How Overvalued Are Stocks?

Discussion of the Stock portion of the Permanent Portfolio

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barrett
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Re: How Overvalued Are Stocks?

Post by barrett » Wed Jun 15, 2016 10:16 am

Kbg wrote:I highly recommend reading Meb Faber's asset allocation book. The bottom line is that from a returns perspective it really just doesn't matter over a long period of time as any allocation returns pretty much the same thing. It was way eye opening for me. A couple of weeks back half joking half seriously he told people to quit reading his blog and quit stressing about their ports.
Hey Kbg,

What is the name of that book? Thanks.
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ochotona
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Re: How Overvalued Are Stocks?

Post by ochotona » Wed Jun 15, 2016 11:04 am

On his website which bears his name, the eBook is given away for free
barrett
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Re: How Overvalued Are Stocks?

Post by barrett » Wed Jun 15, 2016 11:56 am

ochotona wrote:On his website which bears his name, the eBook is given away for free
Thanks, ocho. Now I have his book but he has MY email address.
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Re: How Overvalued Are Stocks?

Post by Kbg » Wed Jun 15, 2016 3:14 pm

MangoMan wrote:But Meb is not a spammer, and I'm pretty sure they don't share your info with any third parties.
He's not. I think I get stuff occasionally but definitely not daily or weekly.
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Re: How Overvalued Are Stocks?

Post by MachineGhost » Wed Jun 15, 2016 4:53 pm

Kbg wrote: I still come back to why I'm here...a very simple port that returns a little less than most standard asset allocation ports at way less volatility. Add some prudent leverage and it's an excellent risk adjusted way to grow your savings.
I guess I've got to disagree that putting 50% of my net worth at risk for a MaxDD via 2x is an "excellent" way to grow my savings. That's just not very smart in my book. The way to get more gains is to take less risk because risk by default is what eats away at gains! But less risk will requires more work to get more gains. So there's no free lunch.

I think in my next life I'll choose an alternative career to finance. ::)
Last edited by MachineGhost on Wed Jun 15, 2016 4:59 pm, edited 1 time in total.
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Re: How Overvalued Are Stocks?

Post by MachineGhost » Wed Jun 15, 2016 4:55 pm

Kbg wrote:
MangoMan wrote:But Meb is not a spammer, and I'm pretty sure they don't share your info with any third parties.
He's not. I think I get stuff occasionally but definitely not daily or weekly.
I like Meb but similar to Hussman, his ideas fail when implemented as funds. I think the problem is he's too simplistic and assumes backtests will repeat in the future without recognizing the changing dynamics of arbitrage, knowledge and computation. Since he's a Wall Street outsider, he's sort of [re]introducing simplistic 1980's ideas in the 2010's. And most of his catchet seems to be coming from going around giving speeches, etc. than any real skill as a money manager.
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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 » Wed Jun 15, 2016 5:03 pm

MachineGhost wrote:
Kbg wrote: I still come back to why I'm here...a very simple port that returns a little less than most standard asset allocation ports at way less volatility. Add some prudent leverage and it's an excellent risk adjusted way to grow your savings.
I guess I've got to disagree that putting 50% of my net worth at risk for a MaxDD via 2x is an "excellent" way to grow my savings. That's just not very smart in my book. The way to get more gains is to take less risk because risk by default is what eats away at gains! But less risk will requires more work to get more gains. So there's no free lunch.
So watcha got that is better? During the wealth building phase, above all, the thing that kills gains is lack of compounding gains. William Bernstein does a great job of discussing life cycle investing in his book...so it depends where one is at in their life cycle and if they are grossly rich an entirely different set of rules apply, but let's see what you got. Layout your best system and let's run it against something like Sortino, UPI or CAR/MaxDD. And let's compare the alternative(s) decade by decade to see how they do.

Sharpe doesn't count as something with very little return can have agreat sharpe ratio.
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Re: How Overvalued Are Stocks?

Post by MachineGhost » Wed Jun 15, 2016 6:28 pm

Kbg wrote:[quote="MachineGhost"So watcha got that is better? During the wealth building phase, above all, the thing that kills gains is lack of compounding gains. William Bernstein does a great job of discussing life cycle investing in his book...so it depends where one is at in their life cycle and if they are grossly rich an entirely different set of rules apply, but let's see what you got. Layout your best system and let's run it against something like Sortino, UPI or CAR/MaxDD. And let's compare the alternative(s) decade by decade to see how they do.
It's not that difficult. Any strategy that compounds gains more frequently than buy and pray will have superior metrics. And in most cases that reduces risk as well since time in market increases the probability of suffering through a Black Swan event. But this requires more work than just rebalancing once a year or every 2-3 years with bands, so that's the trade off. At some point it will turn into a career and that will conflict with your other career.

OTOH, I haven't found a strategy that I have a great confidence in that will continue to work on a weekly, monthly or quarterly basis. Intraday or daily sure, yearly or every few years, sure, but the in-between is very problematic. It's either a lot of work or very little work.
"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 » Wed Feb 01, 2017 8:10 am

The stock market bubble is going to pop. It's getting bigger and bigger like an animated cartoon balloon.
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Re: How Overvalued Are Stocks?

Post by Cortopassi » Wed Feb 01, 2017 8:23 am

Sure, but you don't know when. Could be tomorrow. Could be once it hits 30,000.
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Re: How Overvalued Are Stocks?

Post by dualstow » Thu Feb 02, 2017 11:08 am

Cortopassi wrote:Sure, but you don't know when. Could be tomorrow. Could be once it hits 30,000.
+1
It wasn't that long ago that there were discussions here about the stock market being "broken." Stocks have only surged since then.
And, remember the thread called "Which Asset Will Double First"?
RIP Marcello Gandini
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Re: How Overvalued Are Stocks?

Post by ochotona » Fri Feb 03, 2017 9:00 pm

My stop-loss is set at 2060 on the S&P500. That's a target based on my use of Dual Momentum (I use April '16 as my lookback reference, not February '16... I've mentioned this before. I'm being cautious).

We're at 2297 now. Some optimists think we could make 2500.

So am I willing to lose -10% in order to gain 8.8%? Not good risk:reward

If the price goes to 2160, then the risk:reward changes:

-4.6% vs. 15.7% which is much better... but then we're right at the 200 day MA, which itself is a really good momentum indicator, so as a momentum investor I can't take that bet either.

Sort of hard to stay still, hard to move. Getting boxed in.
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Re: How Overvalued Are Stocks?

Post by InsuranceGuy » Fri Feb 03, 2017 9:16 pm

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ochotona
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Re: How Overvalued Are Stocks?

Post by ochotona » Fri Feb 03, 2017 9:25 pm

InsuranceGuy wrote:Right now it seems that a Trump reduction in corporate taxes is priced in. Stocks have been steadily increasing since March 2016 for the most part.

Disclaimer: my momentum investing model has me in 100% stocks currently, could be a wild ride!
When you look at the VIX, it makes these concave-upward "bowls" with a period of 4-5 months, and we're in the low part of a bowl now. A couple of more months and something might happen. March or April?
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Re: How Overvalued Are Stocks?

Post by mathjak107 » Sat Feb 04, 2017 4:45 am

trying to predict what over valued means can be futile .

stocks were deemed to be so over valued in 1982 that investors were told to stay away .

in one year p/e's jumped by 50% . well as we now now that was the kick off to one of the greatest bull markets in history . most investors missed the biggest gains in the beginning because they thought things were over valued .
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ochotona
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Re: How Overvalued Are Stocks?

Post by ochotona » Sat Feb 04, 2017 8:17 am

mathjak107 wrote:trying to predict what over valued means can be futile .

stocks were deemed to be so over valued in 1982 that investors were told to stay away .

in one year p/e's jumped by 50% . well as we now now that was the kick off to one of the greatest bull markets in history . most investors missed the biggest gains in the beginning because they thought things were over valued .
Mathjak, I was only 21 in 1982, so I was not plugged in. Who was saying stocks were overvalued in 1982? Looking back at CAPE and any other price-to-whatever ratio, they were not. I can imagine, though, after years and years of poor real performance, people just plain capitulated and gave up on stocks. I remember in 1984 I was buying 13% and 14% CDs, so there must have been high-paying CDs in 1982 also to entice people away from stocks.

I'm not sure it was valuation, I think it was just "this sucks!"
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Re: How Overvalued Are Stocks?

Post by mathjak107 » Sat Feb 04, 2017 8:25 am

oh yes they were overvalued. remember we had double digit interest rates . the p/e's jumped from the 7's to almost 12 in one year . that was insane with double digit rates . interest rates are a big factor in valuations and judging high or low . .
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Re: How Overvalued Are Stocks?

Post by ochotona » Sat Feb 11, 2017 8:31 pm

P/E 12 ? Oh for the good old days mathjak!
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Re: How Overvalued Are Stocks?

Post by mathjak107 » Sun Feb 12, 2017 3:00 am

with double digit rates that was an insane multiple back then , especially because the year started at 7. but who knew that was going to be the sstart of the greatest bull market .
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ochotona
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Re: How Overvalued Are Stocks?

Post by ochotona » Sun Feb 12, 2017 4:15 am

Maybe nominal rates were high but real rates were low in 1982?
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Re: How Overvalued Are Stocks?

Post by mathjak107 » Sun Feb 12, 2017 4:30 am

well real stock returns were low too , so on a valuation level stocks appeared very high especially because real returns were so low on them . real returns work both ways , they make stocks even worse of a value as real return on them drops .
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Re: How Overvalued Are Stocks?

Post by LazyInvestor » Sun Feb 12, 2017 6:47 am

Bogle says expected long term equity returns are ~2% real taking into account overvaluation.

I don't follow this since according to his formula, for example, European market should return the same but if I look at the charts European has under-performed US significantly.
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Re: How Overvalued Are Stocks?

Post by ochotona » Sun Feb 12, 2017 7:15 am

The case Shiller home price index is back to July 2005 levels. The SP500 peaked October 2007. Maybe we have a timeframe like that remaining before bubbles pop.
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Re: How Overvalued Are Stocks?

Post by mathjak107 » Sun Feb 12, 2017 8:28 am

home prices are very localized . heck , our home in the pocono's is worth 60k less than it was in 2007 .

the hardest hit areas in the down turn tended to bounce up the most . many area's are still below their old highs
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Re: How Overvalued Are Stocks?

Post by Kbg » Sun Feb 12, 2017 8:35 am

LazyInvestor wrote:Bogle says expected long term equity returns are ~2% real taking into account overvaluation.

I don't follow this since according to his formula, for example, European market should return the same but if I look at the charts European has under-performed US significantly.

These figures usually come from CAPE ratio analysis...which does not work at all as a timing mechanism but in hindsight usually works out to be a pretty good prediction.
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