When will the current equities bull run end?

Great presentation here by Jeremy Siegel who wrote 'Stocks for the long run'.

Has some pretty interesting views on market valuations as of June 2018.

To me he comes across as an academic with a good dose of common sense - he questions CAPE and some other things, and brings it back to a real world conclusion for a lay person like me!

 

Agree 100%
The best thing that ever happened to me was right at the beginning of my share investing.
Long story short, I bought all spec stocks, majority of them turned to crap, I was sitting on HUGE losses, never sold a single stock, many have rebounded however there are afew that were suspended etc at 90% losses, great reminder of what not to do (gamble not invest) and I proved to myself that I can hold when I'm over 50% in the red and also learnt to buy companies that you get paid to hold(dividends).
If the shoe was on the other foot and all my spec stocks shot the lights out, chances are id be pumping my hard earned into the next big thing.
I stick by the saying, best way to learn is to do

 

Out of curiosity what percentage decline in red line required to bring it back in line with the average of the yellow line? This would be my first 25% instalment of my bulk cash allocation.

 

It would be much easier to dismiss his outcome if he was simply an idiot or petrified, but he is neither. At many times which in hindsight it would have been ideal to re-enter the market, he didn’t because in the present he thought he would get a better opportunity soon. He got close a few times but never a cigar. It’s been ground-hog day for him for years. Meanwhile his purchasing power dwindles and psychologically it gets harder to re-enter because today’s levels make even less sense to him then yesterday and on and on it goes.

To think the psychology that has a grip on him is because he is somehow lacking is to brush normal human behaviour off to lightly IMO.

If you had to describe him in one word it certainly wouldn’t be unintelligent or scared. My one-word description would have been confident, (or at least it used to be). These days it would be more like Melancholy and sadly I think the stress of managing his money has played a role in changing him.

 

Let me answer this another way - see if I can get you thinking outside the box.

It would take a reduction in retention ratio and hence increase in payout ratio to roughly historical levels to bring the two lines back together.

 

To a degree yes but include observing the actions of others. And I'm not saying follow what they do but observe.

 

Ok interesting.
Dividend yield
Current 1.80% median 4.28%
Price needs to come back or dividend needs to grow, for dividends to grow logic dictates corresponding earnings would need to grow......

Earnings growth
Current 15.11% median 12.01%

Interesting conundrum, I think I will maintain the regular purchasing plan and deploy my first 25% bulk cash allocation when things revert back to the median.


All above % for S+P500

 

Admittably I'm a very hands in person, I can watch what someone does until the cows come home and will still not be convinced, then I do it once and I'm good to go!
Your right, not the best approach for everyone however

 

Below is Buffett’s take on why stocks are not in bubble territory. It’s the long term interest rate that will ultimately determine stock prices. Watch between 4-8 minute mark



Cheers
Oracle.

 

Let’s keep all else equal and just concentrate on the difference in dividends.

Company's earns 12% on equity.
Market values earnings at a P/E of 16.
Assume book value of $100

Company A)
$100 @ 12% ROE = $12 Earnings. Dividend = $4.20 (4.2%). Retained = $7.80 (7.8%)
$100 compounded at 7.8% = $211.93 book value in 10 years.
$211.93 @ 12% ROE = $25.43 earnings x P/E of 16 = Market Price of $406.90


Company B)
$100 @ 12% ROE = $12 Earnings. Dividend = $1.80 (1.8%). Retained = $10.20 (10.2%)
$100 compounded at 10.2% = $264.13 book value in 10 years
$264.13 @ 12% ROE = $31.70 earnings x P/E of 16 = Market Price of $507.13

The only thing changed in the above scenario is the retention ratio. However, Company B’s price is worth 25% more after 10 years.

The comparison I showed is the S&P 500 index, It is a price chart not an accumulation chart. If you don’t consider, the difference in today’s retention rate compared to the past then you could easily draw the wrong conclusions and think current price line should pull back to historical price line to represent value.

No reason for dividend yield / retention ratio to revert to median unless tax laws change.

 

Great explanation, thanks.

 

Akin to the sunk cost fallacy - the longer he goes the more he thinks he's wasted time on the sideline so getting back becomes even less attractive. That sounds frustrating.
The Sunk Cost Fallacy

............but if the market tanked 90% tomorrow and he got back in would he get his mojo back?

 

As usual, I was probably being a little too cryptic. When I say observe, it's not only about what others do but whether their "enthusiasm" has changed from "Whoopee! Look at me" to either relative silence or there is the feeling of regret and possible disappointment.

Examples concerning late relatives.

One retired in 1988 with around $500k. Placed it all in cash and as interest rates went south, in essence, spent it all then ended up on the pension. And did they whinge about how terrible everything was. A total misery guts to be around.

Another retired at the same time with much less at $50k. Invested that in the market. Yes, they got the pension but was content as the additional income (which gradually increased) provided sufficient to have holidays. Nothing flash mostly, apart from one overseas trip, but enjoyable none the less. A nice person to be around.

Observing both was a good lesson for me. Not an instantaneous lesson for sure as it was gradual but it sunk in.

There have been others and the above are but two. I don't criticise out loud (mentally I do of course) what others do with their money as it's up to them but I find their actions, and reactions to their decisions, informative.

 

This was absolutely fascinating. Thanks @Snowball for posting the link.

 

Really....?
What?

 

More media commentary, suggesting bond market is also not convinced the run can continue. Chart below puts pre GFC peak into context.

Maybe I will regret it but I am I am still firmly holding out on any further additons of US market for now. Maybe i will be sitting in my rocking chair in 2050 saying 'any day now', but then again, maybe not...

Wall Street's bull run breaks new records, while the bond market paints a different picture - ABC News (Australian Broadcasting Corporation)

 

Some truth to that. However, with the amount of cash Berkshire Hathaway is also holding onto ($US100 billion+), maybe it's a case of watch what he does not what he says?

Warren Buffett's record-breaking cash stockpile should have investors very worried

 

Well here we are :

Dow falls 600 points and wipes out 2018 gains; Nasdaq enters correction territory

Dow off 7%, NASDAQ in official correction now at 11% early days but the sentiment has most definitely changed.

Some good value starting to appear in AU now, I have accelerated a few purchases this month of AU LICs. Also added more Asian stocks via VAE which has taken a pounding.

US still a tad too expensive for me, but watching much more closely now. Looking for Dow low 20s I think to start adding to holdings.

 

Which holdings are you considering for US exposure?

Cheers,
Oracle.

 

Interested in VAE as a long term investment. It’s down 17% from its recent highs. I presume this is around recent China news - GDP growth, stimulus, trade “wars”? China was stated as comprising 33% of the ETF, plus flow on impact to its trading neighbours.
Any thoughts from anyone.