This is a great article. Note it's from January 5th, and it's extremely speculative. But certainly at least worth adding to the overall amount of signals that stock investors are thinking.
I think I remember someone saying that in 1929 when the shoeshine boys were giving stock advice that that's how someone knew the bubble was about to burst.
Lately I've been discussing investment strategies with the people that work at the gyms I'm going to. Is this the equivalent signal? The 2021 equivalent might be "When your personal trainer is giving you investment advice, that's how you know to get out?"
> I think I remember someone saying that in 1929 when the shoeshine boys were giving stock advice that that's how someone knew the bubble was about to burst.
President JFK's father:
> While sitting in the shoeshine chair, Kennedy Sr. was alarmed to have the shoeshine boy gift him with several tips on which stocks he should own — yes, a shoeshine boy playing the stock market.
> This unsolicited advice resulted in a life-changing moment for Kennedy Sr. who promptly went back to his office and started unloading his stock portfolio.
> In fact, he didn’t just get out of the market, he aggressively shorted it — and got filthy rich because of it during the epic crash that soon followed.
Or, it could just be that far more people are investors today than there were in 1929. According to this site, only about 10% of Americans owned stock or speculated in the markets in 1929.
>In fact, only approximately 10 percent of American households held stock investments and speculated in the market; yet nearly a third would lose their lifelong savings and jobs in the ensuing depression.
Yet, this poll seems to indicate that around 55% of Americans now hold stocks.
>Thus far in 2020, Gallup finds 55% of Americans reporting that they own stock, based on polls conducted in March and April. This is identical to the average 55% recorded in 2019 and similar to the average of 54% Gallup has measured since 2010.
So if slightly more than one out of every two people you meet owns stocks, I would assume you're bound to run into a lot of people talking about stocks.
Sort that by Highest APYs. It fluctuates all the time but the numbers are getting as high as 1,000,000% APY. There is no world in which that can be anything but a Ponzi scheme.
If I'd taken the advice of one of the guys I hired to move my home back in 2017 and bought Bitcoin like he had, I'd be up 25x today. I thought he was nuts, and still do, but if he's still holding on to his Bitcoin then the joke's on me. Shrug.
The quote at the beginning of the article is right:
> The one reality that you can never change is that a higher-priced asset will produce a lower return than a lower-priced asset. You can't have your cake and eat it. You can enjoy it now, or you can enjoy it steadily in the distant future, but not both – and the price we pay for having this market go higher and higher is a lower 10-year return from the peak.
With a bit more mathematical rigor: For each of us there will be only one future. In that future, each asset -- company, property, etc. -- will earn a finite cash flow yield. If we pay more for that future cash flow now, our rate of return will be lower in the future.
>Robert Shiller – who correctly and bravely called the 2000 and 2007 bubbles and who is one of the very few economists I respect – is hedging his bets this time, recently making the point that his legendary CAPE asset-pricing indicator (which suggests stocks are nearly as overpriced as at the 2000 bubble peak) shows less impressive overvaluation when compared to bonds. Bonds, however, are even more spectacularly expensive by historical comparison than stocks. Oh my!
Banks are OK, household debt levels are OK. Corporate bonds are the issue in the current economy. Nonfinancial corporate debt to GDP ratio: hhttps://fred.stlouisfed.org/graph/?g=B5NG
* There are too many zombie companies walking around (indebted company that is able to repay the interest on its debts but not repay the principal)
* Institutional bond investors have chased profits to the lowest possible bond rating they are allowed to invest.
When something changes and ratings are downgraded, institutional investors are forced to sell these companies at the same time. Corporate bond market liquidity freezes overnight. Berkshire Hathaway will by bonds for cents per dollar...
Yeah, this has been my impression for quite some time now. Future projection for company equity seems fine enough, though quite obviously overvalued (but good luck betting against uncapped QE).
Corporate debt on the other hand has been scary for a few years and is getting ridiculous. Your point lowest possible bond ratings is a solid one, I think, and one I hadn't considered.
The chaining effect of some failures will be significant given how much leverage is inherent in the system. I think bond market spreads will become quite large as liquidity dries up.
pragmatic and I enjoy pretending to be a perma-bear as much as the next guy, but if the macro environment leads to more currency being created or distributed than prior times, then nothing is overvalued yet relative to how much money has to be placed into them when it is seeking yield, so that means here I will have to disagree:
"But this bubble will burst in due time, no matter how hard the Fed tries to support it"
this either needs to be weighted much lower, can't be the crux of the article, or has to be called out for its ambiguity and uselessness in predictive ability
A potentially more productive view is that the fed cannot support the bubble indefinitely.
It's becoming clear that money can be printed without causing inflation if its unevenly distributed in the economy. This amounts to large scale wealth redistribution to support asset price increases. If you earn dollars for a living, your purchasing power in terms of future dollar income is being eroded. You will purchase a home later or never, you may not be able to afford an education, and your medical expenses will rise ( as will anything that affects future earning power ).
When this ends is anyones guess, it's entirely plausible that we revert to the social systems of prior less equal times, foreign trade moves off the dollar, assets converge to an effective price of infinite dollars, or populists demand their own redistributive policies such as UBI or wealth taxes.
Or the fed meets tomorrow and cuts QE entirely. What is assured is that the current trend is unsustainable and must end eventually.
Yes, the bubble readers seem to ignore the money creation.
However that said, the default bubble is potentially a lurking time bomb, so it's a race between inflation and loan defaults, essentially. (Inflation tends to make loan defaults less likely as it reduces the relative cost of existing loans.)
> I expect once again for my bubble call to meet my modest definition of success: at some future date, whenever that may be, it will have paid for you to have ducked from midsummer of 2020.
Two can play at this game. I predict that at some future date the stock market will be higher than it is today.
Greenspan said in '97 that the market reflected a state of "irrational exuberance." If, on that day, you said "oh, cool , I'm exuberant too!" and dumped all your money into random stocks, then you'd still have made money at the bottom of the .com bubble crash.
I totally agree with this guy, but my only reaction is "of course... so what?"
I think any educated observer is wowed by the stock market right now. Anything other than "wow!" is voodoo
it is not equity that is overpriced.
it is that printed dollar that is overpriced (cash is trash).
any bond guarantees long-term loss.
In 1990, 2k, 2008 investors could escape from equities to bonds with 6% yield, but now they have nowhere to go.
That concludes that this bubble will continue as long as interest rate remains near zero.
Federal Reserve basically cornered the entire market into equities, investors have literally nowhere to go. even if 1% of equities capital escape into any other asset class - emerging markets, real estate, alternatives, crypto, whatever - it will create even more gigantic bubble in that asset class that will surely pop without the FED's support
Where else are rich people going to park their money? The demand for investable assets has gone way up because rich people have gotten much richer, and rich people around the world (such as newly minted emerging market billionaires) often prefer American assets for liquidity and good legal protections. I'm sure these investors would prefer that stocks earn more than 2.5% but that's just the going rate now. What alternatives do they have? Bonds yield basically nothing.
Not only do bonds yield nothing, they yield less than zero once you consider inflation. And long bonds yield near zero but...you have huge bond price risk if rates rise again.
There is no real choice now, you have to park the cash somewhere...and so it ends up everywhere from stocks to commercial real estate to VC (and eventually into our tech salaries, into rent, to the landlord, to the bank, and back into MBS in institutions :-)
Exactly. Asset prices are not determined by central bank actions, there is a third component that pushes both asset prices and central bank policy - the global supply/demand of savings vs investment opportunities. Which is driven mostly by demographics. China's massive working class, and the unprecedented rate at which they are getting wealthier, and their savings rate which is like >10x the average US citizen means there is a huge increase in the global supply of savings. Which bids up asset prices and pushes down yields, as savers compete with each other to buy up the extant profitable and safe opportunities. Central banks are the on the receiving end of this too: over-saving pushes down the natural rate of interest, which means policy rates must be lower to respond (unless you want to condemn some working Americans to unemployment).
Do you want to under-perform during all bull markets so it hurts less during the corrections?
If you stayed invested in the broad market through any bubble-pop you would be better off than aggressive diversification and hedging. Unless you can reliably time the tops and bottoms.
Where else will you invest? China? India? Rest of Asia? Europe? South America? Africa? Specific commodities?
Do you believe the next generations in the US will continue to create value or do you think this is the beginning of a perpetual decline?
I'm not sure if they're still around, but I remember back in the 1990s there was a family of mutual funds that aimed to do exactly what you're describing. They actually advertised the fact that they won't have the best returns in bull markets because they were protecting people in down markets.
The idea was that people benefitted more from staying in the market over a long period of time rather than maximizing their returns in any particular year.
So the fund was aimed to smooth out the peaks and valleys along the ride so investors would be more inclined to leave their money parked in the fund rather than getting a statement that said that they're down 30% and going to cash and missing the next run up.
Looking at historical S&P 500 to Gold ratio, stocks are definitely more expensive but nowhere near dotcom frenzy. Either we see market correction or gold is undervalued and will catch up. In that case there might be no stock market crash.
Gold is not a suitable comparison to stocks - it gets brought up on here all the time. Gold is not uncorrelated to the market. Gold is not a store of value. Gold is a speculative investment with a great marketing team.
Very interesting article, and has some very poignant observations.
That said, it's not that hard to say we are in a bubble. Frankly, almost any time the market isn't at the bottom, it's in a bubble.
The real questions are, when will it pop, and how do you invest accordingly. These are super-hard, and a (cursory) read of the article doesn't really address that.
The general, boring observation, is that unless you can do much, much better, you should just be long the market, throughout all the bubbles and busts. You won't get the 50%-in-a-month payout, but you can get your consistent 10% a year or whatnot.
So I'm not just nay-saying, I thought S&P is about to crash ever since it crossed 2,000 after the crisis. If I followed my (weak) gut feeling, I would have lost 50% on that trade. Thank goodness I didn't. Even when it crashes, eventually, probably (???) not as low as 2,000.
So, if the goal of investing is to get rich and the goal of being rich is to be happy, I have a good strategy.
Your overall net worth is not what makes you happy, it’s the CHANGE in net worth (up).
If you’re always heavily invested in the market, you are most of the time happy, because most of the time, the market goes up. This is punctuated by (relatively) quick periods of great loss/sadness.
But overall, you end up with a lot more happy times than sad. So a net positive to happiness. Not being invested in the market (at all or trying to beat a crash) means you have a period of net zero happiness. Which is worse on average than being in the market.
So, let it ride people... on average you’ll be happier!
(And actually, on average you’ll do better financially too.)
> Your overall net worth is not what makes you happy, it’s the CHANGE in net worth (up).
Two unfunded assumptions that seem to be based on your own experience.
Here's another, based on my own experience: a component of what makes you happy is to not have to worry about money at all, either because you live a lifestyle that require little of it, or because you have enough that a 50% change in wealth has zero impact on your life.
Bubbles suggest "irrational exuberance" but in this instance, equity values are actually operating off of a legitimate logic. Bond yields are low so investors are putting more of their money into equities. Equity centered index funds and ETFs have also grown in popularity. Sure individual stocks might be bubbling, but the market as a whole is operating within an environment that's narrowed growth within certain asset classes.
Saying "we're in a bubble" is always technically right since stock prices rarely reflect actual company value, unfortunately this article doesn't offer much insight beyond the obvious.
I agree with the basic take that stock prices are ludicrous, but what's different this time(tm) is that there don't seem to be any alternatives. Bonds are overpriced, real estate is not cheap, and Biden's $1.6T printer go brr money faucet ensures that there's going to be even more money sloshing around for the foreseeable future. Also, whereas the dotcom bubble darlings were all massively unprofitable, this time around the FAANGs are all minting money and even Tesla is eking out steady profits (if not exactly the $1M per car implied by their P/E!).
It always does? It's partly a psychological phenomena and partly just a question of running out of greater fools. The first one is that once there's a change in mood for some reason (some event happens, e.g. a recession which in some ways is its own psychological phenomena) everyone convinces themselves that equities are too expensive, the prices start declining and that feeds a further decline. Just look at the GME stock as a microcosm of that situation.
In terms of the greater fool thing, you can only keep buying and selling the same thing for a 10% profit every year without eventually running out of people who will buy it. I guess see also the GME stock as a microcosm of that?
I'm sorta skeptical. With 12% of the usa vaccinated and things on the verge of opening, I really don't see things going into a recession unless the powers at be do something stupid.
I think this is fundamentally different than other bubbles because there's a guaranteed light at the end of the tunnel.
This bubble started well before Covid. I do agree that if the vaccination campaign is successful the mood will be such that it might sustain it a little longer. That should factor into the calculation. Though on the other hand, governments may hold back a little on stimulus once that happens as they've been throwing money all over the place during Covid.
> Many investors focus on the right time to buy stocks because they don’t want to buy near a peak in case of a future market crash. I understand the feeling. With the market near all time highs in early 2017, it can be tempting to hold off until there is a larger negative adjustment in prices.
> The only problem with this approach is the market could go up for a significant period of time before a correction happens.
> For example, if you search “stock market overvalued 2012” on Google you can find plenty of stories discussing how overvalued stocks were in 2012. If you had started waiting for an S&P 500 correction then, you would have missed out on the ~70+% increase in prices from 2012 through early 2017.
And what has the S&P 500 done since 2017? Continuing:
> If I still haven’t convinced you, let me tell you a story. The story is about a man with possibly the worst luck in investing history.[0][1] He made a total of 4 large stock purchases between 1973 and 2007. He bought in 1973 before a 48% decline in stocks, bought in 1987 before a 34% decline, bought in 2000 before the dot com crash, and bought in 2007 before the Great Recession.
> Despite these 4 individual purchases that totaled a little less than $200,000, how did he do? He ended up with a $980,000 profit for a 9% annualized return. What was his secret? He never sold.
> That’s right. Selling out is literally selling out your future wealth. You need to hold on to your assets as you acquire more.
> This is the purpose of capitalism (i.e. acquiring capital). The only time you should sell your investments is for rebalancing (annually/quarterly, etc.) or in retirement. Otherwise, you already know the mantra.
And as Maggiulli shows, trying to buy the dip, even when you know when the dip will occur (which is impossible), gives worse results than simply putting away a little bit every month:
Put away a little every pay cheque, in a diversified low-fee fund (S&P 500, Total Market/Russell 3000), at a comfortable risk profile that allows you to sleep at night (0/20/40% bonds), and try not to pay attention too much about what The Market™ is doing. Most of us are investing for retirement, and if you do the above, you'll probably end up with a decent nest egg.
Save a little for the future, and enjoy the present.
This line of reasoning assumes the future looks like the past. Which is generally a solid mode of thinking.
But, if the future looks like the past, shouldn't it give you pause that on many metrics markets are substantially more richly valued than at any peak in the last 100 years?
You can't have it both ways. Either the past is useful or it's not. If it's useful, then you have two conflicting data points -- market timing doesn't work, and we're at the top of a big bubble. If the past isn't useful, then neither data point is valid.
Now, you'll probably argue that even if it is a big bubble, the past suggests it always comes back. Setting aside the obvious fact that it's mathematically better to buy after the bubble bursts than before, you're in the same conundrum. Does the past matter or not? If it does, then yes you should expect to recoup the money eventually from buying at the top (though, if you bought at the top in 1929, you had to wait until the 1950s to get back to even). If the past doesn't matter and this time is different, then you can't say anything productive about the future.
[+] [-] joncrane|5 years ago|reply
I think I remember someone saying that in 1929 when the shoeshine boys were giving stock advice that that's how someone knew the bubble was about to burst.
Lately I've been discussing investment strategies with the people that work at the gyms I'm going to. Is this the equivalent signal? The 2021 equivalent might be "When your personal trainer is giving you investment advice, that's how you know to get out?"
[+] [-] throw0101a|5 years ago|reply
President JFK's father:
> While sitting in the shoeshine chair, Kennedy Sr. was alarmed to have the shoeshine boy gift him with several tips on which stocks he should own — yes, a shoeshine boy playing the stock market.
> This unsolicited advice resulted in a life-changing moment for Kennedy Sr. who promptly went back to his office and started unloading his stock portfolio.
> In fact, he didn’t just get out of the market, he aggressively shorted it — and got filthy rich because of it during the epic crash that soon followed.
* https://www.businessinsider.com/how-to-spot-stock-market-bub...
* https://en.wikipedia.org/wiki/Joseph_P._Kennedy_Sr.#1929_Wal...
[+] [-] papabrown|5 years ago|reply
>In fact, only approximately 10 percent of American households held stock investments and speculated in the market; yet nearly a third would lose their lifelong savings and jobs in the ensuing depression.
https://courses.lumenlearning.com/atd-hostos-ushistory/chapt...
Yet, this poll seems to indicate that around 55% of Americans now hold stocks.
>Thus far in 2020, Gallup finds 55% of Americans reporting that they own stock, based on polls conducted in March and April. This is identical to the average 55% recorded in 2019 and similar to the average of 54% Gallup has measured since 2010.
https://news.gallup.com/poll/266807/percentage-americans-own...
So if slightly more than one out of every two people you meet owns stocks, I would assume you're bound to run into a lot of people talking about stocks.
[+] [-] Negitivefrags|5 years ago|reply
And just wait till you see what is going on with Decentralised Finance.
https://coinmarketcap.com/yield-farming/
Sort that by Highest APYs. It fluctuates all the time but the numbers are getting as high as 1,000,000% APY. There is no world in which that can be anything but a Ponzi scheme.
People are actually buying into these things.
[+] [-] aaronbrethorst|5 years ago|reply
[+] [-] cs702|5 years ago|reply
> The one reality that you can never change is that a higher-priced asset will produce a lower return than a lower-priced asset. You can't have your cake and eat it. You can enjoy it now, or you can enjoy it steadily in the distant future, but not both – and the price we pay for having this market go higher and higher is a lower 10-year return from the peak.
With a bit more mathematical rigor: For each of us there will be only one future. In that future, each asset -- company, property, etc. -- will earn a finite cash flow yield. If we pay more for that future cash flow now, our rate of return will be lower in the future.
[+] [-] nabla9|5 years ago|reply
Banks are OK, household debt levels are OK. Corporate bonds are the issue in the current economy. Nonfinancial corporate debt to GDP ratio: hhttps://fred.stlouisfed.org/graph/?g=B5NG
* There are too many zombie companies walking around (indebted company that is able to repay the interest on its debts but not repay the principal)
* Institutional bond investors have chased profits to the lowest possible bond rating they are allowed to invest.
When something changes and ratings are downgraded, institutional investors are forced to sell these companies at the same time. Corporate bond market liquidity freezes overnight. Berkshire Hathaway will by bonds for cents per dollar...
[+] [-] icelancer|5 years ago|reply
Corporate debt on the other hand has been scary for a few years and is getting ridiculous. Your point lowest possible bond ratings is a solid one, I think, and one I hadn't considered.
The chaining effect of some failures will be significant given how much leverage is inherent in the system. I think bond market spreads will become quite large as liquidity dries up.
[+] [-] lumost|5 years ago|reply
I can't imagine corporate bankruptcies resulting in corrective change if the fed is the principal lender.
[+] [-] MrPowers|5 years ago|reply
He's been overly bearish for quite some time, here's the 7 year forecast from December 2009: https://ritholtz.com/2010/01/7-year-asset-class-forecasts/
Here's a recent talk he gave: https://www.youtube.com/watch?v=RYfmRTyl56w&ab_channel=Bloom...
[+] [-] sfblah|5 years ago|reply
[+] [-] vmception|5 years ago|reply
"But this bubble will burst in due time, no matter how hard the Fed tries to support it"
this either needs to be weighted much lower, can't be the crux of the article, or has to be called out for its ambiguity and uselessness in predictive ability
[+] [-] lumost|5 years ago|reply
It's becoming clear that money can be printed without causing inflation if its unevenly distributed in the economy. This amounts to large scale wealth redistribution to support asset price increases. If you earn dollars for a living, your purchasing power in terms of future dollar income is being eroded. You will purchase a home later or never, you may not be able to afford an education, and your medical expenses will rise ( as will anything that affects future earning power ).
When this ends is anyones guess, it's entirely plausible that we revert to the social systems of prior less equal times, foreign trade moves off the dollar, assets converge to an effective price of infinite dollars, or populists demand their own redistributive policies such as UBI or wealth taxes.
Or the fed meets tomorrow and cuts QE entirely. What is assured is that the current trend is unsustainable and must end eventually.
[+] [-] neffy|5 years ago|reply
However that said, the default bubble is potentially a lurking time bomb, so it's a race between inflation and loan defaults, essentially. (Inflation tends to make loan defaults less likely as it reduces the relative cost of existing loans.)
[+] [-] yellowstuff|5 years ago|reply
Two can play at this game. I predict that at some future date the stock market will be higher than it is today.
[+] [-] koolba|5 years ago|reply
If you said that about the Nikkei 225 in 1990, you’d still be waiting for it to come true. Though as of a few hours ago it’s within 30% of the peak: https://www.bloomberg.com/news/articles/2021-02-15/japan-s-n...
[+] [-] boh|5 years ago|reply
[+] [-] curiousllama|5 years ago|reply
I totally agree with this guy, but my only reaction is "of course... so what?"
I think any educated observer is wowed by the stock market right now. Anything other than "wow!" is voodoo
[+] [-] slt2021|5 years ago|reply
Federal Reserve basically cornered the entire market into equities, investors have literally nowhere to go. even if 1% of equities capital escape into any other asset class - emerging markets, real estate, alternatives, crypto, whatever - it will create even more gigantic bubble in that asset class that will surely pop without the FED's support
[+] [-] icelancer|5 years ago|reply
Yeah, I think that is the generally accepted understanding of what's happening right now especially with additional stimulus / QE methods.
Think you are already seeing equity escape into other asset classes in commodities and cryptocurrency, too.
[+] [-] viburnum|5 years ago|reply
[+] [-] viburnum|5 years ago|reply
[+] [-] TuringNYC|5 years ago|reply
There is no real choice now, you have to park the cash somewhere...and so it ends up everywhere from stocks to commercial real estate to VC (and eventually into our tech salaries, into rent, to the landlord, to the bank, and back into MBS in institutions :-)
[+] [-] AngrySkillzz|5 years ago|reply
[+] [-] imnotlost|5 years ago|reply
If you stayed invested in the broad market through any bubble-pop you would be better off than aggressive diversification and hedging. Unless you can reliably time the tops and bottoms.
Where else will you invest? China? India? Rest of Asia? Europe? South America? Africa? Specific commodities?
Do you believe the next generations in the US will continue to create value or do you think this is the beginning of a perpetual decline?
[+] [-] papabrown|5 years ago|reply
The idea was that people benefitted more from staying in the market over a long period of time rather than maximizing their returns in any particular year.
So the fund was aimed to smooth out the peaks and valleys along the ride so investors would be more inclined to leave their money parked in the fund rather than getting a statement that said that they're down 30% and going to cash and missing the next run up.
[+] [-] lubos|5 years ago|reply
https://www.macrotrends.net/1437/sp500-to-gold-ratio-chart
[+] [-] bluedevil2k|5 years ago|reply
[+] [-] fractionalhare|5 years ago|reply
[+] [-] rich_sasha|5 years ago|reply
That said, it's not that hard to say we are in a bubble. Frankly, almost any time the market isn't at the bottom, it's in a bubble.
The real questions are, when will it pop, and how do you invest accordingly. These are super-hard, and a (cursory) read of the article doesn't really address that.
The general, boring observation, is that unless you can do much, much better, you should just be long the market, throughout all the bubbles and busts. You won't get the 50%-in-a-month payout, but you can get your consistent 10% a year or whatnot.
So I'm not just nay-saying, I thought S&P is about to crash ever since it crossed 2,000 after the crisis. If I followed my (weak) gut feeling, I would have lost 50% on that trade. Thank goodness I didn't. Even when it crashes, eventually, probably (???) not as low as 2,000.
[+] [-] zhoujianfu|5 years ago|reply
Your overall net worth is not what makes you happy, it’s the CHANGE in net worth (up).
If you’re always heavily invested in the market, you are most of the time happy, because most of the time, the market goes up. This is punctuated by (relatively) quick periods of great loss/sadness.
But overall, you end up with a lot more happy times than sad. So a net positive to happiness. Not being invested in the market (at all or trying to beat a crash) means you have a period of net zero happiness. Which is worse on average than being in the market.
So, let it ride people... on average you’ll be happier!
(And actually, on average you’ll do better financially too.)
[+] [-] ur-whale|5 years ago|reply
Two unfunded assumptions that seem to be based on your own experience.
Here's another, based on my own experience: a component of what makes you happy is to not have to worry about money at all, either because you live a lifestyle that require little of it, or because you have enough that a 50% change in wealth has zero impact on your life.
[+] [-] boh|5 years ago|reply
Saying "we're in a bubble" is always technically right since stock prices rarely reflect actual company value, unfortunately this article doesn't offer much insight beyond the obvious.
[+] [-] reese_john|5 years ago|reply
[+] [-] Clewza313|5 years ago|reply
[+] [-] MrPowers|5 years ago|reply
[+] [-] DoubleDerper|5 years ago|reply
[+] [-] YZF|5 years ago|reply
In terms of the greater fool thing, you can only keep buying and selling the same thing for a 10% profit every year without eventually running out of people who will buy it. I guess see also the GME stock as a microcosm of that?
And so, all bubbles must burst.
[+] [-] akvadrako|5 years ago|reply
Historically prices have always gone up, so as long as you aren't near a peak it's probably the lowest the total market will ever be.
[+] [-] samingrassia|5 years ago|reply
[+] [-] exabrial|5 years ago|reply
I think this is fundamentally different than other bubbles because there's a guaranteed light at the end of the tunnel.
[+] [-] icelancer|5 years ago|reply
[+] [-] YZF|5 years ago|reply
[+] [-] throw0101a|5 years ago|reply
A post by Nick Maggiulli in 2017:
> Many investors focus on the right time to buy stocks because they don’t want to buy near a peak in case of a future market crash. I understand the feeling. With the market near all time highs in early 2017, it can be tempting to hold off until there is a larger negative adjustment in prices.
> The only problem with this approach is the market could go up for a significant period of time before a correction happens.
> For example, if you search “stock market overvalued 2012” on Google you can find plenty of stories discussing how overvalued stocks were in 2012. If you had started waiting for an S&P 500 correction then, you would have missed out on the ~70+% increase in prices from 2012 through early 2017.
* https://ofdollarsanddata.com/just-keep-buying/
And what has the S&P 500 done since 2017? Continuing:
> If I still haven’t convinced you, let me tell you a story. The story is about a man with possibly the worst luck in investing history.[0][1] He made a total of 4 large stock purchases between 1973 and 2007. He bought in 1973 before a 48% decline in stocks, bought in 1987 before a 34% decline, bought in 2000 before the dot com crash, and bought in 2007 before the Great Recession.
> Despite these 4 individual purchases that totaled a little less than $200,000, how did he do? He ended up with a $980,000 profit for a 9% annualized return. What was his secret? He never sold.
> That’s right. Selling out is literally selling out your future wealth. You need to hold on to your assets as you acquire more.
> This is the purpose of capitalism (i.e. acquiring capital). The only time you should sell your investments is for rebalancing (annually/quarterly, etc.) or in retirement. Otherwise, you already know the mantra.
* [0] https://www.cnbc.com/2015/08/27/the-inspiring-story-of-the-w...
* [1] https://awealthofcommonsense.com/2014/02/worlds-worst-market...
And as Maggiulli shows, trying to buy the dip, even when you know when the dip will occur (which is impossible), gives worse results than simply putting away a little bit every month:
* https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co...
Put away a little every pay cheque, in a diversified low-fee fund (S&P 500, Total Market/Russell 3000), at a comfortable risk profile that allows you to sleep at night (0/20/40% bonds), and try not to pay attention too much about what The Market™ is doing. Most of us are investing for retirement, and if you do the above, you'll probably end up with a decent nest egg.
Save a little for the future, and enjoy the present.
[+] [-] sfblah|5 years ago|reply
But, if the future looks like the past, shouldn't it give you pause that on many metrics markets are substantially more richly valued than at any peak in the last 100 years?
You can't have it both ways. Either the past is useful or it's not. If it's useful, then you have two conflicting data points -- market timing doesn't work, and we're at the top of a big bubble. If the past isn't useful, then neither data point is valid.
Now, you'll probably argue that even if it is a big bubble, the past suggests it always comes back. Setting aside the obvious fact that it's mathematically better to buy after the bubble bursts than before, you're in the same conundrum. Does the past matter or not? If it does, then yes you should expect to recoup the money eventually from buying at the top (though, if you bought at the top in 1929, you had to wait until the 1950s to get back to even). If the past doesn't matter and this time is different, then you can't say anything productive about the future.
[+] [-] nmfisher|5 years ago|reply