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Post by chang on Jan 12, 2021 1:37:37 GMT
I have seen this article discussed in two other places, and I've also received an email from someone about it. Sooner or later, someone is likely to discuss it here, so I figured I would start while the article is still fresh (January 5th). www.gmo.com/asia/research-library/waiting-for-the-last-dance/It is, basically, the same "The end is near!" warning that Grantham and Hussmann have been issuing for years. Of course, that doesn't mean he's wrong. Indeed, he says a lot of things that are absolutely right. There's no question that JG is a very experienced, smart, sane, sober investor. The article is medium length, and I think is certainly worth reading. Unlike Hussman's articles, it is actually comprehensible. The language is simple and clear; the style is engaging, and the few charts are to-the-point and impactful. Here's an excerpt from the summary. - The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble. Featuring extreme overvaluation, explosive price increases, frenzied issuance, and hysterically speculative investor behavior, I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000. These great bubbles are where fortunes are made and lost – and where investors truly prove their mettle. For positioning a portfolio to avoid the worst pain of a major bubble breaking is likely the most difficult part. Every career incentive in the industry and every fault of individual human psychology will work toward sucking investors in. But this bubble will burst in due time, no matter how hard the Fed tries to support it, with consequent damaging effects on the economy and on portfolios. Make no mistake – for the majority of investors today, this could very well be the most important event of your investing lives.
The problems I have with the article is that: - It is hard to locate the line between sober prognostication and fear-mongering. Has he crossed it?
- Grantham has been saying this for years. Why is he right this time?
- Grantham's 7-Year forecasts have been pretty far off. Is he still credible?
I am generally pretty bullish and optimistic, but I would be lying if I said that Grantham's points do not cause me at least some concern. I have already commented (and noted in the BSW) that I am ratcheting down equity a little bit. The article, skeptical as I am of Grantham's credibility, makes me feel a little more confident that this is a sensible move (for me).
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Post by rhythmmethod on Jan 12, 2021 15:49:27 GMT
I agree that it's crazy not to be considering/reducing risk at this point. If one has been active at all since March, 2020 they have profits. Now seems like a decent time to let Wellesley
carry a big part of the load. At least that's what I'm planning to do. That along with some dry powder, confidence in what I am currently holding and preparation to let the next few months pass and take advantage of big drops if they occur. Opportunity costs currently seem small in relation to risk currently, IMO.
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Post by Chahta on Jan 12, 2021 15:56:46 GMT
OK, so you "de-risk" from equities. What then do you buy? CDs? UST/ST bonds? Are you game to try some other ST trades like HY munis? Why is Wellesley de-risking with 50% equities?
A blind hog finds an acorn once in a while so maybe he is right this time. We all know it will happen some day but when is the question.
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Post by rhythmmethod on Jan 12, 2021 18:16:00 GMT
OK, so you "de-risk" from equities. What then do you buy? CDs? UST/ST bonds? Are you game to try some other ST trades like HY munis? Why is Wellesley de-risking with 50% equities? A blind hog finds an acorn once in a while so maybe he is right this time. We all know it will happen some day but when is the question. Good point. For me this is a time to increase balanced funds. It might not de-risk that much but a pro is balancing in real time. I’m increasing VWIAX, VGWAX, VTMFX. |
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Post by FD1000 on Jan 12, 2021 19:57:47 GMT
chang:I am generally pretty bullish and optimistic, but I would be lying if I said that Grantham's points do not cause me at least some concern. I have already commented (and noted in the BSW) that I am ratcheting down equity a little bit. The article, skeptical as I am of Grantham's credibility, makes me feel a little more confident that this is a sensible move (for me). Sure, I'm concerned all the time, but I will take actions when I see a meltdown  Holding a position and not selling is timing too  I got a portfolio for you 50% in EEM,IWM,SCHD + 50% in TSIIX+VWALX. That's it, my 5 funds portfolio and pretty simple. I'm allowing you to select your own sub for EEM. |
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Post by rhythmmethod on Jan 12, 2021 21:43:59 GMT
OK, so you "de-risk" from equities. What then do you buy? CDs? UST/ST bonds? Are you game to try some other ST trades like HY munis? Why is Wellesley de-risking with 50% equities?A blind hog finds an acorn once in a while so maybe he is right this time. We all know it will happen some day but when is the question. I think I gave an incomplete answer. As usual it depends on where one is coming from. For example, I took a big slice off the top of CNRG (up over 100%) to fund both my wife and my IRAs in VWIAX. I also took some off to fund VGWAX and VTMFX. Did I sell too soon? Looks like it, but bird in the hand and all that. For me short term trades right now, isn't where my mind is at. I'm preparing for a more black-swan event that well may not come. But I'm booking some profit and keep my allocation in line (but a little more conservative) and letting some balanced funds do more lifting. That's all I got. We'll see.... |
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Post by chang on Jan 12, 2021 22:05:12 GMT
OK, so you "de-risk" from equities. What then do you buy? CDs? UST/ST bonds? Are you game to try some other ST trades like HY munis? Why is Wellesley de-risking with 50% equities? A blind hog finds an acorn once in a while so maybe he is right this time. We all know it will happen some day but when is the question. The answer to your question depends, I think to some degree, on where you are in your investing career. I am a new retiree who has "won the game", so capital preservation is foremost for me. If I went to 100% cash, we could probably live the rest our lives alright. Capital preservation is more important than growth of capital right now. But a 30-year old accumulator should not see it the same way. Anyway, I am gently nudging the riskiest exposures I have into Wellesley or VUSFX (cash). No drastic changes. I am just trying to work my way down to 50/50; maybe even a touch below that. I am also, of course, re-arranging a lot of deckchairs; e.g., IG bonds → munis (VBILX → VWALX), etc. |
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Post by chang on Jan 12, 2021 22:08:54 GMT
chang:I am generally pretty bullish and optimistic, but I would be lying if I said that Grantham's points do not cause me at least some concern. I have already commented (and noted in the BSW) that I am ratcheting down equity a little bit. The article, skeptical as I am of Grantham's credibility, makes me feel a little more confident that this is a sensible move (for me). Sure, I'm concerned all the time, but I will take actions when I see a meltdown Holding a position and not selling is timing too I got a portfolio for you 50% in EEM,IWM,SCHD + 50% in TSIIX+VWALX. That's it, my 5 funds portfolio and pretty simple. I'm allowing you to select your own sub for EEM. Sure, watch and act when you see something. I get that. But if your AA isn't where you think you want it to be, I would change it now. erryl (where are you?) used to say "there's never a wrong time to fix your AA." Thanks for that portfolio (not a bad one). Are you going to deposit some seed money for me?  |
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Post by Chahta on Jan 12, 2021 23:56:35 GMT
I think I gave an incomplete answer. As usual it depends on where one is coming from. For example, I took a big slice off the top of CNRG (up over 100%) to fund both my wife and my IRAs in VWIAX. I also took some off to fund VGWAX and VTMFX. Did I sell too soon? Looks like it, but bird in the hand and all that. For me short term trades right now, isn't where my mind is at. I'm preparing for a more black-swan event that well may not come. But I'm booking some profit and keep my allocation in line (but a little more conservative) and letting some balanced funds do more lifting. That's all I got. We'll see.... I have heard that if you can get out or in within 10% of the top or bottom you are doing well. |
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Post by steadyeddy on Jan 12, 2021 23:58:55 GMT
OK, so you "de-risk" from equities. What then do you buy? CDs? UST/ST bonds? Are you game to try some other ST trades like HY munis? Why is Wellesley de-risking with 50% equities? A blind hog finds an acorn once in a while so maybe he is right this time. We all know it will happen some day but when is the question. For me de-risking is staying in cash.. a digital number in my accounts that pays 0% interest and erodes in value to inflation. |
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Post by steadyeddy on Jan 13, 2021 0:02:10 GMT
I agree that it's crazy not to be considering/reducing risk at this point. If one has been active at all since March, 2020 they have profits. Now seems like a decent time to let Wellesley carry a big part of the load. At least that's what I'm planning to do. That along with some dry powder, confidence in what I am currently holding and preparation to let the next few months pass and take advantage of big drops if they occur. Opportunity costs currently seem small in relation to risk currently, IMO. I want to chime in here: Wellesley, even though it has near 40% equities, serves as a de-risker in the current environment for two obvious reasons: 1) dividend paying stocks it holds with reasonable (relatively speaking) valuations, and 2) high quality corp bonds as opposed to treasuries which again are holding up better lately. Wellesley is now 60% of my invested dollars (lot of dry powder on the sidelines). |
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Post by chang on Jan 13, 2021 0:44:47 GMT
I have heard that if you can get out or in within 10% of the top or bottom you are doing well. There's something about rhythmmethod "getting in and out" that makes me think of ..... oh, never mind. |
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Post by Chahta on Jan 13, 2021 1:13:03 GMT
LOL. I always wondered about the “rhythm method”.
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Post by Norbert on Jan 13, 2021 13:24:34 GMT
I think it's a good time to lighten up on some of the übervalued techy, growthy stuff, and rebalance into relatively decent values of, say, dividend-paying stocks.
But, I think that T-bonds and IG corporates are overpriced too. So, I'd prefer SCHD or VDIGX paired with a good multi-sector bond fund. I hold Wellesley, but am not adding now.
N.
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Post by Chahta on Jan 13, 2021 13:48:22 GMT
I think it's a good time to lighten up on some of the übervalued techy, growthy stuff, and rebalance into relatively decent values of, say, dividend-paying stocks. But, I think that T-bonds and IG corporates are overpriced too. So, I'd prefer SCHD or VDIGX paired with a good multi-sector bond fund. I hold Wellesley, but am not adding now. N. A 2 fund portfolio? |
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Post by rhythmmethod on Jan 13, 2021 16:03:44 GMT
LOL. I always wondered about the “rhythm method”. Getting in is easy, it's the other part that requires skill/concentration/will-power. |
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Post by Deleted on Jan 13, 2021 17:35:45 GMT
Yesterday FT published a viewpoint comparing Grantham with Marks. Marks view is that distinction between growth and value no longer makes sense. And many stocks are value (beaten down) because of a good reason. Grantham, it seems, is still in his old model of the world.
Now are tech stock stocks over priced or in a bubble is a different debate.
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Post by rhythmmethod on Jan 13, 2021 17:56:23 GMT
I think it's a good time to lighten up on some of the übervalued techy, growthy stuff, and rebalance into relatively decent values of, say, dividend-paying stocks. But, I think that T-bonds and IG corporates are overpriced too. So, I'd prefer SCHD or VDIGX paired with a good multi-sector bond fund. I hold Wellesley, but am not adding now.N. I agree with you N. I'm doing that as well. Wellesley is where I put my "stupid money". The older I get the "stupid money" and my dad's advice seem smarter and smarter. Stay well! |
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Post by Deleted on Jan 13, 2021 18:16:35 GMT
I think it's a good time to lighten up on some of the übervalued techy, growthy stuff, and rebalance into relatively decent values of, say, dividend-paying stocks. But, I think that T-bonds and IG corporates are overpriced too. So, I'd prefer SCHD or VDIGX paired with a good multi-sector bond fund. I hold Wellesley, but am not adding now.N. I agree with you N. I'm doing that as well. Wellesley is where I put my "stupid money". The older I get the "stupid money" and my dad's advice seem smarter and smarter. Stay well! For me it is Wellington and Berkshire. |
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Post by anitya on Jan 13, 2021 21:45:46 GMT
LOL. I always wondered about the “rhythm method”. Getting in is easy, it's the other part that requires skill/concentration/will-power. It is widely known in investing circles that getting out is easy, it is the getting back in is what folks have difficulty with. That is why the common refrain is to stay (in the market). You know that too. |
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Post by anitya on Jan 13, 2021 22:24:30 GMT
I think it's a good time to lighten up on some of the übervalued techy, growthy stuff, and rebalance into relatively decent values of, say, dividend-paying stocks. But, I think that T-bonds and IG corporates are overpriced too. So, I'd prefer SCHD or VDIGX paired with a good multi-sector bond fund. I hold Wellesley, but am not adding now. N. In the past two months VDIGX has returned 2% - many fixed income funds have returned as much or more, without the entertaining volatility of VDIGX. Any way, not to focus on the silly short term performance, I am struggling to hold on to VDIGX. It was one of many of my failures of 2020. It performed poorly in the market drop and it continues to lag in recovery. It would be great if you are able to share your current thesis for VDIGX. |
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Post by Deleted on Jan 13, 2021 22:58:18 GMT
in 2020, VDIGX returned 12%. Much better than my duds Wellington (10%) and Berkshire Hathaway (2%).
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Post by anitya on Jan 14, 2021 19:13:19 GMT
in 2020, VDIGX returned 12%. Much better than my duds Wellington (10%) and Berkshire Hathaway (2%). My 2 cents - That is a great number for Wellington relative to VDIGX. Berkshire is an insurance company, not withstanding popular expectations - its stock correlate well with KIE. But it is too big and complicated to add much value to a portfolio. I own it and has been a drag on my portfolio but as the rest of the portfolio appreciates, its influence has gone down (3%). If not for tax handcuffs, I would have exited it a while ago. It has large investments in renewable energy but its stock price does not get the credit other renewable energy companies have received. I shall wait and see if BRK gets broken down after Warren and unlock some of the trapped value in BRK stock price. |
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