When will the current equities bull run end?

Can I ask you based on whatever metrics you are using now can you advise when was the last time you found US market attractive to invest?

Cheers,
Oracle.

 

That all makes perfect sense.
My approach is a bit more aggressive, but worked post GFC. Time will tell if I got out too soon this time around.
However the majority of the spare funds are providing a risk and tax free return by sitting in PPOR offset, so I am comfortable with that in the mean time.

 

"There are two times in a man's life when he should not speculate; when he can't afford it, and when he can". Mark Twain

 

In very rough terms, I would say anywhere from midway through the precipitous falls of the GFC, to around two years ago where the average PE reaches around 20-25. Last two years prices keep rising but earnings not keeping pace. I know there is generally positive sentiment and forecast earnings growth, but that is now priced in and if that doesn’t materialise it feels to me like more downside risk than upside.

 

Can I ask the same question of yourself? You have suggested some quite arbitrary indicators for when a market is overvalued such as “tips from a taxi driver” and “euphoria”.

I have low EQ so may miss the euphoria, and I haven’t caught a taxi in years - is there some more numerical indicator you would consider where you might say ok, time to hold fire?

 

No not really...just like you can make an educated guess based on P/E ratios that market doesn't look attractive you can make educated guess on when the market looks attractive. There would be doom and gloom and people panicking. Media would be reporting market breached 3 year lows, 5 year lows etc. It would be very obvious when market is undervalued. But buying during that time would not be easy. Why? Because you can buy at 3 year lows feeling good at the time and still see your portfolio tank another 20%-25% to breach 5 year lows. On the one hand you feel like kicking yourself to have invested so early and at the same time fear also starts to creep in seeing losses and no end in sight. We humans are wired in certain way and it's perfectly normal to feel sick when you suffer financial loss.

Since you asked the one measure I do like is dividend yield. Whenever the dividend yield is higher than average I would feel confident in buying and would not panic even if price kept falling whereas if the dividend yield was lower than average I would not be in any rush to go out and buy.

But nowadays I keep some powder dry (around 10%) and buy whenever I can and subscribe to dividend re-investment thereby trying to make the process of buying automated to remove any emotions. The most important thing is to keep regularly saving and invest those savings. Don't worry too much about timing. If you do the former bit long enough you are virtually guaranteed success. And lastly avoid chopping and changing strategy too much. It doesn't help.

Cheers,
Oracle.

 

Did you see $WMT earnings today....?

 

Just another day..

 

If you are broadly diversified across sectors and markets you really don’t need to give this too much thought. The US equities market is not the world market. This is a great feature of running fixed SAA with firm rebalancing rules. Surplus capital goes to what is cheap (has underperformed) while letting the winners run, and thus avoiding tax events. And you don’t feel like you need to have a view and make active calls which are invariably affected by cognitive biases.

 

If one is going to make judgement calls this is about as good as it gets in practice imho

 

He he that’s about the limit of my technical ability nowadays. To add further if one has to question whether we’ve reached the “packing death” or “euphoria” stage then we’re not there yet.

But even this is still very subjective and complicating things unecessarily. All it’s really suggesting is to “stay the course”. Don’t lose your head in extreme times both good and bad. Nothing new to most here, just bloody hard to do at times.

I worried during the 87 Crash, increasingly more so during the GFC and during the other fearful market events in between. I’m sure I’ll crap myself even more so as retirees now when the next crash occurs. But no matter what you can’t afford to lose your head. I’m a naturally nervy, worrisome (excessively so at times) person so if I can manage to do this then most should be able to. But it does help to have a strong belief in Shares as a magnificent way to build wealth. Anything one can do to enhance one’s belief in this area will be beneficial.

My new saying “feel the fear and buy anyway”. Gee I talk some rubbish at times.

 

Agree, and this is the definitely the point I am trying to eventually get to. I have put together a relatively simple portfolio which I consider diversified, low risk, low fee that I would happily hold for the next 50 years. I have assigned % weightings which I will happily stick to as well. I have sold down a lot of my individual company holdings leaving me a decent sized cash pile to invest. I am buying different markets at regular intervals out of this pool of funds, building up the portfolio in line with my plan, but not yet at my target % for US (or AU for that matter).

I asked the original question for this reason, because as good as it is to stick to a strategic asset allocation, there is also evidence to suggest that the timing of entry for a large lump sum investment can lead to very different long term outcomes. Quote from example article below:

“In order to examine the potential negative return experience faced by a new investor we can look at a “drawdown” analysis. This analysis shows the cumulative maximum loss faced by an investor who starts investing at the previous market peak. Essentially we consider the experience of a theoretical investor who commences at the point real returns from the strategic asset allocation turn negative... traditional strategic asset allocation can result in substantial loss of purchasing power for long periods of time. While eventually such drawdowns are recouped, the time horizon for this is in some cases over a decade and in most cases many years.”

https://www.schroders.com/en/au/institutions/insights/real-matters/why-saa-is-flawed/

 

Yes, sequencing risk. There is no simple answer to this one.

Good discussion over a beer. Very annoying on a forum as we each do not know what the other knows/does not. The Schroder piece is just puffery leading up to promoting an active asset allocation strategy imho - which have historically been proven sub-optimal when employed by major houses....but have earned solid fees.

A major lump sum event is certainly something to focus the attention however, I have idea of what I will be doing which fits my risk / avoidance of regret criteria. This is what you need to consider - what works for you. If a valuation based strategy works for you just stick with it.

 

I have an older acquaintance that I have known for quite a while and am reasonably abreast of his basic financial journey from passing conversations but not the details.

He appears to have made some good big timing calls. Sold his investment properties around 2003 and moved it all into the Australian shares. Sold out of shares pretty much at the top in 2007. Thought it was too expensive and retirement was only 5ish years away.

Soon after he put all his money into 5 year term deposits paying 8% and retired early.

Most recent conversations have been around dismal returns on term deposits, how annoying and hopeless Centre Link is as he has recently been applying for a part pension. How close we must be to GFC Mark 2 and how housing prices are about to collapse by 50%. I doubt he will ever get back into shares or property unless the market proves him right once more and we get a major collapse back to GFC levels.

He doesn’t seem very happy these days. I think he made some good calls in the past, but not getting re-exposed to growth assets is now killing him – literally (financially and psychologically). He has a slightly younger wife. They seem to be now compressing their spending by a lot to preserve some sort of finacial security for her likely longevity. All the oversees travel has been axed and the big touring 4WD and Van sold. I don't think those activities come to a natural end. He discibes his spending these days as exsitence not living.

Moral of his story for me. Hard to say without all the details - perhaps they overspent in early retirement, but what I take away is:

Cash sucks – It’s an evil shrinking asset that passes itself off as safe.

Don’t let your golden years rest on getting big calls right. Big calls are a young man’s game at best.

 

Interesting @dunno A couple of "correct" big calls early in ones investing career are just about the worst thing that can happen to an investor imho, hubris and then often disillusionment follow. Attribution of that success to factors other than ones own unique insight is difficult. Meanwhile, equity risk premium is fairly reliable over the long term.....

 

sometimes you have to think carefuly re someone making a smart call, or just a fluke. And often, subsequent decisions will tell you if someone was the former or later, and that story smells like the later.

Reminds me of some learnings through mentor types:

Authority bias (think there is a better term) - just because someone is smart one area (ie a doctor) doesnt make him smart in all fields, or any other at all. Be careful who you listen to - even multi-milllionaires or billionaires often can have their 'wealth' tracked back to one or two key decisions, often lucky as it was smart, which set them. With big money, making money is extremely easy.

Understanding what money really is, and what risk is. Risk is running out of money, not losing money (necessarily). Cash in the long run is the riskiest thing you can do, and growth assets in the long run are the least-risky. Nobody thinks this way.

Humans really don't understand compounding/exponential growth at all. At all. I'm amazed sometimes at how difficult I find explaining this concept to someone. Maybe I'm the problem?

When investment-types have an allocation of 'cash' ie 20% in cash. It is not a stagnant figure which is set in stone. In fact, it is a weapon to allocate more funds at a better time in the future. At a point, this person will be near zero 'cash' and will then build his buffer again.

Understand mean reversion - if an asset class has been on fire for the past period, the lesser chance it will continue to do so etc.

We get too caught up in the detail, and not the bigger picture of markets and cycles that we find ourself in. The guy above, if even remotely intelligent has had 10 years to figure out we are in and have been in a low interest rate environment/rock bottom period for a long, long, long time. Sticking to cash for this long makes me think he is a petrified investor who only sold out of shares because he doesn't have the intestinal fortitude to invest in anything.

 

This is the only thing that worries me - that the 'index' I'm invested in becomes sick and too sick for me to ever see it recover.

I mean, these two in particular (and Greece, add in Italy & Spain) are places I would never allocate money to and never will (in isolation). But could Australia become this? I often wonder what our future is - we are not competitive in this global world, dont really stand for much and once the world doesnt need our natural resources - who are we?

Hence my positioning in the S&P500. These are the biggest global players, pure global growth at its purist and we are seeing these companies get bigger and bigger as they dominate the globe more than companies before them. I dont view it as just an American index and, if this thing was to drop 80-90% of value - would any other asset class be holding up anyway?

 

IMO his mistake was not re-entering the market at some point. As you say cash sucks.

Even if he had waited for all the dust to settle and invested half his cash he would have gone close doubling his capital. Markets go down, markets go up, repeatedly.

At some point you need to put most your capital into income paying investments and leave it there through ups and downs. But there will be several major opportunities in our lives to take advantage of major market falls. IMO it is best to take advantage of them.

Anyone buying Sydney property at the moment?
No? Why? Building up equity to buy when it is better value. Right?

 

That makes sense. I only started getting into shares seriously once my PPOR loan was negligible. Before that the PPOR always seemed like the best risk free investment.

My only options are bonds, cash and ip loans, none of which are great. Increasing allocation in cash / bonds will decrease volatility and is always an option.

 

My favourite is "denial ain't just a river in Egypt". Relevant to the "bagholders".