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Post by FD1000 on Oct 28, 2022 21:55:53 GMT
Why I didn't sell bonds in 2021? Because HY Munis still performed well. NVHAX+NHMAX made 8.2-9.6% in 2021. Why I sold all bonds early in 2022? Because the chart started to do down + the Fed members were screaming they are going to raise rates. Why I'm still out of bonds? Because the charts are still in a downtrend and the Fed is still raiser rates. If you want to invest in bonds, just buy broker treasuries. But, it's just a matter of time when bonds will be great again in a big way. Why I'm obsessed with volatility? Because over many years it worked great for me. The idea is to find great risk-adjusted funds and load + avoid lagging categories. SGIIX,FAIRX,PIMIX did great in the past and PRWCX for 30 years( link) proved my point. Anyone who says volatility doesn't bother them should be in 100% stocks, after all, they are the best LT performer. Of course, volatility can be reduced by a lot with good trading, several of us are doing it for years. It is a great option for retirees. I wish I knew it when I was younger. The VIX? I never heard any serious investor who depend only on the VIX. The VIX is one good sign among several for higher volatility...and then you look at the charts to trade. So how do you know to sell or not, or it's a downtrend? You must be a trader, and sell after small losses, by the time you wait for a longer trend it's too late.
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Post by habsui on Oct 28, 2022 23:11:42 GMT
Lessons (not sure what I learned): For the last 20 years, I traded up to 20% of PV for tactical reasons, bonds/stocks, growth/value, etc. I learned/believe that over 2021/2022, there has been a fundamental shift. The playbooks of the last 30 years may not work as well for the next 5, 10 years. I used to be about 55/45 in stocks/bonds. I will not go back to that allocation. About 15-20% will go to alternatives with some trading (managed futures (e.g. PQTIX), energy (VDE/ICLN), real estate). I will increase the bond % especially munis (for my tax situation), and put some of the bonds into individual TIPS. Cheers..
(I reserve the right to change my mind.)
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Post by Mustang on Oct 29, 2022 20:57:22 GMT
I learned/believe that over 2021/2022, there has been a fundamental shift. The playbooks of the last 30 years may not work as well for the next 5, 10 years. I doubt that they will. If investors didn't make money over the last 30 years they did something seriously wrong. The fundamental shift is the Fed going back to fairly normal interest rates. Keeping interest rates near zero pushed the stock market's P/E ratio to unprecedented highs. I remember reading an article that said about the time the Shiller's CAPE ratio was proven to work it stopped working. That statement may have been a bit premature.
Here is an article discussing Shiller's CAPE ratio. As this article states changes in business practices of buying back stock instead of making distributions may change things and even Shiller is using a different measurement now based on total return. www.forbes.com/advisor/investing/shiller-pe-ratio/
"For context, over more than 100 years, the average and median Shiller P/E ratio has been around 15 or 16, spiking up significantly higher often before market crashes. But the all-time high in the Shiller P/E ratio was December 1999, when the figure reached 44.19. This high coincided with the dot-com driven rally in tech stocks of the late 1990s. Based in part on that record high ratio, Shiller correctly predicted that the dot-com frenzy would turn out to be a bubble."
The current CAPE ratio is around 28. That still feels high. Investment methodologies based on the last 30 years may have to be revised. I stress may. I'm not sure anyone really knows. But just about everyone seems to be skeptical
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Post by ECE Prof on Oct 30, 2022 0:08:44 GMT
“ If investors didn't make money over the last 30 years they did something seriously wrong. The fundamental shift is the Fed going back to fairly normal interest rates. Keeping interest rates near zero pushed the stock market's P/E ratio to unprecedented highs.”
Amen.
The distortion started after Paul Volker's 20% interest rate to crush the unabated inflation after OPEC oil embargo. I was living just 30-35 miles north of the border and moved here during Carter's presidency. That caused a lot of pain, and I also experienced most part of it during Regan's presidency. So, Alan Greenspan changed the play book and that was almost the same playbook until recently. It could work, but the geopolitics has changed quite a bit during this time since 1989. FED realized it too late. I do not want to get into that, but our policies have not adjusted to the “current world.” Until then, there will be some pain, and eventually, some equilibrium will take place to adjust our policies to attune to the current world or the future world. It would take some time because ours is a democracy, not a dictatorship, like China and Russia.
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Post by FD1000 on Oct 30, 2022 3:56:35 GMT
Mustang, I have been saying since 2010 that regression to the mean + the typical valuation is not going to work because of the Fed. In 2010, GMO published their 7 years forecast and I said they are going to be wrong, and they were hugely wrong. Arnott was another one that was off, and so is Shiller. They all build their framework on the assumption of of regression to the mean + the typical valuation.
I also learned that many times markets have correction and bear markets, not based on valuation: 2008=MBS...2018=Fed raising rates...2020=Covid...2022=inflation,supply chain,war,Fed raising rates.
I have learned a great lesson since 2008, which was the only year I have ever lost since the beginning in 1995. The price and trend are always right ST + LT. I can't find anything else. Markets can be irrational for months and years. This is why, after 2008 where I was at 90/10 and lost 25%(still much better than the market), I searched for years a system that will generate good performance with very low volatility. The more money I have, the happier I am with my system. I'm not sitting in and losing 15-20% and waiting for the rebound? Never.
Valuation as a generic idea makes sense but not in the short term, more for LT. A lot of things can occur ST that influence the LT. If valuation is a great tool, how can you explain the following 1) Tesla made 700% in one years 2) The FAANG 3) All these "great" experts(see above) were wrong for years to come 4) Most managers would beat the SP500, if they had great formula to find the best performing companies, they would beat it by several % , but most lag LT to a "stupid" simple index. Why? Because the SP500 is build on the price. The more the price rises, the higher the % it will be of the index. Again, price is the ultimate truth, because the markets says so, no matter of anything else. Tesla price gets crazy, it gets to the top 5 within years. GE used to be a giant, and now it's not.
I also learned another lesson. You can buy and hold, it's much easier, and saves time. Many good ideas come from the exception. The ability to find something that works. This is why I like outside the box thinking. I pay attention to the exception, I like habsui's post
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Post by Mustang on Nov 1, 2022 18:36:49 GMT
I am a long-term buy and hold investor. The stock market decline doesn't bother me because I'm not selling. I considered it an opportunity to buy and I sleep good at night. The only thing keeping me up is I tore the rear end out of my supercharged Mustang. Its in the shop waiting for parts which are sometimes hard to get. It will be a couple of weeks before I get it back.
Lately I've been looking at YTD a little differently. When we buy a fund we no longer own dollars. We own shares. One of my goals is simplification so I'm down to three funds not counting cash and an annuity: one (American Funds Balanced Fund) is my traditional IRA and two (Wellington and Wellesley Income) are in my taxable accounts. All dividends and capital gains are reinvested. We do not need the RMDs so we are also taking the after tax portion, matching it with cash from the sale of a house and investing it in W & W. AF Balance Fund (70% of these three funds): I have been taking monthly RMDs (reverse DCA) for almost two years. Thanks to reinvesting dividends and capital gains shares increased 1% after RMDs from EOY 2020 to EOY 2021. YTD 2022 shares are down 1.2% with no new investment just reinvesting dividends and capital gains. But, most of the capital gains are distributed in December. If things go well I suspect there will be a gain in shares again for 2022. Right now I own almost exactly the same number of shares as I did EOY 2020. Over the two year period the dollar value is down 11.5% but the number of shares are the same. Wellington and Wellesley Income (15% each): They say buy low, sell high. I want to keep a 50/50 allocation so the monthly buy goes to the fund that loses the most. YTD the number of shares of Wellington has increased 20.9% and shares of Wellesley Income has increased 15.5% (half of both from Balanced Fund RMD reinvestment.) To me, having the same number of shares of Balanced Fund and more shares of W & W means I will be pretty happy when the market recovers. And, the longer this lasts the more shares I will have for the recovery. P.S. I'm not worried about bond duration, yield, alternative investments, growth vs. value, market timing, or large Cap vs. Mid Cap. That is the fund manager's job and he has a staff of highly trained analysts helping him. Pick good funds and you sleep well at night. That is pretty much out of the box thinking.
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Post by Deleted on Dec 22, 2022 0:42:45 GMT
I will add to my lessons learned that Tax Loss Harvesting can be a great tool. If you don't use it, I suggest giving it a second look. It is particularly useful with etfs. I booked some substantial losses in international. I still want my international allocation long term. I also was able to use it for some individual stocks - MMM, VZ, AMZN.
Also, I have had it reaffirmed that I take a long term perspective and am comfortable with my portfolio on that basis.
I really really have liked having 15% in "safe" assets. This was new to me this last year. I have thought about decreasing and would depending on an exceptional opportunity - 20%+ drop in market.
Biggest lesson learned? Planning pays off!
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Post by steelpony10 on Dec 22, 2022 2:09:41 GMT
I will add to my lessons learned that Tax Loss Harvesting can be a great tool. If you don't use it, I suggest giving it a second look. It is particularly useful with etfs. I booked some substantial losses in international. I still want my international allocation long term. I also was able to use it for some individual stocks - MMM, VZ, AMZN. Also, I have had it reaffirmed that I take a long term perspective and am comfortable with my portfolio on that basis. I really really have liked having 15% in "safe" assets. This was new to me this last year. I have thought about decreasing and would depending on an exceptional opportunity - 20%+ drop in market. Biggest lesson learned? Planning pays off! If your plan works through this whole process however long it is and it’s not to taxing as you age, keeps up with your personal inflation rate plus hopefully gives you a chance at handling life’s surprises, that’s great. I like the security of knowing what our income should be each year ahead of time with little oversight or concern for values which are out of our hands, an unknown no matter what “I think”. I know this works already long term from past experience when I had an occupation and also saw putting some savings aside for those surprises seemed prudent. It was a seamless process replacing ordinary income with another type of ordinary income and a set aside with plenty of wiggle room to add more as/if needed. Seems very simple to me, just keep on doing what I always did when all this other stuff didn’t matter and shouldn’t now or in the future.
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Post by uncleharley on Dec 22, 2022 20:36:27 GMT
This yr I think I have learned to be a Buy & Hold investor. Emphasis on the "I Think". I need to chew on this for a while.
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Post by acksurf on Dec 22, 2022 21:27:56 GMT
I learned that I like being a dividend investor (for now anyway :-). Primarily SCHD, VYM; Vanguard Dividend Growth/VIG for something more blendy. A few shares of JEPI so I can see how that behaves. Trying to keep it simple. In retirement accounts back up to 80% equity; 10% cash and 10% bonds (Wellesley, iBonds, and small amount of PDI). Non-retirement lots of TBills, CDs and cash. FZDXX up to 4.23% - catching up fast to the CDs and TBills.
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comlb
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Post by comlb on Dec 22, 2022 22:21:19 GMT
thanks for a great list @slooow,
"7. When a large cap has a paltry dividend increase, cut the cord.
8. Monitor financials - particularly when there is a trend in poor earnings."
Agree esp with both of these, being patient is a great way to get long run returns, but if you see something that is going overly negative then acting is probably the right move. GE investors back in the day would see great earnings reports, but no cash flow. Should have been a signal to head for the exits. (Side Note, AT&T seems to be having a spot of difficulty hitting their cash flow targets).
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Deleted
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Post by Deleted on Dec 23, 2022 0:06:37 GMT
thanks for a great list @slooow , "7. When a large cap has a paltry dividend increase, cut the cord. 8. Monitor financials - particularly when there is a trend in poor earnings." Agree esp with both of these, being patient is a great way to get long run returns, but if you see something that is going overly negative then acting is probably the right move. GE investors back in the day would see great earnings reports, but no cash flow. Should have been a signal to head for the exits. (Side Note, AT&T seems to be having a spot of difficulty hitting their cash flow targets). Thanks! Still learning. Cash flow is big! Being human is my biggest fault in investing. Looking in the mirror, being honest, and diversifying are my best defenses! Tough, tough year, but I think we all reasonably weathered it. Interestingly, no issues with dividend cuts in this mess.
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comlb
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Post by comlb on Dec 23, 2022 16:02:52 GMT
I think most investors regularly monitor their headline type metrics like dividend yields and valuation. The various portfolio management services make that easy. In addition, after the GE debacle a few years back, I started a twice yearly Safety Check for each holding. A little bit more manual work since M* and others do not make it as simple to get all the data needed here- checklist for leverage ratios, payout ratios, overall debt situation, interest coverage ratios.
Your number 7 and 8 are the right mindset, don,t wait for the Colgate smiling, always sunny in the CEO office execs to tell you things are looking bad, by then it will be too late (GE, AT&T are notable here) do your own work to figure it out ahead of time and bail if company health metrics looks fishy.
Investors make money on the income statement, but they survive on the balance sheet.
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Post by mozart522 on Dec 23, 2022 16:23:52 GMT
I'm not sure I learned much of anything. I reacted to the first quarter 22 scenario as I did in 2008; I got out and went to cash. I'm down less than 2%, and if I had stayed with my allocation I would be down around 15%. It won't make a bit of difference in terms of anything important in my life, because I know I have enough and sufficient income in any case. But I can't just sit there and hold when it is so clear that things are going south. I expect next year will be even further south for a while. In my view, the market will continue to drop even after the fed pauses and even after they begin to cut (which will likely only happen during a recession next year) The pause will be a time for bonds, in my view. The cut will be time to back up the truck for bonds, especially longer durations. Stocks will bottom sometime after the cuts start.
Right now cash is better than 3 or 6 month T-bills. The Fed will continue to hike. Just my opinion.
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Post by Deleted on Dec 23, 2022 16:40:14 GMT
I think most investors regularly monitor their headline type metrics like dividend yields and valuation. The various portfolio management services make that easy. In addition, after the GE debacle a few years back, I started a twice yearly Safety Check for each holding. A little bit more manual work since M* and others do not make it as simple to get all the data needed here- checklist for leverage ratios, payout ratios, overall debt situation, interest coverage ratios. Your number 7 and 8 are the right mindset, don,t wait for the Colgate smiling, always sunny in the CEO office execs to tell you things are looking bad, by then it will be too late (GE, AT&T are notable here) do your own work to figure it out ahead of time and bail if company health metrics looks fishy. Investors make money on the income statement, but they survive on the balance sheet. I would like to hear more about how you do your Safety Check. I read the coverage reports on ValueLine and M* and monitor the news. I look at payouts and interest coverage ratios, along with cash flow. What do you look at for leverage and overall debt?
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Post by bb2 on Dec 23, 2022 21:21:09 GMT
Thing about financials is that you have to trust the people writing them. And there's no way to know if the numbers are fudged, even if you dig into every footnote. Even sales : See my post about PLTR in the stock squad. Not to say reading them is pointless. Not every company is squirmy at times. Take SMG, who hired a guy who chased the pot craze. It didnt work out. Even a stodgy old lawncare outfit got greedy. Reading through an annual is no small feat. BTW, M* analysis thinks Hawthorne, the pot group, was a good thing. I'm thinking not. But, with a good div, 5.5, it's well work watching if not a small buy now. They seem to be back to a good old family run midwestern company.
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