Due to the fact that we have outstanding smart people in this forum, I want to put a thought out there for the following:
Introduction
The markets (in general) but mainly in the US are booming, new record highs every day.
Everyone is happy here seeing their IB growing
Never the less all this is not sustainable, economic data in the US shows the contrary. The economy is slowing and not encouraging data is coming out (although nobody is paying attention and everyone is talking about the “new highs”)
The markets are distorted due to the injection of money by the Quantitative Easing policy adopted and so the new highs are not “organic” or due to companies performance but more as artificially pumped numbers.
now everyone is waiting for another rate cut from the FED and I believe that’s what’s keeping the levels up.
This means that you’re continuously buying VT, VTI and the rest of ETFs in a non “conventional” and artificial market at a record highs prices with no real value.
Even the good friend’s with Charlie and Warren, Howard Marks in his last 3 memos has been “warinig” about the reality. Even Warren talks about it in his 2019 letter to investors.
Finding the right companies to invest long term once and be prepared to buy at the market lows
Crowdsourcing investment ideas
We’re mustacians and, in theory, not market timers, BUT…
We’re long term investors and try to catch opportunities as well.
I know many people from the community is accumulating cash on the side because those people see the risks too.
is anyone doing that? Please, share your ideas about this topic and if you have analyzed any companies to invest in once the prices go lower.
Market timing overall is dumb but the sequence of return risk matters for folks that want to FIRE soon.
I am in the position of holding a bigger cash position after exiting some long-running illiquid investment. Now I am fine losing 1% per year (inflation) by holding cash… but I am ready to go 100% in VT once the market dips 20-40% (from that point onwards I wouldn’t touch/time the ETF again and just consume the 2.x% dividend).
How long will you wait? Why not instead adjust your allocation based on the volatility you want (if you can’t afford a downturn cycle, you probably have too much invested in stock) and stick with it instead of timing the market?
Very fair question – I would say I am happy to wait another 24 months and something tells me the next downturn will come well before that. (On that note, I can recommend this -somewhat bearish- market commentary: https://www.hussmanfunds.com/content/comment/)
The plan is to invest 100% in stock (frankly bonds make no sense – otherwise I would do 20% TLT). The idea is that the dividend yield itself must be enough for lean FIRE … and if not, I will simply work a bit longer [if history repeats and I get to buy the ETF with 30-40% discount the actual dividend yield after 2-3 years should be more like 4-6% calculated on the basis of my entry price. that would turn the whole thing into fat FIRE]
The whole idea of dismissing bonds is based on presumption that rates can only go up from here, not down. Are we still so certain after latest action of FED, ECB etc? We could easily see another decade of even lower rates, and even higher stock markets.
I keep hearing about the imminent market crash from people all around me, everyone is holding cash and few are fully invested. Market crashes are never expected, not by the average Joe.
I have more and more the impression (seeing the recent pre-emptive actions from the Fed and the ECB) that there won’t be a stock market crash.
Indices will just continue to go up and up. See the stock indices of Buenos Aires, or furthermore Caracas, for a clue of what it might look like in the years to come…
I mentioned cash (since risk-free rate is negative for us), not bonds. But if interests where positive (after fees), why wouldn’t it make still sense to hold them? The bond value decrease should match the higher interest rate, so unless you’re selling immediately it shouldn’t matter.
I thought the role of bonds was risk-free capital preservation (that you can rebalance with and to lower volatility).
Market timing overall is dumb but the sequence of return risk matters for folks that want to FIRE soon.
I wonder what the options are for addressing sequence-of-returns risk? I can think of at least three: market timing, asset allocation, and withdrawal methods.
Market timing seems like a risky approach to me. “The market can stay irrational longer than you can stay solvent.” Maybe equities will double next year and then stay flat for 20 years after that, nobody knows, I wouldn’t want to take the chance.
Asset allocation could be tweaked for “sleep at night factor” by replacing some equities with some other solid investment with low correlation but I’m not sure what that would be besides bonds.
Withdrawal methods could be used to exchange sequence of returns risk for some other kind of risk. For example the “constant percentage withdrawal” method where you take x% of your portfolio based on it current value (instead of starting value) would mean you spend less during down years, giving less volatility in your portfolio value but more volatility in your annual budget.
I lean towards asset allocation and withdrawal methods as tools for managing risk and “sleep at night” factor. I have read zillions of market timing threads and the conclusion always seems to be that the OP is convinced that it doesn’t make sense.
This is a key point, today everything (natural resources, real estate, art, wine…) is strongly correlated to the stock market. Maybe an ETF on gold mines could be helpful.
today everything (natural resources, real estate, art, wine…) is strongly correlated to the stock market
There is a relevant thread at Bogleheads called That’s enough for me in 2019. The OP (markettimer) is intelligent, thoughtful, and transparent and has relevant experience. He was wiped out in 2007 making a leveraged bet on equities and now he is hedging against a decline.
I am not sophisticated enough to know if these people are being clever or just too clever for their own good. I have more faith in keeping it simple and staying the course.
Having said that, how about Swiss real estate as diversification besides stocks and bonds?
The US market basically crashed on 24th December 2018 but I know of no-one who put their words to action and invested in this crash.
Then there are several worldwide markets in distress, at all time lows or just starting to recover. Among them is a G20 country, Turkey, as well as already mentioned Argentina and Greece. Russia is now staging a nice recovery, and it’s still dirt cheap (P/E 5.5) and paying good dividend (~6%).
Less followed are Pakistan and Nigeria, both at all time lows and with P/E of 5, dividend yields of ~7% and ROE above 16%.
Imagine you invested in Brazil at the depth of its crisis back in 2016. Already a fat 150% return and the valuation is still very attractive comparing to most markets.
Noone can guarantee that such a basket of distressed countries will outperform the MSCI World in the years to come, but what they have in common is little correlation with the broad market and they are deep in crisis or early recovery, which is so craved by investors. Why is everyone waiting to buy AMZN at 70% discount? Not going to happen!
I did, but purely by chance, out of luck, and actually laziness - I procrastinated my investment start during whole of 2018; and it turned out great!
I made it my “old year decision” to open an account and put my first money to work on IB.
I poured over 60% of my current invested assets in Dec-Feb period.
In retrospect it would have been even better if I threw in a lump sum, but I wasn’t that ballsy; so I spread it around a bit. (also, who could have known that it would also turn so high so soon)
I guess I could say the same, but was it really luck? The crash coincided with by planned 3a contribution and scheduled asset purchase with 13th salary paid in December. Would I profit if I were in full-panic-market-crash-imminent mode and hoarding cash? No, most likely not.
Crashes, scandals, doom and gloom happen all the time in different asset classes. Our emotions take the best of us which is why we don’t act, even if majority of them play out favorably. Unless you are trained, disciplined and have a strong rulebook it really is best to just keep buying “the market” in regular intervals.
I’m not saying you or Hussmann are necessarily wrong, but isn’t Hussmann kind of famous for always being bearish? For instance, here’s a post from May 2014 where he predicts nominal S&P500 returns “below zero on every horizon of 7 years and shorter” and says that “there may not be much time left until Judgment Day”: http://hussmanfunds.com/wmc/wmc140505.htm
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[if history repeats and I get to buy the ETF with 30-40% discount the actual dividend yield after 2-3 years should be more like 4-6% calculated on the basis of my entry price. that would turn the whole thing into fat FIRE]