Always great finding resonance with authors of my view. It is also highly important to consider where you are in life and manage risk. Those in, or close to, retirement need to be wise here.
Interesting and thoughtful post, yet again. Here are some random thoughts:
- Stocks are expensive by traditional measures right now. The level of fuel left in the tank for future appreciation is low. The real question is whether or not the size of the fuel tank is expanding or contracting – that is the counter argument.
- There have been three distinct “lost decades” in US stock market history – periods where $100 invested at the beginning of the decade produced zero or negative returns a full 10-years later (ending 1939, ending 1982, ending 2009). After the 1929 crash, the Dow didn’t return to its peak until 1954 – a full 25 years later. In 1966, the Dow hit 1,000, and was still basically at that level in 1982, 16 years later. At year-end 2009, the Dow closed lower than it did a decade later on Dec 31, 1999. These are very, very long periods of low returns that were preceded by boom times like we appear to be experiencing now?
- I think one thing that is overlooked by lots of analysts is the ease-of-use of investing tools. Things like Robinhood and even JP Morgan Chase’s app and website bring stock-market investing literally into the pocket of “ordinary people.” I used to work on Wall Street in the 1990s, and I know that this world wasn’t really available or accessible to anyone “not in the biz”. Increased access directly leads to more investment, which I believe we have seen the fruits of over the past 10-15 years. But how much *that* can add to the fervor of the market remains to be seen.
- The Isaac Newton story is a well-known one, proving that even the smartest, most logical engineers fall prey to human desires. The lesson learned here is that the world is unpredictable and one should diversify across a large number of investments. Yes, sounds boring, but keeps you from being known as someone who loses a fortune. Good thing Newton did other famous things that he’s more well known for these days (like inventing calculus and such).
- Another footnote of history – the “stock market crashes” of 1929 and “dot-com crash” of 2001, etc, were not really “crashes” like the stock market disruption in October of 1987 – they were slow declines over months and months. In 2001, the NASDAQ took two and a half years to go from the peak to the bottom. In 2008 it was a bit shorter, but still a long time – about 17 months. The lesson here – one can be in the market for the ride up, but should have the discipline to take profits after a 10% or so correction that might be the indicator of a prolonged decline (but again, who the heck knows).
It will be interesting to see how it plays out. In the meantime, I'll continue to do my monthly investment contributions in both my retirement and non-retirement accounts keeping enough cash on hand to make do while I am still in my earning years.
Valuations are stupidly high. But, valuations are not per se a timing tool (unless you are Buffett). Historically the market will grind higher (and valuations move higher) so long as the economy is expanding. It is when a recession rolls around that valuations are expressed. Given the current level of valuations it would not be surprising to see the S&P 500 (because of the cap weighting) drop 50% plus.
Exactly what I just wrote above. I look like it as a gas tank. The fuel level right now is low, but the real question is whether the tank itself is expanding (or contracting).
Always great finding resonance with authors of my view. It is also highly important to consider where you are in life and manage risk. Those in, or close to, retirement need to be wise here.
Great post. Thanks for sharing!
Interesting and thoughtful post, yet again. Here are some random thoughts:
- Stocks are expensive by traditional measures right now. The level of fuel left in the tank for future appreciation is low. The real question is whether or not the size of the fuel tank is expanding or contracting – that is the counter argument.
- There have been three distinct “lost decades” in US stock market history – periods where $100 invested at the beginning of the decade produced zero or negative returns a full 10-years later (ending 1939, ending 1982, ending 2009). After the 1929 crash, the Dow didn’t return to its peak until 1954 – a full 25 years later. In 1966, the Dow hit 1,000, and was still basically at that level in 1982, 16 years later. At year-end 2009, the Dow closed lower than it did a decade later on Dec 31, 1999. These are very, very long periods of low returns that were preceded by boom times like we appear to be experiencing now?
- I think one thing that is overlooked by lots of analysts is the ease-of-use of investing tools. Things like Robinhood and even JP Morgan Chase’s app and website bring stock-market investing literally into the pocket of “ordinary people.” I used to work on Wall Street in the 1990s, and I know that this world wasn’t really available or accessible to anyone “not in the biz”. Increased access directly leads to more investment, which I believe we have seen the fruits of over the past 10-15 years. But how much *that* can add to the fervor of the market remains to be seen.
- The Isaac Newton story is a well-known one, proving that even the smartest, most logical engineers fall prey to human desires. The lesson learned here is that the world is unpredictable and one should diversify across a large number of investments. Yes, sounds boring, but keeps you from being known as someone who loses a fortune. Good thing Newton did other famous things that he’s more well known for these days (like inventing calculus and such).
- Another footnote of history – the “stock market crashes” of 1929 and “dot-com crash” of 2001, etc, were not really “crashes” like the stock market disruption in October of 1987 – they were slow declines over months and months. In 2001, the NASDAQ took two and a half years to go from the peak to the bottom. In 2008 it was a bit shorter, but still a long time – about 17 months. The lesson here – one can be in the market for the ride up, but should have the discipline to take profits after a 10% or so correction that might be the indicator of a prolonged decline (but again, who the heck knows).
-Wayne
It will be interesting to see how it plays out. In the meantime, I'll continue to do my monthly investment contributions in both my retirement and non-retirement accounts keeping enough cash on hand to make do while I am still in my earning years.
Valuations are stupidly high. But, valuations are not per se a timing tool (unless you are Buffett). Historically the market will grind higher (and valuations move higher) so long as the economy is expanding. It is when a recession rolls around that valuations are expressed. Given the current level of valuations it would not be surprising to see the S&P 500 (because of the cap weighting) drop 50% plus.
Exactly what I just wrote above. I look like it as a gas tank. The fuel level right now is low, but the real question is whether the tank itself is expanding (or contracting).
Maybe not a great melt up but certainly a drop of 20-30% with index not doing much for the next few years
Thanks for this Graham! Be well!