially with an economy that is doing just fine. Unemployment doing well, inflation appropriate, corporate profits rising at highest rate in years, etc. Will the good run go forever? Of course not, but the end certainly isn't likely to be near at hand. Stocks tend to crash after a massive run up or in a recession. We haven't had much run up in prices recently and recession nowhere near at this point.

Also, your numbers on debt are kinda misleading. US household debt to GDP ratio is lowest it has been in a long time.

The basic argument against stocks is either 1) CAPE or 2) the world sucks and stocks have to fall. That's pretty much it. Neither is very nuanced. Neither cares that corporate profits are increasing at a rapid rate. Neither cares that the US economy actually isn't that bad right now, nor is the immediate future in much danger. Neither cares to examine alternative investments to stocks with as critical an eye.

You keep mentioning TIPS. I know nothing about TIPS. They don't sound like a good investment at all. Why would anyone purchase a TIP over a municipal high rated tax protected bond?

 

[facted]

You keep mentioning TIPS. I know nothing about TIPS. They don't sound like a good investment at all. Why would anyone purchase a TIP over a municipal high rated tax protected bond?

Tips can be highly valuable in a high inflation environment. It's basically a bond whose yield rises as inflation rises but can also go down as inflation recedes.

A municipal bond in a low inflation environment like now can easily sour if inflation kicks in (ie: you won't get enough yield from your bond to overcome inflation).

 

[deleted126335]

All bonds have an expectation of inflation built into their current price. TIPs protect you from unexpected inflation. They have an "insurance component". If unexpected inflation doesn't materialize they should pay less than nominal Treasury Bonds. They are also less liquid than nominal treasury bonds. Held to maturity, TIPs are about the safest bonds out there. I am building a ladder of individual 10 year TIPs at auction (six times per year). Unexpected inflation is probably the biggest risk to the fixed income component of one's portfolio. I just wish they weren't so expensive- like all very safe fixed income. At current prices, I expect close to a ZERO real yield from the fixed income component of my portfolio - after expenses and taxes.

 

[epidural man]

The problem with passive investing is that it assumes that the efficient market hypothesis is true, correct?

But - as was pointed out to me recently - that is an oxymoron, because the idea with the EMH, is that all the available data is factored into the stock. The more the market becomes crowded with passive investors, the more inefficient the market becomes.

 

[GA8314]

The problem with passive investing is that it assumes that the efficient market hypothesis is true, correct?

But - as was pointed out to me recently - that is an oxymoron, because the idea with the EMH, is that all the available data is factored into the stock. The more the market becomes crowded with passive investors, the more inefficient the market becomes.

As long as JP Morgan, Citibank, Goldman Sachs, and all the hedge funds exist, there will be plenty of players ensuring EMH, no?

I'm sticking to passive investing.

 

[BLADEMDA]

As long as JP Morgan, Citibank, Goldman Sachs, and all the hedge funds exist, there will be plenty of players ensuring EMH, no?

I'm sticking to passive investing.

Honestly, it's human nature to BELIEVE you can beat the market. It's the same reason gamblers keep going to Vegas: Human nature.

But, not only don't I beat the market I lose to it the vast majority of the time. Again, the Vegas analogy applies here.

Despite all the evidence to the contrary I still have a large retirement account invested with active management. I chose the "best of the best" because I still believe that even though I can't beat Mr. Market surely my experts can. 😉(that sentence is purely in jest but reflects my desire to roll the dice)

 

[BLADEMDA]

As long as JP Morgan, Citibank, Goldman Sachs, and all the hedge funds exist, there will be plenty of players ensuring EMH, no?

I'm sticking to passive investing.

Three points are crucial. Over 10 years, 83 per cent of active funds in the US fail to match their chosen benchmarks; 40 per cent stumble so badly that they are terminated before the 10-year period is completed and 64 per cent of funds drift away from their originally declared style of investing. These seriously disappointing records would not be at all acceptable if produced by any other industry.

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[deleted126335]

The problem with passive investing is that it assumes that the efficient market hypothesis is true, correct?

But - as was pointed out to me recently - that is an oxymoron, because the idea with the EMH, is that all the available data is factored into the stock. The more the market becomes crowded with passive investors, the more inefficient the market becomes.

The question is, what percent of investing needs to be passive in order for exploitable inefficiencies after cost exist? The answer is nobody knows. Doesn't look we are there yet. Vanguard is killing everyone else combined. 'Massive exodus' continues from active funds, and Vanguard is reaping the gains

 

[epidural man]

The question is, what percent of investing needs to be passive in order for exploitable inefficiencies after cost exist? The answer is nobody knows. Doesn't look we are there yet. Vanguard is killing everyone else combined. 'Massive exodus' continues from active funds, and Vanguard is reaping the gains

I just read a similar article today about Vanguard.