Your thoughts on the Stock Market's recent run-up lately.

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Cut-Throat
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Your thoughts on the Stock Market's recent run-up lately.

Post by Cut-Throat » Mon Sep 08, 2003 12:23 pm

Think the Dow will ever see 8,000 again?

In other words do you think this is real? There was a lot of pessimism here last winter, and lots of folks thought the Market was overvalued.

What are your thoughts today?

therealchips
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Post by therealchips » Mon Sep 08, 2003 1:07 pm

CT, I have no way of predicting the market's short term performance, but I keep betting that it will be profitable to continue holding my long-term investments. I have records of the weekly closes of all my investment assets (except the house and discounted current value of my pension and Social Security) from January 2, 1988 through last Friday. The records show these values both in current and inflation-corrected values. This context helps me stay calm about this year's upswing, as I stayed calm about heavy losses in the previous three years, and remarkable gains in the twelve years before that.

The data I have on weekly closes has one feature that surprises me. The accumulation phase ended for me in 1993, but the transition to the distribution phase is not detectable on the graph. Market volatility has swamped the phase transition.

From time to time, I conduct another of my disaster drills, in which all my retirement assets lose half their value overnight. The result of this analysis is the conclusion that even such a disaster would not force me to take a job. This also helps me stay calm.

So far as I know, the people who were pessimistic last winter about the US stock market are still pessimistic. I think that they think that the overvaluation problem has only grown worse. Meanwhile, I need 2% real annual return to support my present standard of living, and got 1% just today. (I posted my long term results in another thread today.)

What's the old saying? "Every dog will have his day."

WOOF!
He who has lived obscurely and quietly has lived well. [Latin: Bene qui latuit, bene vixit.]

Chips

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BenSolar
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Re: Your thoughts on the Stock Market's recent run-up lately

Post by BenSolar » Mon Sep 08, 2003 1:11 pm

Cut-Throat wrote: Think the Dow will ever see 8,000 again?

In other words do you think this is real? There was a lot of pessimism here last winter, and lots of folks thought the Market was overvalued.

What are your thoughts today?


I certainly think the overvaluation is worse now than last winter. PE-10 is about 25.5 now. Definite nose-bleed territory which had only before been seen in the 1929 bubble until the recent bubble took it to that level in 1996 and kept it over that level until mid 2002.

Could we go higher? Of course. Look at what happened in 1996. But will we ever see average or low valuations again? I have to think so. To get to average valuation levels of 15.5 we would have to drop almost 40%. And to get to previous bear market low valuation levels of about PE-10 of 8, we would have to drop close to 70%.

Even if we postulate that the risk premium is now lower, and that 'average' valuation has increased by say 30% (which seems to be way to much, but for arguments sake) to PE-10 of 20, then we still would have to drop 20% to reach that level. And for it to be average, that means we can look forward to excursions below average, down to maybe 10 or so. To reach that we would have to drop 60%. Valuations could be corrected by years or decades of grinding sideways while earnings rise as well as by dropping.

Reversion to mean will happen, we just don't know when. The sooner the better, in my book, but since I am thinking that way we are probably looking at years more of this situation.

Regards,
"Do not spoil what you have by desiring what you have not; remember that what you now have was once among the things only hoped for." - Epicurus

Cut-Throat
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Post by Cut-Throat » Mon Sep 08, 2003 1:50 pm

BenSolar,

Yes, The PE is a bit high but will the correction come in the way of a falling market or will earnings finally catch up to justify it. That is the 64 million dollar question!

Chips,

Yes, I also play these same scenarios. I am only planning on a 3% real return over the next 40 years. Anything more is gravy. Anything less would be tolerable. If my stock portfolio declines 50% - No problem!

If it ever got bad enough that I needed a job to make it, there would not be any jobs anyway if it was that bad - LOL ! - So I think we're protected. HaHaHa! - we'd have to be depression bound!

What I have done is taken a postion of 50% cash and 50% stocks. For every 500 points the Dow would gain, I'm pulling out 10% and moving to cash. For every 500 points the Dow would lose I'm Moving 10% back into stocks. BTW - I started this last fall when the Dow was 8,000. Last fall I was 80% in Stocks, Today I'm only 50%.

You gotta have stocks - I just vary the asset allocation when we're moving up or down!

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Post by wanderer » Mon Sep 08, 2003 1:55 pm

What I have done is taken a postion of 50% cash and 50% stocks. For every 500 points the Dow would gain, I'm pulling out 10% and moving to cash. For every 500 points the Dow would lose I'm Moving 10% back into stocks. BTW - I started this last fall when the Dow was 8,000. Last fall I was 80% in Stocks, Today I'm only 50%.

You gotta have stocks - I just vary the asset allocation when we're moving up or down!

Makes sense to me. We're in a considerable amt of cash at present, too. chips might consider both of these strategies market timing. It takes differences of opinion to make markets. :wink:
regards,

wanderer

The field has eyes / the wood has ears / I will see / be silent and hear

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Re: Your thoughts on the Stock Market's recent run-up lately

Post by raddr » Mon Sep 08, 2003 2:44 pm

Cut-Throat wrote: Think the Dow will ever see 8,000 again?


Yes, and maybe a lot lower. We probably should be somewhere between 4000 and 6000 if you believe in mean reversion.
In other words do you think this is real? There was a lot of pessimism here last winter, and lots of folks thought the Market was overvalued.

What are your thoughts today?


I thought the large cap market was overvalued then and is even more overvalued now. Short term (less than 2-3 decades) it can do anything it wants to. It could go up 30% per year for the next 10 years if it wants to. Longer term, however, there will be lower returns unless our long term real GDP and earnings growth rates both magically double. IOW, without a "new paradigm" the Returns Fairy will turn into Scrooge. :lol:

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ataloss
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Post by ataloss » Tue Sep 09, 2003 1:17 am

What are your thoughts today?


I am thinking about selling some of my large cap market allocation to rebalance. For years I have been putting new investment funds into small cap, value and reits but I hadn't actually sold overvalued asset classes.
Have fun.

Ataloss

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Re: Your thoughts on the Stock Market's recent run-up lately

Post by peteyperson » Tue Sep 09, 2003 1:46 am

Bar Humbug!

Petey
raddr wrote:
Cut-Throat wrote: Think the Dow will ever see 8,000 again?


Yes, and maybe a lot lower. We probably should be somewhere between 4000 and 6000 if you believe in mean reversion.
In other words do you think this is real? There was a lot of pessimism here last winter, and lots of folks thought the Market was overvalued.

What are your thoughts today?


I thought the large cap market was overvalued then and is even more overvalued now. Short term (less than 2-3 decades) it can do anything it wants to. It could go up 30% per year for the next 10 years if it wants to. Longer term, however, there will be lower returns unless our long term real GDP and earnings growth rates both magically double. IOW, without a "new paradigm" the Returns Fairy will turn into Scrooge. :lol:

WiseNLucky
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Post by WiseNLucky » Tue Sep 09, 2003 11:20 pm

I am thinking about selling some of my large cap market allocation to rebalance. For years I have been putting new investment funds into small cap, value and reits but I hadn't actually sold overvalued asset classes.


I'm getting this feeling as well. I can rebalance with no tax consequences and am feeling the strong urge to do so soon.
WiseNLucky

I just wish everyone could step back and get less car and less house then they want, and realize they don't NEED more. -- NeuroFool

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Post by Trex » Wed Sep 10, 2003 3:17 am

Raddr:

Short term (less than 2-3 decades) it can do anything it wants to. It could go up 30% per year for the next 10 years if it wants to.

If it's good enough for Raddr, it's good enough for me! :wink:

Trex

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