When will the current equities bull run end?

Of course this is a hypothetical question, no one can know for sure. US equities are approaching the longest continuous bull run in history. AUS shares, have had a few more ups and downs along the way but have similarly had a solid run for several years now, with many companies now getting up to pretty high valuations relative to earnings. US rate rises seem to have had no impact so far.

I am sitting on the sidelines waiting for buying opportunities but share prices keep climbing. Some would say just go the dollar cost averaging route but I do believe one can do better than that by taking what I would describe as the “buy big when the sky is falling” route. I read the other day that Berkshire Hathaway are currently sitting on over $100bn in cash due to lack of good buying opportunities.

On current and projected p/e multiples at best these markets look fully valued, and at worst they are well into overvalued territory. I do believe a meaningful correction/bear market is imminent (within next 1-3 years) and I am quite happy to sit and wait until I see prices that get me excited. Just curious what others think, and potential catalysts for this.

Things I can see triggering this would include, China economy hard landing, or China cause too many problems in South China Sea. Or China get into a trade death spiral with US, Nth Korea return to form, double down and send a rocket to a neighbouring country, Eurozone destabilises/sizeable country experiences debt crisis, Trump pretty much could do god knows what, middle eastern disputes/oil crisis, another Dotcom style boom, I guess the list is really endless...

Good article below comparing the size and duration of previous bull markets:

Catalysts that Ended Prior Bull Markets

 

Some would say just go the dollar cost averaging route but I do believe one can do better than that by taking what I would describe as the “buy big when the sky is falling” route. I read the other day that Berkshire Hathaway are currently sitting on over $100bn in cash due to lack of good buying opportunities.

Myself I know DCA works ,unfortunately you can never get the entry times right nor the exits..

With the big buys,i think you will have several entry times before the clock below goesto zero..

How many days until Brexit?

 

Sorry, it’s been a long and tiring day, but confused by that statement. Can you please expand on it?

 

It would go back to the reference point argument ..All the media one can read on investing in equities markets is always from the vantage point of the winning investor-one never reads about the population of investors that did not do that well..That's all I was trying to say very few mug week traders ever get the low entry sell high after tax exits right,otherwise the odds for everyone would be based on luck and that puts you on the wrong side of the 80 -20 rule from the start..

 

Building on what I think Nodrog was implying - I have to disagree with the statement that DCA works. All the evidence indicates it is more likely to produce worse results than lump sum investing. It sounds good if the market crashes just after you lump sum invest, but what if you DCA in for 3 years and then the market crashes on the third year? You're far worse off than if you lump summed 3 years before assuming its a bull market and you get solid gains those 3 years.

As for when the downturn is coming? What specific market? Occasionally there are global crashes, but more often there are cycles of under and overperformance of different share markets and the currency impact. I also don't buy the duration of this bull market talk - we're coming off a one in a hundred years global downturn. The asx isn't back to close to its 2008 value either.

Could crash, could takeoff, could stagnate. I have no idea. The crash talk has been going awhile now though, and I think JL explains it best:

Stocks — Part 1: There’s a major market crash coming!!!! and Dr. Lo can’t save you.

 

Not long now in my opinion, I know you can never pick it but there's organic growth coming from no where, there's not too many new or valuable things that people can get excited of and get behind. As stated everything is fully valued, in my opinion.
Also last time the aud/usd was looking the way it is, we had the gfc, this time round we don't have many tricks in the hat, interesting times!
But alas, this time is not different, when things drop value presents, so keep DCA and if you have the nerve, buy a little more as the prices reduce.
The catalyst ...... It's 2018, it'll probably be a tweet

 

Three years is a very long time in investing terms, with the few I talk too I don't know one that span the DCA over that time-frame -3-6 months would be more normal if it was still going pear shape after that one would just sell and balance the tax..

 

I have two questions for those waiting on the sidelines for the 'perfect' time to lump sum invest

1. How will you know when the 'perfect' time has arrived?

2. Will you have the courage to invest at that time?

Plenty of strategies out there and while I don't yet have the answer for me, I hope everyone finds one that is comfortable for them.

Have a great day

 

Late 2019 to early 2020 apparently.

Forecasting the Next Recession in 2019 or 2020 | Guggenheim Investments

 

I will have a crack at answering this:

1. It is not about finding the 'perfect' time, but I do believe there are times where you can say a market is relatively over or undervalued. I don't try to buy at the very bottom of the market or sell at the top. I am a long term hold investor, so I am happy to hold through the highs and lows, but I am selective about the prices when I buy in. I am also happy to buy at a price which I see as a discount to intrinsic value, not necessarily trying to pick the very bottom. I am not a institution, I don't have to be invested, I am quite happy to sit on cash waiting for dips to buy. If you want to talk about hard numbers that trigger a time to buy, I would definately say current and projected P/E multiples at or below long term average would be a good start. See pic below, US in danger territory as far as I am concerned.

2. The more prices fall the more confidence I get. Everyone had heard the old Buffet quite quote about being greedy when others are fearful. I am surprised how many people seem to struggle with this in practice. For me i am far more nervous investing in a hot market.

 

PE10 is just as flawed as any other timing measure. Did you notice that the only time in the last 30 odd years that the PE10 was near long term median was at the depths of the GFC? Should tell you something about the efficacy of the measure when using long run averages. Markets are complex - adaptive and change.

Honestly I see macro timing calls as a fools errand (not implying you are a fool!).

Focus on what you can control and what will be will be.

2c

 

Respectfully disagree. The only time in the last 100 years that the Shiller PE index was near the level it is today was immediately before the dotcom boom and the great depression. It also reached a similarly high peak immediately before the GFC. Those are not random coincidences in my view.

 

If the long term median was only hit at the depths of the GFC what does this tell you about PE10 long term trend? PE10 doesnt consider fundamental changes, like technology and tax. The market measure is hugely affected by large tech stocks that have arguably some of the strongest network effect driven earnings growth ever seen. We are not seeing stuff like banks at 30x. Industrials, financials, services look fully valued for sure, but they are showing earnings growth.

In any case, I'm happy to no longer need to have a view.....when I receive $$$ it gets deployed per fixed SAA model and I dont give it a second thought.

 

I don't expect to be able to change your mind @The Falcon , and I hear what you are saying. I get the whole you can't beat the index so just steadily buy the right allocation of ETFs philosophy. I have moved away from direct stock buying and market timing myself in recent years

But I just can't let go of this stubborn beleif that all assets have an intrinsic value, at times they will trade at a premium and at others they will be at a discount. I don't care about trying to get a screaming bargain but I do have a problem paying for a basket of companies at 30x future earnings with no real immediate catalyst for earnings growth to compress this. I am near certain that there will be a time in the near future where I can buy more units in IVV than I can today, so why would I buy them today?

 

If you have that level of certainty, I am not one to try to convince you otherwise. I don't have a view on short term market direction in any case.

 

Mar 2015 XAO was approx 5936
Feb 2016 XAO was approx 4816

Equals a correction of close to 20%

The previous approx 20% correction was 2011.

We are 2 and a half years from the low of the last almost 20% correction which seem to happen every 3-5 yrs.

The previous correction started Nov 2007 and was in the order of 50% aka the GFC.

So I would expect the next one to be around 2020, but who really knows and who knows what will cause it. It doesn't matter what will cause it, it is not even worth thinking about what will cause it...just know that they are a normal part of the cycle.

Recently I looked up the Ireland, Iceland stock market indexes to see how they faired since the GFC, some scary stuff there for those that adopt the buy and hold, dca, indexing approaches. Everything works until it doesn't!!!

 

I think of PE10 being not much more useful than the concept of reversion to the mean. That is, periods of strong growth are followed by periods of weaker growth. As to when this happens it’s pretty much a useless tool.

 

Agree, it doesnt help you to predict movents in share prices, but I do think it is a good basic barometer for whether shares are currently "cheap" or "expensive".

One could make a similar argument regarding NTA backing for LICs don't you think...

 

Not really. I’m only good with extremes. Packing death = Buy, euphoria = back off a bit. Anything in between = just keep plodding along.