Infamous Stretch, 01/1965-12/1974

[yogibearbull]

Market has good times and bad times.

Look at how your favorite MA/hybrid did 1/1/1965-12/31/1974 ( VWELX, FPURX, DODBX ).

i.ibb.co/XJhn6c4/Screenshot-2024-01-15-06-36-57.png

[Mustang]

According to Bengen and others the worst time to retire in history was 1966. 1968 was a close second. Using a spread sheet I tested the 4% Rule using Wellington starting in 1968. It didn't make 30 years but ran out of money after 25 years. Losses in 1969, 1973-1974 combined with withdrawals really hurt it. Wellesley Income Fund was created in 1971. I changed the start date ti 1971 and compared Wellington and Wellesley. Both funds were successful but their ending balances differed. Starting each with $500,000 Wellesley ended the 30 year period with $3M. Wellington with $1.4M. This is why I have paired the two together.

Without the 1969 loss, Wellington not only overcome the 1973-1974 losses but ended with $1.4M.  Sequence-of-Return Risk is real and worse when combined with double digit inflation.

Further testing showed that the 1968 retirement could be made successful by taking 1 percentage point less than inflation increases.

[yogibearbull]

Mustang , good points.

FWIW, I tried to add VFINX to the chart but it wasn't catching. I tried several ways but no luck! Finally, it dawned on me that VFINX didn't even exist then - it was created in 08/1976 in the aftermath of VWELX fiasco (and Bogle's firing from load-fund firm Wellington Management, and Bogle's 2nd coming as indexer supreme in the form of Vanguard).

This 10-yr stretch is mentioned often, but is difficult to chart and link. So, this should be an easy reference to it.

[bizman]

No one expects the Spanish Inquisition, and no one expects '65 - '74. That's why I'm roughly 50% stocks and 50% bonds/cash at the moment. Like Howard Marks, I look at the future and see only probability distributions -- bell curves as far as the eye can see.

I can see huge positive potential from an AI revolution and other scientific breakthroughs. Losing a major war to China, another stretch like the '70's, or society coming apart could be huge negatives. Then again, we might just muddle through with an upward bias, like we did through the tragedies and triumphs of the 20th Century.

Only solution I can see is being balanced, flexible, and seeing both sides when looking to the future. Good luck to us all!

[yogibearbull]

10-yr periods ending around dot.com bubble, the GFC, the 2020 Pandemic were difficult too. Those were more recent. So, that is the lesson - bad stuff happens, and occasionally. And if doing decumulation in retirement, be careful.

BTW, my effective-equity exposure in 40-60% in retirement, and I can handle up/down swings of the market. I don't claim to have only positive returns all the time.

Others have to figure this out for themselves.

[steelpony10]

yogibearbull ,Mustang ,bizman ,

    I’m surprised there isn’t much said about past market patterns.

    www.kiplinger.com/investing/historical-stock-market-patterns-for-investors-to-know

    Based on those types of patterns this present one should be a long one so how about 2031?

    There is also a 50 year pattern of really bad markets that I believe exists although with a quick review couldn’t find any scholarly evidence to back that up. This is what I was told. Think 1970’s, 1920’s and I think 1870’s. So the 2020’s may be a doozy.

     My investing mentors were from the depression era and I saw close up how income was created to survive the 1970’s from my uncle. Even my parents had those 12% CD’s. 

     The FED was way more political in the 70’s. Check this out if you’re having trouble sleeping:

      www.federalreserve.gov/monetarypolicy/files/FOMC19820701meeting.pdf

[Deleted]

And then there's this: www.morningstar.com/stocks/do-stocks-really-make-sense-long-run

"Perhaps stocks will outgain bonds over the ensuing decades, perhaps not. Their reputation for long-term dominance derives solely from their post-World War II returns (in particular, for the 40-year period from the early 1940s through the early 1980s). When the fuller history is considered, that conclusion must be modified."

[yogibearbull]

@django, there is a related thread at MFO on this, and some of my postings here originated there.
www.mutualfundobserver.com/discuss/discussion/61892/the-caveat-to-stocks-for-the-long-term/p1

[Deleted]

The market and time period I'm most interest in is the UK between 1876 (Victoria named Empress of India, considered by historians to be the peak of empire) to 1920 when the UK was no longer considered the dominant military and economic power on the planet. I think the US is somewhere in that cycle.

[yogibearbull]

Jan 15, 2024 21:46:01 GMT @django said:

The market and time period I'm most interest in is the UK between 1876 (Victoria named Empress of India, considered by historians to be the peak of empire) to 1920 when the UK was no longer considered the dominant military and economic power on the planet. I think the US is somewhere in that cycle.

UK stocks were nominally sideways for 1876-1920 (2nd chart in the link), but were quite volatile. I supposed inflation-adjusted would be worse. The LT chart being logarithmic, from eyeballing, it seems that 1974 crash was a larger event than the Fall of British Empire. That is the problem with big themes - they sound interesting or appealing, but may not be supported by data.
globalfinancialdata.com/stocks-for-the-very-long-run-the-uk-100-and-327-years-of-british-equity-history

[Deleted]

Jan 15, 2024 22:34:41 GMT yogibearbull said:

Jan 15, 2024 21:46:01 GMT @django said:

The market and time period I'm most interest in is the UK between 1876 (Victoria named Empress of India, considered by historians to be the peak of empire) to 1920 when the UK was no longer considered the dominant military and economic power on the planet. I think the US is somewhere in that cycle.

UK stocks were nominally sideways for 1876-1920 (2nd chart in the link), but were quite volatile. I supposed inflation-adjusted would be worse. The LT chart being logarithmic, from eyeballing, it seems that 1974 crash was a larger event than the Fall of British Empire. That is the problem with big themes - they sound interesting or appealing, but may not be supported by data.
globalfinancialdata.com/stocks-for-the-very-long-run-the-uk-100-and-327-years-of-british-equity-history

Interesting stuff YBB. Thanks

I found this: cepr.org/voxeu/columns/new-monthly-indices-british-stock-market-1829-1929

An interesting factoid: British Blue Chips gave up more than a century of gains in 1940. Not mentioned in the paper, but that coincides with the WWII's Battle of Britian.

[anitya]

how is that FPURX (a $30B AUM fund) is managed by 1 manager but the slightly bigger FBALX has (needs) 12 managers. I do not see a material difference in performance over the past three years. Do portfolio managers for non-specialized funds at Fidelity really matter or are those funds managed under the firm's investment outlook, using the firm's industry analysts?

[roi2020]

Jan 16, 2024 3:05:00 GMT anitya said:

how is that FPURX (a $30B AUM fund) is managed by 1 manager but the slightly bigger FBALX has (needs) 12 managers. I do not see a material difference in performance over the past three years. Do portfolio managers for non-specialized funds at Fidelity really matter or are those funds managed under the firm's investment outlook, using the firm's industry analysts?

This doesn't directly answer your question regarding Fidelity's portfolio managers and industry analysts.

FWIW, select snippets from Morningstar's summary of FBALX are below:

"Manager Christopher Lee brings ample stock-selection experience to the table, yet he does not have a public record managing a balanced fund.
He had six months of onboarding when he became the sole lead manager in January 2023—a tight timeline to fully grow into an allocation role,
especially given the flexibility he has adjusting the stock/bond split here. Although his working relationships with the equity sector managers
and the fixed-income team is encouraging, some evidence of allocation acumen will help build confidence in the new leader."

"The fund’s historical overweighting to equities and tilt toward growth stocks have bolstered returns during bull markets, as evidenced by the top-decile returns in benign years like 2021. On the other hand, it leaves the strategy vulnerable in market crises, including the first three quarters of 2022, when the fund’s 22.2% loss was more than 2 percentage points deeper than its 60% S&P 500/40% Bloomberg U.S. Aggregate Bond composite benchmark’s 20.1% loss and the fund slid to the worst decile of the category."

"Fidelity’s well-regarded core bond team manages the fixed-income sleeve, albeit with higher credit risk than the benchmark, which can dilute the sleeve’s role as a ballast in stock market drawdowns. The fixed-income portfolio’s tilt toward BBB rated bonds, combined with the fund’s consistent overweighting to equities, contributes to the strategy’s 16.6% standard deviation over Lee and his predecessor’s combined tenure (September 2008 – September 2023), well above the category index’s 12.3% and blended benchmark’s 14.4%."

[yogibearbull]

FBALX acts like a holding pool for Fido managers,
big-bang-investors.proboards.com/post/43675/thread

[anitya]

yogibearbull, Thanks.

Please share if you have any insight into Fidelity's investment process: are the non-specialized Fidelity funds (like the allocation funds) managed under the firm's investment outlook, using the firm's industry analysts like how PIMCO manages or do the managers have wide latitude in managing these funds like how Giroux has at PRWCX? I am not saying one is better than the other. I just would like to know.

P.S.: at the end of 2022, Fidelity, by prospectus, increased (or eliminated) the treshold for each sector / company in some of their funds in anticipation of AI stocks taking off and it worked out well for them. So, having a firm outlook reflected in their funds can be good too, and reduces manager risk for the most part.

[johntaylor]

The Long Depression (1870s to 1890s depending on definitions) would seem like another argument for Graham's notion of about a 50 percent stock posture and then look around at what is going on to adjust

[FD1000]

History is very interesting but it can't predict the future, that's the problem. If you have enough, no need to worry because 20/80 to 80/20 would be OK.
If you want to do well (= good risk-adjusted performance), the only way is flexibility and timing. Either you can do it or find managers that can do it, but in a big meltdown most mutual funds will not save you, and if you find a fund that did great during these times, it's a good chance it will lag the markets after that by a big margin.

In March 2020, even the mighty PRWCX lost 25% in just 3 weeks (schrts.co/CkpMkuiN).
In 2008 it lost 30+% (schrts.co/GIjdimBS).

So what most retirees that don't want to trade or think too much, can do? I like the glide path of increasing your stock % as you age.
Example: Suppose you retired at age 60 and your LT preference is 50/50...starts with 30/70 (stocks/bonds) and increase by 1% your stocks portion every year.

In my case, I don't look at markets older than 1980-90s. Markets evolved, much faster and we have more options. I only "worry" what should I do next week, I don't have a clue what would happen beyond that.