How Overvalued Are Stocks?

Discussion of the Stock portion of the Permanent Portfolio

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MachineGhost
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How Overvalued Are Stocks?

Post by MachineGhost » Mon Jun 13, 2016 3:26 pm

Image
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

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pugchief
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Re: How Overvalued Are Stocks?

Post by pugchief » Mon Jun 13, 2016 3:51 pm

Are you seriously still reading Hussman? Please tell me when the last time he was right about anything [timing wise]. I'd bet my VP that it hasn't been in the last 10 years.
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Re: How Overvalued Are Stocks?

Post by MachineGhost » Mon Jun 13, 2016 4:41 pm

pugchief wrote:Are you seriously still reading Hussman? Please tell me when the last time he was right about anything [timing wise]. I'd bet my VP that it hasn't been in the last 10 years.
It doesn't matter whether or not he was timing right with his fund, he's right about the valuation (93% correlation). The PP is going to suffer unless we have some kind of stagflationary, Bretton Woods II, etc. scenario so gold can outperform. When was the last time we had stock yields and long-term bond yields in the same low class ballpark? Never. So for the PP it is uncharted territory. This is more a danger for those who aren't DCAing (and won't panic).

And BTW, if you don't grok how Hussman had a "timing" miss, then you're operating on security threatre. You essentially betting your glorious future on government competence (or at least the fickle Boobus Americanus perception of thus) because thats what the last 7 years has been. Not holding my breath.
Last edited by MachineGhost on Mon Jun 13, 2016 8:24 pm, edited 1 time in total.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
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ochotona
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Re: How Overvalued Are Stocks?

Post by ochotona » Mon Jun 13, 2016 5:22 pm

MachineGhost wrote:The PP is going to suffer unless we have some kind of stagflationary, Bretton Woods II, etc. scenario so gold can outperform. When was the last time we had stock yields and long-term bond yields in the same low class ballpark? Never. So for the PP it is uncharted territory. This is more a danger for those who aren't DCAing (and won't panic).
Maybe it's time to broaden out the "real" asset category of the PP to include different types of commodities, and not only gold. Those might trip upwards, they have been mercilessly pummeled over the past several years, much worse than gold.
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Re: How Overvalued Are Stocks?

Post by sophie » Mon Jun 13, 2016 6:29 pm

The fact is, this is also doom-alicious for standard stock/bond portfolios, because for PP-ers gold might pick up the slack. That won't work for the majority of investors who don't own any.

This has about the same weight as any other prediction (i.e. close to nil). Could he be right? Sure, but I'm not going to do anything to bet on it. And what could you do about it anyway? Emerging markets maybe?
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Re: How Overvalued Are Stocks?

Post by MachineGhost » Mon Jun 13, 2016 8:50 pm

In a nutshell, here is what happened:

Image

Yeah maybe as PPers we can afford to be cocky, but Bogleheads and just about everyone else would have been destroyed with another -80% MaxDD. They've been "saved" only by the audacity of hope, so they have terribly unrealistic expectations which is why they're gonna lose for the third time since 2000. It's only natural...

Image
Last edited by MachineGhost on Mon Jun 13, 2016 9:08 pm, edited 1 time in total.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
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Re: How Overvalued Are Stocks?

Post by MachineGhost » Mon Jun 13, 2016 8:58 pm

sophie wrote:The fact is, this is also doom-alicious for standard stock/bond portfolios, because for PP-ers gold might pick up the slack. That won't work for the majority of investors who don't own any.

This has about the same weight as any other prediction (i.e. close to nil). Could he be right? Sure, but I'm not going to do anything to bet on it. And what could you do about it anyway? Emerging markets maybe?
I don't really see any alternative but to diversify among strategies and have the PP be a core. Call it a melding of the VP with the PP if you want. Another worst situation for the PP (that gold won't help with) would be if we had economic growth over the next 12 years but stocks did not return any of it because suddenly the overvaluation started to matter to investors! That's happened before.

It would also help to have investments in the real economy instead of the financial fantasyland.
Last edited by MachineGhost on Mon Jun 13, 2016 9:42 pm, edited 2 times in total.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
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Re: How Overvalued Are Stocks?

Post by MachineGhost » Mon Jun 13, 2016 9:27 pm

Image

Curious how the PP did since that time (I used the March peak), I ran the stats: 6.71% CAGR, -14.95% MaxDD. Not even get rich slow!
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
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Re: How Overvalued Are Stocks?

Post by Kbg » Mon Jun 13, 2016 9:41 pm

http://www.amazon.com/Antti-Ilmanen/e/B0074NNOCW

Here ya go...all kinds of ways to make money.
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Re: How Overvalued Are Stocks?

Post by barrett » Tue Jun 14, 2016 8:01 am

MachineGhost wrote:Image

Curious how the PP did since that time (I used the March peak), I ran the stats: 6.71% CAGR, -14.95% MaxDD. Not even get rich slow!
MG, Are you really not happy with a 6.71% CAGR over that timespan? Inflation has been low for most of that period. It seems to me that the PP has been doing its thing up to this point. I don't have the exact real return during that time period but it's still something over 4% which I would take any day.
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Re: How Overvalued Are Stocks?

Post by MachineGhost » Wed Jun 15, 2016 1:08 am

barrett wrote:MG, Are you really not happy with a 6.71% CAGR over that timespan? Inflation has been low for most of that period. It seems to me that the PP has been doing its thing up to this point. I don't have the exact real return during that time period but it's still something over 4% which I would take any day.
Not really, but then I'm in wealth generating mode. I just hate to think of all the time I put into tire kicking the PP and all I got was a blasted 6.71% CAGR. :) Man, you'd think the PP was the bee's knees from all the high praise about it!

The problem is the lazy gene in me really wants the PP to offer more reward without more risk. I hate having to work for it and battling your emotions all the time can get very, very monotonous.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
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Re: How Overvalued Are Stocks?

Post by sophie » Wed Jun 15, 2016 7:22 am

I'd most definitely take the 6%. Compare that to the S&P 500's return of just around 2% (CAGR, real) since 2000.

I remember reading an investing article when I was researching portfolios, about how slicing and dicing various stock subclasses could bring annual yields of well over 10%. Later I realized this was all based on assuming the 1980s bull market would continue forever. Because of those bull markets we all think we can expect our money to grow > 10% per year, but historically that just isn't so.

It's also one reason why Harry Browne recommended just plain Treasury bills for people who couldn't deal with maintaining a permanent portfolio - rather than 100% stocks. T Bill returns, historically, are not much lower than the average performance of the stock market.
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