# Have we reached the stock market peak?



## james4beach (Nov 15, 2012)

The recent GameStop and related insane speculations are pretty amusing. But it's left me wondering if these are signs of total excess speculation/mania, which marks the "end of a bull market".

I'm thinking about myself for example. For many years I've been very restrained in my stock investments. And yet, over the last few weeks, I bought totally speculative -- and greedy -- positions in Bombardier and American Airlines purely because I thought all the excess liquidity could make them go up. The fundamentals don't matter.

My own behaviour (like many other speculators these days) makes me think there is _off-the-rails_ risk taking. Historically this usually aligns with market peaks, or close to the peak.

Curious what people think. And here's a poll, asking if you think 2021 will be the S&P 500 peak.

I voted Yes, I think this year will be the market top. That doesn't mean I expect a crash. I just think it will be a few years before we get a new peak, after a breather.

Despite voting Yes, I am of course keeping my stock positions and will even be buying more stocks as I have the cash. A "peak" is just a short term thing, and I'm sure we'll get new peaks ... but I think we might have to wait a couple years.


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## milhouse (Nov 16, 2016)

Not that my analysis and predictions are worth much... I'm in the secular bull camp due to all the fiscal and monetary stimulus. Large caps will come out stronger post pandemic and while some businesses won't survive, there will be enough access to for new businesses to emerge. However, it's not a leap to suggest there's a good chance for a correction 15-20% correction in the next few months to reduce some of the froth and pretty _strange_ stuff happening and we'll have a new high by end of year.
Longer term, we're probably in for a reckoning due to all the debt everywhere and rates start to rise. But that's for the latter part of this decade.


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## james4beach (Nov 15, 2012)

milhouse said:


> However, it's not a leap to suggest there's a good chance for a correction 15-20% correction in the next few months to reduce some of the froth and pretty _strange_ stuff happening and we'll have a new high by end of year.


Ah, interesting. So you think there could be a correction, but you think the market would still fully rebound within the *same* year?


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## AltaRed (Jun 8, 2009)

Along the lines of what Milhouse just said. I think we are in a secular bull market that will last for some years yet, but we will have market corrections of 10-19% (as a correction is actually defined) every year or two potentially. There will be sector rotations occurring during this time as well, and some of them could be significantly severe, but since I don't know which ones, I will continue to spread the love with a broad base.

Moderate inflation will be a fiscal goal, likely over 2% but not that much over....as the US Fed has already articulated it plans to do. It will be needed to inflate away all that debt. To me, it implies continued asset inflation in both equity and real markets. I don't know if the indices will be higher at the end of this year than they are now, but it does not matter. Stay invested.

Added: I expect a ~10% type correction imminently... within months.


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## james4beach (Nov 15, 2012)

For those of you saying a correction would be brief and new highs will continue to occur: are you at all concerned about the length of this bull market?

This is now a 12 year bull market (of consistently higher highs) with no correction lasting more than a year. Historically speaking, this is one of the longest bull markets in world history.

At some point, that bull market has to end. I'm not saying it needs a crash or horrendous decline, but at some point there will be a stretch or 2-3 years where prices don't advance. I'm just guessing that the time is ripe for that, which is why I think 2021 is the peak and we might now be in for that 2-3 year pause.

To clarify: I _am_ continuing to buy stocks, I don't take this timing stuff seriously.


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## MrBlackhill (Jun 10, 2020)

To my analysis, S&P 500 is not in any danger zone.

NASDAQ though is due for a correction.

In both cases, nothing that would last.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> In both cases, nothing that would last.


Curious what you mean by last. You mean, a correction wouldn't last more than a couple months perhaps?


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## AltaRed (Jun 8, 2009)

James, I am not concerned about the length of this bull market as long as the grind to continuing new highs is orderly with 10% type corrections thrown in for good measure. The NASDAQ is an issue but it is not the broad market.

Fiscal policy in the developed world is pretty much aligned everywhere to promote asset inflation at higher than recent historical rates. It doesn't necessarily mean higher CPI goods and services inflation, at least not materially.


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## fireseeker (Jul 24, 2017)

james4beach said:


> I'm thinking about myself for example. For many years I've been very restrained in my stock investments. And yet, over the last few weeks, I bought totally speculative -- and greedy -- positions in Bombardier and American Airlines purely because I thought all the excess liquidity could make them go up. The fundamentals don't matter.
> 
> My own behaviour (like many other speculators these days) makes me think there is _off-the-rails_ risk taking. Historically this usually aligns with market peaks, or close to the peak.


The J4B Indicator is flashing conflicting signals. 
The speculative buys suggest a top, but the wall of worry suggests more room to run.

Hmmm. Maybe it's a Goldilocks market.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> Curious what you mean by last. You mean, a correction wouldn't last more than a couple months perhaps?


Exactly. For NASDAQ, a correction like what happened in September 2020, but which would take 4-6 months to recover instead of 3.

S&P 500 could just slow its growth and/or have small corrections through its volatility.

In the next years, I don't expect big crashed, just a series of corrections, like usual.

I agree with @AltaRed


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> are you at all concerned about the length of this bull market?


I think some people are biased by their experience, which makes them live in fear.

Other than the Great Depression of the 1930s, the crashes of 2000 and 2008 were the worst of the past 100 years. Many lived both.

But should I remind you that from 1950 to 2000 (50 years), there was only one big crash comparable to 2000 & 2008 which was in 1973.






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## Tostig (Nov 18, 2020)

Here's your answer.


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## MrBlackhill (Jun 10, 2020)

MrBlackhill said:


> Exactly. For NASDAQ, a correction like what happened in September 2020, but which would take 4-6 months to recover instead of 3.


One thing though. If NASDAQ goes on a bubble +30% this year, then yeah it would amplify the feeling of a drawdown once the bubble pops from its peak, as what happened in 2000.

Reminds me that 2000 wasn't a crash to me. It was the surge & pop of a bubble.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> Reminds me that 2000 wasn't a crash to me. It was the surge & pop of a bubble.


Sometimes it's hard to see that something is a bubble until after the fact.

For example, imagine that higher inflation forces interest rates up, and next year we're looking at 2% interest rates (forced by the bond market, whether or not the central banks want it). What do you think would happen to discount rate analyses, corporate borrowing costs, and the stock market?

Someone in 2023 could say: wow, we sure were stupid buying bubble equities at a Shiller PE of 34 (a level only seen before during the dot com bubble) and convincing ourselves that it was fine because interest rates were at zero.

The market P/E ratio shows a very sharp increase in the multiple, recently. The prices are rising, but earnings are not. Do the math yourself and calculate where the S&P 500 would be if the P/E multiple was back to 2019 levels. That would be a surprisingly large drop in the index.


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## agent99 (Sep 11, 2013)

I have no ability to see into the future, 

I do hope our dividend portfolios continue to provide our retirement income. Stock prices may very well drop. At best I suspect they will be volatile. I wouldn't want to have to be cashing in growth/non dividend payers to provide for living expenses if and when they do. I don't plan on selling anything. 

Problem will be how to reinvest fixed income when GICs and Bonds currently yielding 3+% mature over next few years. With all the money printing, perhaps inflation rates will increase and real interest rates will keep pace. Anybody's guess really. 

We live in turbulent times. Trying to predict them is probably a mugs game.


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## james4beach (Nov 15, 2012)

agent99 said:


> I do hope our dividend portfolios continue to provide our retirement income. Stock prices may very well drop. At best I suspect they will be volatile. I wouldn't want to have to be cashing in growth/non dividend payers to provide for living expenses if and when they do. I don't plan on selling anything.


Actually, it makes no difference whether you extract cash from the portfolio by taking out the dividends, or routinely selling shares to raise cash. Same net effect of both methods, even with non-dividend payers. Provided they have the same total returns.

Admittedly it's easier with dividends. Automatic, and no risk of emotional market timing.

Also, if you're taking dividends but don't actually need the cash (maybe there's excess left after living expenses), make sure you put that cash back into equities.


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## Bananatron (Jan 18, 2021)

I personally don't think the bull market has really even started yet. We're at what, 5% higher than we were 12 months ago? All kinds of liquidity pumped into the market, unbelievably low interest rates, 10 months and counting of pent up demand for entertainment, travel, etc.

I do recognize the signs of caution - but these are due to the unbelievably rapid recovery from the March lows, rather than an overpriced market.

On that note - these are my thoughts on the market being overpriced or not. I look at the blue chip, dividend paying stocks. Lets take Royal Bank for example. At any time in history you should be expecting around a 4% yield with RY and the expectation of a yearly dividend increase. You could say the same for any large cap stock - CN, SU, etc. If these numbers are in line, how can you say the market is overvalued? 

Sure there is speculation and bubbles within the broad market or even other indexes (tech stocks) but to say an index composed of stocks like the above mentioned that can maintain dividends and likely increase them is overpriced, I disagree.

This all is of course my uneducated opinion and is worth exactly what you paid for it.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> Sometimes it's hard to see that something is a bubble until after the fact.
> 
> For example, imagine that higher inflation forces interest rates up, and next year we're looking at 2% interest rates (forced by the bond market, whether or not the central banks want it). What do you think would happen to discount rate analyses, corporate borrowing costs, and the stock market?
> 
> ...


Your question was if we believe the S&P 500 is about the peak and go lower in the next years, meaning it would then go into a bear market.

I don't believe it'll crash and I don't believe there will be a bear market.

Though I do believe US stocks are about to underperform (unless it goes into a bubble), which would be in respect to your point about the Shiller PE.


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## james4beach (Nov 15, 2012)

Bananatron said:


> We're at what, 5% higher than we were 12 months ago


The S&P 500 is 15% higher than a year ago, before the pandemic started. Was recently as much as 20% higher, see chart.

By this measure, I hope we get a pandemic or global disaster every year! What fun... sure is good for stocks.


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## Bananatron (Jan 18, 2021)

james4beach said:


> The S&P 500 is 15% higher than a year ago, before the pandemic started. Was recently as much as 20% higher, see chart.
> 
> By this measure, I hope we get a pandemic or global disaster every year! What fun.
> 
> View attachment 21213


I have a bad habit of using the DJI when referring to "the market". On Feb 10, 2020 it was right around 29,000.

I see S&P at 3,3XX in February, which is about 10% below where we are right now.

As far as the "what fun - good for stocks" comment - The pandemic resulted in something like printing 20% of the total amount of money ever printed. I believe this ultimately is good for stocks. But really I have as much of an idea of whats going to happen as anyone else here.


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## agent99 (Sep 11, 2013)

james4beach said:


> Actually, it makes no difference whether you extract cash from the portfolio by taking out the dividends, or routinely selling shares to raise cash.


James, please don't start that discussion again. You have beat it death in the past. I could explain why you are wrong for us retirees, but I am not going there again.


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## Bananatron (Jan 18, 2021)

agent99 said:


> James, please don't start that discussion again. You have beat it death in the past. I could explain why you are wrong for us retirees, but I am not going there again.


Now I'm curious. Got a link to a prior thread where this was discussed?


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## james4beach (Nov 15, 2012)

Bananatron said:


> Now I'm curious. Got a link to a prior thread where this was discussed?


I'll just point you to some articles with no further comment from myself, since I'm working on my taxes anyway

https://review.chicagobooth.edu/fin...ney-though-lots-investors-seem-think-they-are
https://www.moneysense.ca/columns/r...-of-a-dividend-investing-strategy-moneysense/
https://www.pwlcapital.com/the-irrelevance-of-dividends-still-a-non-starter/
https://earlyretirementnow.com/2019/02/13/yield-illusion-swr-series-part-29/
A reddit thread


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## AltaRed (Jun 8, 2009)

While I agree with James for the most part, that is more measurable on a longer time period. Near term aberrations less than perhaps a few years can be quite different, i.e. stocks can be out of favour, or irrationally high from their fundamentals for quite long periods of time. Timing of sales thus matters. 

I'd rather hear more about the current discussion than to get derailed.


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## james4beach (Nov 15, 2012)

AltaRed said:


> I'd rather hear more about the current discussion than to get derailed.


Back on the main topic, do you think the central banks have successfully eliminated the "business cycle"?

Or is this a matter of stocks mainly going up due to liquidity. I will agree that stocks are not the same as the economy. We could have a recession and still, higher stocks.


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## AltaRed (Jun 8, 2009)

I don't think so but the business cycles can be considerably more muted now that central banks use a variety of tools (such as fiscal stimulus) with more aggressiveness to temper them. One can argue whether use of those tools are good (or bad) for the economy but I tend to believe less severity is better than less severity for jobs. The bigger problem is the dampening of moral hazard, i.e. a bigger expectation of both business and investors getting bailed out.


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## fireseeker (Jul 24, 2017)

MrBlackhill said:


> I think some people are biased by their experience ...


Yes. 
The question is, are all the recent investors who have only experienced the constant growth since 2010 included in that observation?


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> I think some people are biased by their experience, which makes them live in fear.


Well not sure I "live in fear" considering I bought 80k of assets in the last 3 months, but...

Yeah, people's past experience always plays into this. I pretty much started investing at the peak of the dot com bubble, in 2000. That definitely shaped my perspective.

Here's a nice little book relating to these topics: The Psychology of Money (PDF). This is the short version, but the author has a full book as well.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> But should I remind you that from 1950 to 2000 (50 years), there was only one big crash comparable to 2000 & 2008 which was in 1973.


You're looking at a period of the US with the greatest economic expansion in world history plus Baby Boomer demographic growth. That's an outlier. This was a phenomenal post war boom in which the US become a global empire and took over all aspects of the global economy.

I think there is a big problem in using US stock market history as the "model"... this is something very few people think about.

Take a look at European stock performance for a more realistic picture. There have been some long bear markets, but this data is hard to find. Nobody really likes talking about it, and the equity industry really focuses on US data because it's easily available, and looks the best.

These kinds of risks have to be considered when investing in stocks. Take a look at Portfolio Visualizer data, for example.


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## Jimmy (May 19, 2017)

The market is only about 6% overvalued according to Morningstar so not sure why there is all this alarmism. Current P/Es are useless now when earnings are down w covid and the market pricing looks out 5 years anyway not just the present.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> You're looking at a period of the US with the greatest economic expansion in world history plus Baby Boomer demographic growth. That's an outlier. This was a phenomenal post war boom in which the US become a global empire and took over all aspects of the global economy.
> 
> I think there is a big problem in using US stock market history as the "model"... this is something very few people think about.
> 
> ...


Well, what do you consider as an outlier?

100 years of US being the economic power is an outlier? It's the reality we've been living, so we adapt to this opportunity and we put our money where there's money to make.
I could also tell you that the Great Depression was an outlier because it was times of World Wars.
Should market valuation bubbles be considered outliers? I would never invest in a market index with a trailing 5-year over 25% CAGR (unless I'm confident in riding the momentum).

About the performance of ex-US, well you have to pick the winners. US has many winners and ex-US also has their winners.

Maybe I should not put this here, but this global fund currently has only 54% US exposure and its 5-year performance has been 18% CAGR. Pretty sure it's not the only global fund with a great performance. Diversify in the winners from all around the world so you won't overweight in the US.





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## Karlhungus (Oct 4, 2013)

An ultra low interest rate environment allows for a higher CAPE


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## MrBlackhill (Jun 10, 2020)

Karlhungus said:


> An ultra low interest rate environment allows for a higher CAPE


True. But the US still has the highest CAPE when compared to other countries. Does that mean we are still expecting more growth from the US with respect to other countries, justifying its higher CAPE, or does that mean the US is about to underperform other countries because it is said that a higher CAPE means lower expected returns in the next 10 years?

I believe the US is due for a decade of underperformance. Last time it happened was during the decade following the dot-com bubble. Maybe we are about to get into bubble territory and then another bubble pop, leaving the US underperforming. But the S&P 500 is not in any bubble. NASDAQ, though, is getting risky.









CAPE Ratios by Country (Global Shiller PE Ratios)


The table below lists the historical and current CAPE ratios of the largest equity markets in the world. Among the largest economies, Russia currently has the lowest Shiller PE ratio while India is…




siblisresearch.com


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## Karlhungus (Oct 4, 2013)

MrBlackhill said:


> True. But the US still has the highest CAPE when compared to other countries. Does that mean we are still expecting more growth from the US with respect to other countries, justifying its higher CAPE, or does that mean the US is about to underperform other countries because it is said that a higher CAPE means lower expected returns in the next 10 years?
> 
> I believe the US is due for a decade of underperformance. Last time it happened was during the decade following the dot-com bubble. Maybe we are about to get into bubble territory and then another bubble pop, leaving the US underperforming. But the S&P 500 is not in any bubble. NASDAQ, though, is getting risky.
> 
> ...


Yes I supposed it makes sense to really nail down what exactly do we mean when we talk about future returns wrt the US market. Like you said, underperformance relative to other countries? underperformance relative to historical returns? Or a crash and rebound? Personally I hope for a decade of underperformance like you mentioned as I am right in the middle of my accumulation. But im not changing the way I invest any time soon.


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## MrBlackhill (Jun 10, 2020)

fireseeker said:


> Yes.
> The question is, are all the recent investors who have only experienced the constant growth since 2010 included in that observation?


Definitely. We are all biased by our experience and our role when investing is to find the best strategy to take rational decisions.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> Take a look at European stock performance for a more realistic picture. There have been some long bear markets, but this data is hard to find. Nobody really likes talking about it, and the equity industry really focuses on US data because it's easily available, and looks the best.


See also how some manage to be globally diversified, underweighted on US (50% of the fund is US stocks), overweighed on Europe (22% of the fund is European stocks) and yet pretty much keep up against a pure-US play.





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S&P 500 is not peaking, but could slow down. It should touch 4,000 this year, but it may not stay.
NASDAQ is not peaking, but _must_ slow down and have a correction. I hope NASDAQ won't touch 14,000 this year. If it does, I hope it'll correct itself pretty fast.
Meanwhile, I hope ex-US like Canada and other countries will outperform the US this year.

But nothing has peaked.


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## MrBlackhill (Jun 10, 2020)

@james4beach

I'm wondering... if you think the market has peaked, if you point out the Shiller CAPE, but then you are (mostly) a passive investor indexing the market... so how do you escape this situation?

If you believe the stock market is too high and overvalued, then you should not invest in the broad stock market index, no?
So... if you aren't investing in stocks, you could invest in bonds, but at the moment they provide poor performance, so they are no more than an hedge against volatility.
So... if it's not stocks, not bonds, then there's gold, but gold already made his +50% move in 2 years and now it's cooling off.

Where do you put your money, then? Bonds are boring, gold got boring in the past months (right when Bitcoin became interesting), stocks were fun for the rebound but now they feel too high to you... Is that why you started a few speculative investments for entertainment purposes? Do you feel like you've missed out on the bullish move of 2020?

And if the answer to all those questions is "no" because you just stick to your plan (which is good), then why wondering about the peak of the stock market? Just for fun?

As a stock-picker, there's something that I feel frustrating about passive broad market indexing... If ever I believe the broad market is overvalued and has peaked, why would I invest in the index representing that broad market? I mean, I'm asking myself the same question when I look at individual stocks. If I believe that an individual stock has peaked or is overvalued, I don't invest in it, so I go and find another stock instead. But what do you do when your only equity investment is buying an index that feels overvalued? That's what I can't wrap my mind around. Investing into something that feels wrong, just for the sake that anyways you'll end up following the market average, so there's nothing to worry.

Instead of buying SPY which feels overvalued to you, why not go and buy, hmm, I dunno, say TM, LFC, SNE, CVS, LMT, PGR and HUM? (This is not an investment advice to anyone, I'm just throwing names with decent multiples)





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Instead of buying XIU.TO which could feel overvalued to I-don't-know-who, why not go and buy, hmm, I dunno, say EMP-A.TO, FTT.TO, SLF.TO, GWO.TO, PKI.TO, BTO.TO, QBR-B.TO and ATD-B.TO? (This is not an investment advice to anyone, I'm just throwing names with decent multiples)





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## james4beach (Nov 15, 2012)

MrBlackhill said:


> I'm wondering... if you think the market has peaked, if you point out the Shiller CAPE, but then you are a passive investor indexing the market... so how do you escape this situation?


Pretty easy, I adhere to my investment plan as documented. I am heavily diversified in other asset classes, for precisely this reason: to not have a huge single exposure to the stock market. It's the whole idea behind how I invest (diversified asset allocation)

People who don't diversify, and decide instead to go "all in" with stocks have to be more concerned about bubble kind of scenarios. At least for me, I know that if I was 80% or 100% stocks, I absolutely would be worrying about issues like valuations.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> Pretty easy, I adhere to my investment plan as documented. I am heavily diversified in other asset classes, for precisely this reason: to not have a huge single exposure to the stock market. It's the whole idea behind how I invest (diversified asset allocation)
> 
> People who don't diversify, and decide instead to go "all in" with stocks have to be more concerned about bubble kind of scenarios. At least for me, I know that if I was 80% or 100% stocks, I absolutely would be worrying about issues like valuations.


Well why are you wondering if the stock market has peaked then, if your diversified asset classes are there to protect you?

You asked if we believe the stock market has peaked and will go in a bear market for the next years. Let's say at least 2 years.

Then which asset class do you believe is the most likely to outperform in the next 2 years? Bonds? Gold? Those are the two other asset classes you hold, right?

We'd need a true crash of at least -20% for stocks to underperform bonds.

Would you bet that gold will be the outperformer of the next 2 years?

All the kids learned to invest in 2020 and they are hungry.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> Well why are you wondering if the stock market has peaked then, if your diversified asset classes are there to protect you?
> 
> You asked if we believe the stock market has peaked and will go in a bear market for the next years. Let's say at least 2 years.
> 
> Then which asset class do you believe is the most likely to outperform in the next 2 years? Bonds? Gold?


I'm curious and it's fun to think about.

I have no idea which of stocks/bonds/gold will perform best in the next 2 years. That's why I hold all of them, obviously.

I also recognize that no matter what I think (how I voted) I could be wrong. The foundation of my investment philosophy is that I can't predict the future and that whatever I think, or whatever others think, might turn out to be wrong.

So that's why I have mostly passive exposure to stocks/bonds/gold simultaneously, without ever dropping one of them, no matter how much I think it might be a good idea. Even if I thought that stocks were an obvious, insane bubble, I'd still hold them. Even if bond yields become 0.0%, I'd still hold them.

But this doesn't mean I don't have guesses at what might happen.

My guess as to 2 year performance ... at this moment I'd guess that bonds will perform best.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> I'm curious and it's fun to think about.
> 
> I have no idea which of stocks/bonds/gold will perform best in the next 2 years. That's why I hold all of them, obviously.
> 
> ...


Ah ok, just out of curiosity.

I'm all good with the stocks/bonds/gold diversified portfolio, it's a great portfolio. I was just wondering if there was a purpose behind the question, other than curiosity.

Interesting results so far. More than 80% believe the market hasn't peaked.

You could also look at the 2021 Predictions Contest

Participants predicted something around 10% return for S&P 500 in 2021.

I don't think S&P 500 has peaked, but I don't think S&P 500 will have a great year (something around +5%, unless it's pushed by a bubble). I don't believe gold will do that good either.

Cases where bonds outperform stocks are pretty rare unless there's a crash. I believe S&P 500 performance for 2021 will be somewhere between +0% and +10%. Bonds will be somewhere between +2% and +4%. Gold will be somewhere between -5% and +5%. Though call. I'd say S&P 500 outperforms bonds, and bonds outperform gold.

There's something I'm wondering though. In 6 months from now, considering we start seeing a big drop in COVID cases due to vaccines, people will be so happy to go out, meet friends and maybe travel (or at least local traveling) and some people will have piled a great amount of cash to spend. Maybe all that joy and sentiment of "back to freedom" will give a boost to the market.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> I was just wondering if there was a purpose behind the question, other than curiosity.


Yes really just curiosity, especially about how bullish other people are



MrBlackhill said:


> Cases where bonds outperform stocks are pretty rare unless there's a crash


It's not that rare, because stocks are always quite volatile in comparison to bonds. Here's an illustration which shows this, and I was surprised by this myself. These are the *2 year* outcomes for XIC (stocks) vs XBB (bonds) starting at beginning of each year, using total returns

2010: bonds win (means XBB beat XIC from 2010-2012)
2011: bonds win
2012
2013
2014: bonds win
2015
2016
2017: bonds win
2018

Bonds outperforming is really not that rare, over 2 year timespans. A person is tempted to say, this is because the TSX has terrible performance. Not so! This is a period where XIC has performed very well at 7% CAGR, clearly a bull market during these years, and trending higher at a good pace.

That's a stock BULL market. I think this counterintuitive result comes from stocks being volatile.


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## Jimmy (May 19, 2017)

Speaking about peaks, bubbles and manias that is all what gold is. Every 10 yrs or so when there is a crisis the crowd rushes in and buys it then they all lose $ when it crashes. It sits and makes no money for the next ten years and repeat.

It is a big lump that produces nothing. It just gets bid up by gamblers every 10 yrs or so. most worthless investment out there IMO. Likely will get replaced by bitcoin which is an easier currency to trade.


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## james4beach (Nov 15, 2012)

Jimmy said:


> It just gets bid up by gamblers every 10 yrs or so. most worthless investment out there IMO


And yet, gold has roughly doubled both the TSX and S&P 500 performance since the year 2000 .... gold has beaten stocks for 21 years.

What do you think Jimmy, at 30 years, will you start considering that gold might be a decent investment?


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## Jimmy (May 19, 2017)

james4beach said:


> And yet, has more than doubled the TSX performance since the year 2000 .... that's 21 years of beating stocks. Can't be that worthless, right?


Do a proper chart over 100 yrs vs cherry picking a 20 yr period and see how worthless it is.


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## james4beach (Nov 15, 2012)

Jimmy said:


> Bonds are going to be putrid for the next 5 - 10 yrs


Maybe, maybe not. Nobody can predict this; we're all guessing.



Jimmy said:


> Do a proper chart over 100 yrs


Regarding gold. Be realistic Jimmy. Ignore for a second that it's gold. If this was a Motley Fool stock picking newsletter, if they showed you these same returns for the trailing 10 years, 15 years, 20 years you would be really excited about it.

But in any case, I don't have much faith in gold. That's why it's the lowest weight in my portfolio.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> It's not that rare, because stocks are always quite volatile in comparison to bonds.


Well, we were talking about US market here.

Put US Large Cap against 10-year Treasury on Portfolio Visualizer and you'll see that on a 3-year rolling window, bonds outperformed only during crashes. That has been their only purpose. It needs a stock market crash in order to outperform.


----------



## Jimmy (May 19, 2017)

james4beach said:


> Maybe, maybe not. Nobody can predict this; we're all guessing.
> 
> 
> 
> Regarding gold. Be realistic Jimmy. Ignore for a second that it's gold. If this was a Motley Fool stock picking newsletter, if they showed you these returns for the trailing 10 years, 15 years, 20 years you would be really excited about it.


You know the interest rate forecasts for the next few years are near zero %. Then back to the 2-3% range they were before. No great mystery

They could recommend gold through mining company stocks but know it is a boom and bust commodity industry so don't thankfully.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> And yet, gold has roughly doubled both the TSX and S&P 500 performance since the year 2000 .... gold has beaten stocks for 21 years.
> 
> What do you think Jimmy, at 30 years, will you start considering that gold might be a decent investment?


Gold is nowhere near stable.

It soared 10 years in the 2000s, then crashed.
It soared 10 years in the 1970s, then crashed.
It soared 5 years in the 1930s, then crashed.

Stocks are much, much more stable.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> Well, we were talking about US market here.
> 
> Put US Large Cap against 10-year Treasury on Portfolio Visualizer and you'll see that on a 3-year rolling window, bonds outperformed only during crashes. That has been their only purpose. It needs a stock market crash in order to outperform.


Yes, in the US market it's true that it's very rare for bonds to beat stocks in a 2 year time window. It is more common in Canada, for some reason. (This is kind of interesting considering both stock markets have had nearly identical long term performance).

I think it's because the Canadian stock market has been more volatile than the US stock market.

Personally I like the comfort and stability of the bond/GIC holdings, even if it's true that in _most_ years, they underperform stocks.


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## hfp75 (Mar 15, 2018)

I think Gold in 2,000+ a.d. is a different animal than back in the 60's ... or 50's ... or 40's 

For a good chunk of that time gold prices were fixed/manipulated and at times people werent allowed to even own gold. Gold as an animal was uncaged in the 70s or 80s but was havily controlled and as time has gone on we have seen gold break from its masters and declare freedom. Just like everything there is manipulation but I think Golds intrinsic value is more realistic today than ever before.

In fact I think you would have seen gold really breakout but BTC surfaced and is also trying to establish itself.... by competing with PMs... The popularity in PMs and cryptos really just demonstrates the perceived failure with currencies.


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## birdman (Feb 12, 2013)

While I don't wish to hijack this thread which centers on diversification with stocks, bonds, and gold, it fails to include real estate including your residence along with investment or recreational properties if applicable. Unsure of the analysis between renting vs owning but the latter takes away some of the risk in having to invest those funds tied up in your property (s). The only thing I do know is that the house (sold years ago) in Vancouver for which I paid $18,500. is now worth maybe 2-3 million. Would hate to buy it now but have to wonder what it will be worth 40 years from now. Owning takes away the worry over housing costs in the future.


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## nobleea (Oct 11, 2013)

MrBlackhill said:


> There's something I'm wondering though. In 6 months from now, considering we start seeing a big drop in COVID cases due to vaccines, people will be so happy to go out, meet friends and maybe travel (or at least local traveling) and some people will have piled a great amount of cash to spend. Maybe all that joy and sentiment of "back to freedom" will give a boost to the market.


There is some thinking that the roaring 20's and jump in the stock market then was driven by the tight restrictions from the previous decade from the Spanish flu and WW1. The flu, a worldwide pandemic, affected far more people than the war did. If true, there is some reason in thinking that once vaccines are in place and effective there could be a few years of over the top spending, travel, euphoria. Things seem to happen faster now than they used to, so I don't think it would last a decade, but it could still happen, perhaps with a similar painful precipice at the end.


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## agent99 (Sep 11, 2013)

frase said:


> While I don't wish to hijack this thread which centers on diversification with stocks, bonds, and gold, it fails to include real estate including your residence along with investment or recreational properties if applicable. Unsure of the analysis between renting vs owning but the latter takes away some of the risk in having to invest those funds tied up in your property (s). The only thing I do know is that the house (sold years ago) in Vancouver for which I paid $18,500. is now worth maybe 2-3 million. Would hate to buy it now but have to wonder what it will be worth 40 years from now. Owning takes away the worry over housing costs in the future.


Vancouver and Toronto are no doubt special cases. I would imagine that owning the average family home in Canada is a smart investment. But after allowing for borrowing cost, inflation, taxes, maintenance etc, probably not better than other safe investments. Market value of our home in mid sized Ontario town has only increased by about 5.% pa over 42 years of ownership. Deduct costs and maybe a GIC bought on margin may have done as well


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## MrBlackhill (Jun 10, 2020)

agent99 said:


> Vancouver and Toronto are no doubt special cases. I would imagine that owning the average family home in Canada is a smart investment. But after allowing for borrowing cost, inflation, taxes, maintenance etc, probably not better than other safe investments. Market value of our home in mid sized Ontario town has only increased by about 5.% pa over 42 years of ownership. Deduct costs and maybe a GIC bought on margin may have done as well


Yeah well it's hard to tell, because then there's the opportunity to have an HELOC at low interests rate which is a huge leverage opportunity.


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## MrMike (Sep 30, 2020)

james4beach said:


> Actually, it makes no difference whether you extract cash from the portfolio by taking out the dividends, or routinely selling shares to raise cash. Same net effect of both methods, even with non-dividend payers. Provided they have the same total returns.


Can someone correct me if I'm wrong (along with a reason why haha) but I hear this argument a lot and while it may be technically true, in practice, receiving dividends is clearly the better option. I am speaking in general; I understand the price drops by the dividends but that quickly reversed by daily trading. If you ask most people, they wouldn't know that the price drops when a dividend is paid because it's not noticeable and therefore, irrelevant even if it's true. 

When you sell a stock to generate income, you have a finite amount you can take out (the number of shares you have). But with dividends, you have an endless supply of income (assuming it doesn't get reduced or cut by the company).

"Same net effect of both methods" - I don't think so. I would rather receiving dividends than sell my shares!


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## Bananatron (Jan 18, 2021)

MrMike said:


> Can someone correct me if I'm wrong (along with a reason why haha) but I hear this argument a lot and while it may be technically true, in practice, receiving dividends is clearly the better option. I am speaking in general; I understand the price drops by the dividends but that quickly reversed by daily trading. If you ask most people, they wouldn't know that the price drops when a dividend is paid because it's not noticeable and therefore, irrelevant even if it's true.
> 
> When you sell a stock to generate income, you have a finite amount you can take out (the number of shares you have). But with dividends, you have an endless supply of income (assuming it doesn't get reduced or cut by the company).
> 
> "Same net effect of both methods" - I don't think so. I would rather receiving dividends than sell my shares!


Its the same reason why a DRIP portfolio won't outperform a standard index portfolio.

To use an example:

Portfolio A: 100 Dividend shares @ $100 each
Portfolio B: 100 Growth shares @ $100 each

After 20 years you will have the same amount of income from both portfolios, but you would still have 100 dividend shares but less than 100 growth shares. Now remember, you're not selling 4 growth shares per year, but the equivalent of 4% of portfolio value.

So if the dividend portfolio has an average rate of return of 3% without dividend reinvestment (4% dividend, or 7% total) and the growth portfolio has a average rate of return of 8%, their values in 20 years would be:

Dividend shares: $180
Growth shares: $466

You would only need 39 growth shares to equal the value of the 100 dividend shares, 20 years from now. So selling those shares, and the illusion of eroding your assets because you sell, really means nothing. Think of it as a reverse split.

Just my opinion on it.

You can backtest portfolios at this site, with dividends reinvested to check this theory.





__





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Portfolio Visualizer provides online portfolio analysis tools for backtesting, Monte Carlo simulation, tactical asset allocation and optimization, and investment analysis tools for exploring factor regressions, correlations and efficient frontiers.



www.portfoliovisualizer.com


----------



## MrMatt (Dec 21, 2011)

Bananatron said:


> Its the same reason why a DRIP portfolio won't outperform a standard index portfolio.


I think you're comparing different types of companies.

Also I wouldn't be so quick to dismiss dividend paying companies. I think reliable dividend payers offer a good risk adjusted return.


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## Bananatron (Jan 18, 2021)

MrMatt said:


> I think you're comparing different types of companies.
> 
> Also I wouldn't be so quick to dismiss dividend paying companies. I think reliable dividend payers offer a good risk adjusted return.


I may be misinformed, but "the market" has been the standard to beat for years has it not? I'm an index investor, I don't think there are any dividend funds that have outperformed the broad index funds, even when accounting for dividends being reinvested? If so, I've been doing it all wrong for years.


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## MrMike (Sep 30, 2020)

Bananatron said:


> Dividend shares: $180
> Growth shares: $466


I suppose it all depends on what you invest in. 

I mean sure, if you invested in Amazon 5 years ago then sure, selling a stock now is way better than any dividends you would have been able to get. Maybe I don't like growth stocks because, for the most part, you just don't know which will do well. The financials may tell you a company is going to do well but again, anything could happen.

Of course dividends are not 100% too, they could get reduced or frozen, but for the most part, they're reliable and predictable.


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## MrMatt (Dec 21, 2011)

Bananatron said:


> I may be misinformed, but "the market" has been the standard to beat for years has it not? I'm an index investor, I don't think there are any dividend funds that have outperformed the broad index funds, even when accounting for dividends being reinvested? If so, I've been doing it all wrong for years.


Yes and no.

"The market" is a common benchmark, and makes sense in a lot of cases.
However I don't think it's necessarily the right benchmark for a specific persons individual needs.

Lets say your purpose is capital appreciation over a 30 year period.
Would you be happy with the market returns of the Nikkei? near zero

Or the TSX over the last 15 years (50% capital appreciation)

I think when you look at portfolios, a mixed cash/bond/equity portfolio actually performs very well, at much lower risk and volatility than a pure equity portfolio.


For the individual, volitility and risk is a real concern. It's easy to say a 20-30% drop won't bother you, but wait till you're 60 and that 30% drop is $300k gone.

I think that this focus on maximum returns, and ignoring volatility/risk, is bad.
I think at the individual level, it's like hedge funds forgetting that shorting stocks has "theoretically" unlimited risk.


I'm not trying to "beat" anything. I'm trying to get a good return at reasonable risk & volitility.


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## MrBlackhill (Jun 10, 2020)

@MrMike Try this. Pick the biggest market caps in the TSX with >2% dividends and 20 years history. Backtest their total return. Then pick the biggest market caps in the TSX with <2% dividends and 20 years history. Backtest their total return. The latter is growing much faster, so it's totally safe to sell stocks for income and you'll actually end up with even more wealth. But this is a big debate.


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## Bananatron (Jan 18, 2021)

MrMatt said:


> Yes and no.
> 
> "The market" is a common benchmark, and makes sense in a lot of cases.
> However I don't think it's necessarily the right benchmark for a specific persons individual needs.
> ...


All valid points. I was simply trying to illustrate the math behind the "dividends make no difference" theory. It is a bit of an illusion that you are preserving your assets when you are living off your dividend income.


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## MrMatt (Dec 21, 2011)

Bananatron said:


> All valid points. I was simply trying to illustrate the math behind the "dividends make no difference" theory. It is a bit of an illusion that you are preserving your assets when you are living off your dividend income.


The thing is when a company gets $1 in Free cashflow, what should they do?
Give it to owners, or invest it in something new, or buy stock.

If they have a good IRR, maybe they should invest it, if they don't they should give it to owners in some way.

I think some companies have enough projects to get a good return on every dollar they reinvest.
I think some companies do not have enough high return internal investments, and should simply give that money to the owners.

I think intel and Ford should be doing more internal investment.
I think Apple should be distributing it's cash hoard.

I own all 3.


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## james4beach (Nov 15, 2012)

MrMike said:


> I understand the price drops by the dividends but that quickly reversed by daily trading


It isn't, though. The price drops and definitely stays dropped. If it was immediately rebounding how you say, then dividends would be a perpetual motion machine of free money ... you could take $500 million out of a company for dividend payments and the company would be valued as it was before.

How could that make sense? In such a world, a company would send millions of $ of cash going out the door with no impact to its valuation.

In fact many people attempt to try and take advantage of the claim you are making. They buy the shares before a dividend, take the cash, and then sell. It just doesn't work; you can't make money doing that.


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## james4beach (Nov 15, 2012)

MrMike said:


> I understand the price drops by the dividends but that quickly reversed by daily trading. If you ask most people, they wouldn't know that the price drops when a dividend is paid because it's not noticeable and therefore, irrelevant even if it's true.


I want to point out an important statistical thing. The share price does indeed move after the dividend - you're right about that. But the movements are not a systematic increase or rebound in price. They are random/daily noise on top of the share price drop.

You are seeing two price movements happen simultaneously:
(A) guaranteed share drop on the ex dividend date
+
(B) random daily noise, which statistically is net zero

You wrote "*it's not noticeable and therefore, irrelevant*" which is the key to this. This is the faulty assumption people make.

In the daily price pattern, you observe (A) + (B) which does indeed obfuscate the effect of (A) happening. As you say "it's not noticeable"

But nevertheless, (A) is still very much relevant. The reason is statistical:
(A) is guaranteed negative
(B) is random but averages to zero

So what is the result when you add those? On average I mean, after many instances. And this can easily be shown numerically with real prices... and I've shown it before.


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## MrMike (Sep 30, 2020)

james4beach said:


> In fact many people attempt to try and take advantage of the claim you are making. They buy the shares before a dividend, take the cash, and then sell. It just doesn't work; you can't make money doing that.


Maybe you mean broadly but I have done this 3 or 4 times. It can totally work. I bought XTR so I could get the exdate on the 23rd. Then sold at a profit, then put it into ZWC for the exdate of 28th, again at a profit. Then I moved it to ENB for the following month on the 15th. I don't do it often, just when i have a large sum to put in and I see if this is something I could do. I admit, there is a risk of the stock falling in price but not necessarily because it's paid its dividend - the price could fall just because people are selling.

All I'm saying is that the price going down, there's no point in even concerning yourself with it because:

the price change is so small it blends into normal market volatility, and/or
maybe people in the after hours market buy up the stock when it pays out dividends, raising the price


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## MrMike (Sep 30, 2020)

MrMike said:


> maybe people in the after hours market buy up the stock when it pays out dividends, raising the price


Speaking of, who has access to trade after market? who, how


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## james4beach (Nov 15, 2012)

MrMike said:


> I admit, there is a risk of the stock falling in price but not necessarily because it's paid its dividend - the price could fall just because people are selling.


I think you are seeing the random unpredictability of the market over multiple instances. There are definitely cases where you'll see a gain by purchasing before the ex date, and selling after.

As I posted above, it's a statistical thing. Do this long enough and it will give you a net zero outcome, meaning on average, what you make from the dividends you will lose in the share price. Dividends aren't free money.

Consider the implications if you are correct, that you *can* just harvest the dividend. Here is what every hedge fund on earth would do:

1. they would borrow $10 million the day before the ENB dividend
2. would collect their $190,000 cash payment
3. immediately sell after

For such a one or two day loan, the interest cost on the $10 million would only be $500 or something like that.

Wouldn't that be a free money machine, if it were true? The hedge fund would walk away with $189,500 of free profits every time there's an ENB dividend.


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## agent99 (Sep 11, 2013)

Mr Mike said:


> Can someone correct me if I'm wrong (along with a reason why haha) but I hear this argument a lot and while it may be technically true, in practice, receiving dividends is clearly the better option


This subject has been discussed many many times. But there are likely new participants who were not involved.

My observation is that some participants compare apples with oranges.

The premise is that if a company pays a dividend it reduces the remaining value of the company. True, but only at that instant in time. The dividend is now in the hands of the shareholder and he/she can do whatever they want with it.(Maybe buy Gamestop shares and make a fortune) If somehow someone could create an absolute clone of that same company, then a comparison could be made between what the investor receiving the dividend does with the money and what the management of the company would do with it if it is left in the company. (they may not buy Gamestop!) But those clones are imaginary. It is not possible to compare imaginary with real companies.

A lot of those arguing against dividends likely haven't yet been in a situation, as many retirees are, where cash flow is king. Portfolio value not so much so,


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## AltaRed (Jun 8, 2009)

agent99 said:


> A lot of those arguing against dividends likely haven't yet been in a situation, as many retirees are, where cash flow is king. Portfolio value not so much so,


I still look at my portfolio on a Total Return basis 15 years into retirement. True, a portion of my annual Total Return is in recurring investment income (cash flow), about 3% yield on portfolio value to be more specific, but the additional 6+% over the past 10 years has been in share (capital) appreciation. I wouldn't leave home without it. 

With a VPW allowance factor of about 5.5%, that means I can withdraw about half of it in (more certain) recurring investment income and half of it (if I need to) in capital sales. Works for me.


----------



## MrBlackhill (Jun 10, 2020)

agent99 said:


> where cash flow is king. Portfolio value not so much


Top 10 TSX stocks by market cap with >2% dividends, rebalanced annually.
Simulation of a portfolio starting value of $1,000,000 and withdrawing a fixed amount of $4,000 per month, adjusted for inflation, for 30 years.
Success rate of 87.90% to reach the 30th year.
Median portfolio end balance, real (inflation adjusted) : $3M.
Safe withdrawal rate at the 10th percentile : 4.64%.

Top 10 TSX stocks by market cap with <2% dividends, rebalanced annually
Simulation of a portfolio starting value of $1,000,000 and withdrawing a fixed amount of $4,000 per month, adjusted for inflation, for 30 years.
Success rate of 99.85% to reach the 30th year.
Median portfolio end balance, real (inflation adjusted) : $118M.
Safe withdrawal rate at the 10th percentile : 10.83%.

What am I missing?

Simulations :





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Monte Carlo Simulation


Online Monte Carlo simulation tool to test long term expected portfolio growth and portfolio survival during retirement



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----------



## fireseeker (Jul 24, 2017)

james4beach said:


> You are seeing two price movements happen simultaneously:
> (A) guaranteed share drop on the ex dividend date
> +
> (B) random daily noise, which statistically is net zero


There is a further confounding factor: It is the fact that, on average, the market tends upward. This means there is a greater likelihood of seeing the dividend drop get masked by a general market increase.



MrMike said:


> Maybe you mean broadly but I have done this 3 or 4 times. It can totally work. I bought XTR so I could get the exdate on the 23rd. Then sold at a profit, then put it into ZWC for the exdate of 28th, again at a profit. Then I moved it to ENB for the following month on the 15th.


Further to the point above, you are describing three "successes" during a boom. The upward lift was provided by a soaring market, not because investors were ignoring the cash going out the door.


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## agent99 (Sep 11, 2013)

Interesting analysis Mr B. Did you chose the top 10 stocks at the beginning of the 30 yr period or the end?


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## james4beach (Nov 15, 2012)

fireseeker said:


> There is a further confounding factor: It is the fact that, on average, the market tends upward.


On the time span of the few days surrounding the ex dividend date, this is negligible. Yes it's true there is a very slight upward bias. You can calculate it ... something like +8% over 200 trading days = 0.04% upward bias over a single day.

It really comes down to daily market noise which masks the effect of the dividend drop. It is very easy to "undo" the noise and random daily changes, and then you can clearly see the share price drop due to dividends.

Every dividend harms the share price, knocks it down. And when you get paid a dividend during a down market (like during a bear market) the harm to your equity holdings is quite substantial... it forces the share prices to get knocked down even further.


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## Bananatron (Jan 18, 2021)

MrBlackhill said:


> Top 10 TSX stocks by market cap with >2% dividends, rebalanced annually.
> Simulation of a portfolio starting value of $1,000,000 and withdrawing a fixed amount of $4,000 per month, adjusted for inflation, for 30 years.
> Success rate of 87.90% to reach the 30th year.
> Median portfolio end balance, real (inflation adjusted) : $3M.
> ...


I don't think you can run the top 10 stocks today backwards 30 years. You would have to backtest the top 30 stocks from 1991 to today.


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## MrBlackhill (Jun 10, 2020)

agent99 said:


> Interesting analysis Mr B. Did you chose the top 10 stocks at the beginning of the 30 yr period or the end?


I chose stocks with 20 years of history but the simulation is on 30 fictive years.

I chose the stocks based on their market cap as of today, so it's biased in that sense, you are right, I admit. I cannot disagree.

BlackRock will allow me to look at the components of XIU since 2006 so I could try to pick the top from that list, but it's a bit more complex as some have been absorbed by others. But all the stocks I selected are part of the bigger XIC.

Anyways, my understanding is that most stocks giving >2% dividends are slowing in growth and considered more stable, whereas stocks giving <2% dividends usually still have room for growth and are considered more volatile. Though I'd just say that a stock from a well managed company with a long track record and big market cap should be considered as stable as any other similar stock giving a dividend or not. And since low-dividend stocks are usually growing faster than high-dividend stocks, then it's totally safe to use those low-dividend stocks for income.

In my opinion, now that we have hindsight over more than 20 years, the best stocks were CNR, MRU, TIH, BAM, which are all low dividends stocks.

My only way to make this analysis fair is to accept the hindsight bias and compare the absolute best high-dividend stocks of the past 20 years to the absolute best low-dividend stocks of the past 20 years, and the low-dividend wins on the long run.





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----------



## james4beach (Nov 15, 2012)

MrBlackhill said:


> My only way to make this analysis fair is to accept the hindsight bias and compare the absolute best high-dividend stocks of the past 20 years


You might be interested in some of the analysis from Ben Felix. He adjusted for the different factor tilts of some of these well known dividend portfolios. I believe that once he adjusted for things like small/large cap and growth/value factors, that he found the same performance from the dividend portfolios as the broad market.


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## MrMike (Sep 30, 2020)

fireseeker said:


> There is a further confounding factor: It is the fact that, on average, the market tends upward. This means there is a greater likelihood of seeing the dividend drop get masked by a general market increase.


^ exactly my point 



fireseeker said:


> Further to the point above, you are describing three "successes" during a boom. The upward lift was provided by a soaring market, not because investors were ignoring the cash going out the door.


1) I've describe 1 instance. I've done that 3 times.
2) You can't say I did that during a boom.... you don't know when I did this, right 

But for the record, the first time I did this was during August 2020... was that the boom? or it was still during the pandemic though you could say things already hit bottom and were more likely to go up than back down. But you're proving my point, the price going down after dividends is irrelevant if the price goes right back up shortly after which is [mostly] does (assuming its a good company).


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## agent99 (Sep 11, 2013)

Bananatron said:


> I don't think you can run the top 10 stocks today backwards 30 years. You would have to backtest the top 30 stocks from 1991 to today.


Yes, that is a weakness that I mentioned in post #74 above. A bit like picking winners in a horserace after the race is over  

I recall Nortel being a major part of TSX. It transitioned from being a dividend payer to a non-payer before it fell off the cliff! Mr. B's analysis would be hard to do if top 10 of 30 yrs ago had to be chosen. Many have disappeared or stopped paying dividends. This old article covers some: List of dividend-paying firms shrinking.

Nevertheless, although I did not go through Mr B's analysis in detail, I was impressed that sophisticated tools like that are available. However, I would like one that looks forward 10 years 

Our own experience of DIY investing is over ~18 years. 

(60-70)/(40-30) Equity/FI , on average ~95% of Equity in Div Payers, mostly Canada, some foreign.
50/50 Reg/Unreg
Draw ~4% initially, reducing to ~3% as portfolio has grown. We draw what we need after CPP/OAS.

This resulted in approx 90% overall growth in portfolio value (This includes the 40% FI component)

Our horizon is about 10years, so I think I will stay with my plan! However, I will soon need to find someone who will take over


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## MrBlackhill (Jun 10, 2020)

I think when I was comparing low dividends stocks to high dividends stocks, I was oversimplifying.

Best stocks will simply be those who initiated a dividend (no matter how low or how big) and that are growing their EPS fast, leading to growing their dividends fast, as long as their dividend growth is slower than their EPS growth or that their payout ratio is still low. And if their EPS growth is much faster than their dividend growth, that makes them awesome candidates as long as they have a great RoE.

So, based on this list (Best Canadian Dividend Growth Stocks – 2021 Updated!), it makes these stocks the best choices, in my opinion:

AQN
CNR
ATD-B
EMA
NA



MrMike said:


> the price going down after dividends is irrelevant if the price goes right back up shortly after which is [mostly] does (assuming its a good company).


It's still a downwards move because all that money they've paid to their investors cannot be used to reinvest in their own company. It's not because the trend of the stock is to move up that it makes the downwards moves irrelevant.

I'm pretty happy that CSU, CNR, CP, ATD-B pay low dividends because they have a high RoE.

-----

Anyways, we are debating out of the main subject of this thread.


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## james4beach (Nov 15, 2012)

MrMike said:


> ^ exactly my point


The market only moves up by an average of 0.04% per trading day. This does not compensate for the sharp drop in price due to dividend payouts on the ex dividend date, which is easily 0.75% or more depending on the stock.


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## MrMike (Sep 30, 2020)

MrBlackhill said:


> Anyways, we are debating out of the main subject of this thread.


right, sorry... I did enjoy it though


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## fireseeker (Jul 24, 2017)

MrMike said:


> ... the price going down after dividends is irrelevant if the price goes right back up shortly after which is [mostly] does (assuming its a good company).


I think the logic is still misfiring. The relevant factor is _why_ the stock rises after the dividend is paid.

Say you've got a bank stock with a 4% annual dividend, or 1% each quarter. It pays out its 1% on a Monday, but by Friday the stock is right back at its previous level. Fabulous, right? You've just pocketed 1% for free!

But what if the bank sub-sector was up 1% that week? It means your return simply matched that of the sector.

It's never that neat, of course. But if you strip out the market noise, you can see that when $1 million company pays a $1,000 dividend it is worth $1,000 less. What happens after that is the market doing its thing. The money doesn't grow on trees.


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## agent99 (Sep 11, 2013)

fireseeker said:


> It's never that neat, of course. But if you strip out the market noise, you can see that when $1 million company pays a $1,000 dividend it is worth $1,000 less. What happens after that is the market doing its thing. The money doesn't grow on trees.


On the other hand, the dividends paid out are now in the hands of the shareholders. So they are no worse off and they and the economy as a whole could perhaps be better off. (depending on what they do with the dividend).


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## james4beach (Nov 15, 2012)

fireseeker said:


> It's never that neat, of course. But if you strip out the market noise, you can see that when $1 million company pays a $1,000 dividend it is worth $1,000 less. What happens after that is the market doing its thing. The money doesn't grow on trees.


That's true. It's not free money.



agent99 said:


> On the other hand, the dividends paid out are now in the hands of the shareholders. So they are no worse off


Also true. There is absolutely no harm to the dividend. There is no money lost along the way ... it's just a neutral event.

And many people find the routine dividend payouts convenient, and also comforting. THAT has value too.


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## MrMike (Sep 30, 2020)

fireseeker said:


> I think the logic is still misfiring. The relevant factor is _why_ the stock rises after the dividend is paid.


The reason why doesn't matter (in this context) - the fact is, it does rise. So people saying dividends come out of the stock, who cares if, as you say, "...the stock rises after the dividend is paid" and that's my point! If its not enough to notice, then who cares if it's technically true.

I get you may want to defend your position because, to be on this forum at all, means you care and look harder than most people. But for the majority of retail investers, dividends are awesome and that's all they see. They don't see the micro dip of a stock paying its dividends - that's why I say that point is irrelevant (although technically true).


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## MrBlackhill (Jun 10, 2020)

MrMike said:


> They don't see the micro dip of a stock paying its dividends


Go in Yahoo Finance and look at the historical data for ENB.TO

It is trading around $40 and paying $0.81 dividend every quarter. Look at the price before the dividend and after the dividend. It drops by almost -2% each time. It happens 4 times per year, so that's a price drop of nearly -8%.

That's because ENB.TO increased its dividend over and over while its price doesn't keep up. In 2013 it was also trading around $40 but paying $0.315 dividend every quarter, so it was a quarterly price drop of -0.75% (total -3%) instead of the current price drop of -2% (total -8%).

They are now paying a big dividend at insane payout ratio so it's pretty risky in my opinion as investors are only buying ENB for its dividend but don't believe ENB is worth more so if ever they have to pullback (cut) their dividends it could hurt its price so much and its future also.


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## MrBlackhill (Jun 10, 2020)

If I try to get back to the subject of this thread...

Even if I feel S&P 500 is safe to continue its bullish run, you known what feels dangerous? The Volatility Index is still above 20, which means still at the same level of 1997-2003 and 2007-2008.

As proven during the dot-com bubble, VIX can stay above 20 during long bullish runs of 3 years, so we never know when things turn south. But if I combine the fact that VIX was above 20 and the S&P 500's 5-year rolling return was above 25% in April 1999, I think it's a good clue that things were in a bubble and you should sell. S&P 500's current 5-year return is "only" 16%, so it seems pretty fair even if volatility is high. NASDAQ's current 5-year return is 25% and I'd argue that reaching a 30% with high volatility would be a bubble for NASDAQ, so it's a bit more scary.


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## agent99 (Sep 11, 2013)

MrMike said:


> The reason why doesn't matter (in this context) - the fact is, it does rise.


You are right that what should happen in theory, doesn't always happen in practice. The market is alive - it doesn't know what it is supposed to do!

I at one time tried playing that game in a registered account. More for fun than anything. This in the days of income trusts. Most Trusts paid substantial monthly dividends. Dividend dates were not always the same - sometimes a week or so apart. I would double dip. Collect a 'dividend' from one trust, hold it for a week or so. It would often recover in price after the initial dividend dip. Sell and buy another just before it's dividend date. Collect another dividend. Hold for a week or two, then repeat. But this was just a game just to see if it could be done. It could, but I did need to pay a lot of attention to the market and the timing.
(Note: Used Dividends above - Trust actually paid distributions rather than dividends (just like REITS do now)


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## MrBlackhill (Jun 10, 2020)

MrBlackhill said:


> I hope NASDAQ won't touch 14,000 this year. If it does, I hope it'll correct itself pretty fast.


NASDAQ reached 14,000... Should we remind ourselves that back in June 2020 we were amazed by NASDAQ reaching 10,000 for the first time? After a flash crash and recovery? And now 7-8 months later, we are 40% higher?

When was the last time that NASDAQ's trailing 1-year was above 40% _AND_ its trailing 3-year was above 25% CAGR _AND_ its trailing 5-year was also above 25% CAGR? In 1999.

How long did it last? 20 months.

How long did it take to reach back to 1999 levels? 8 years.

Now it's been true for the past 2 trading days. "Luckily", those conditions were met because of the correction that occurred in 2016, boosting the trailing 5-year as of today. But the trailing 7-year is pretty near 20% CAGR. We may be "safe" until the trailing 7-year reaches 25% CAGR. Also, VIX is still above 20, which is dangerous. VIX above 20 occurred from 1997 to 2003 and from 2008 to 2011.

NASDAQ holders better hope for a smooth correction in the upcoming months. Otherwise, 2021 could be a much more "interesting year" for NASDAQ than 2020... If it doesn't happen, 2022 will certainly be the crazy year.

S&P 500 still feels safe though, even if it will be slightly affected by a correction on NASDAQ.


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## peterk (May 16, 2010)

However close we are, the probability that we're at the market peak is _definitely_ lower than the probability of the next CMF Investing thread being hijacked by dividend lovers/haters...


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## Ponderling (Mar 1, 2013)

We are getting close to a year since the big drop at the start of covid. I still read a version of the print layout of the Globe, and wonder how they are going to deal with the usual summary table of stocks that are trading at 52 week highs. 

Soon almost every listed stock except maybe preffered shares will be all trading at 52 week highs.

Plus my scotia account research summary screen will be thrown off, as all will be trading at 52 week highs more or less for the next 11 or so months, unless the equity market has the floor drop out of it again.


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## james4beach (Nov 15, 2012)

Ponderling said:


> We are getting close to a year since the big drop at the start of covid. I still read a version of the print layout of the Globe, and wonder how they are going to deal with the usual summary table of stocks that are trading at 52 week highs.


Good point, nearing the crash anniversary. Here's a list of 1 year % change in a few things I like to track

XAW 13.45% (world stocks)
ZSP 13.10% (S&P 500 index)
CGL.C 10.59% (gold)
XIC 7.06% (TSX Composite)
XBB 3.73% (bonds)

An interesting year. Foreign stocks including emerging mkts are doing great. But really, just about all assets are up. Amazing to think that you could throw a couple darts at that "dartboard" of major assets and end up with a well performing portfolio.

A bit off topic, but look at how well PH&N Balanced Fund has been doing lately. I'm wondering how they got 13.23% in the last year, when the above asset class returns suggest something more like 7% to 9% would be expected after MER.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> Good point, nearing the crash anniversary. Here's a list of 1 year % change in a few things I like to track
> 
> XAW 13.45% (world stocks)
> ZSP 13.10% (S&P 500 index)
> ...


Maybe 2020 simply divided the sectors. The sectors that profited the most of that context balanced out the hard-hit sectors.

Energy, REITs and financials are down. Obviously.
Tech, consumer discretionary, comm., materials and healthcare are up. Which all makes sense.
Industrials, utilities and consumer staples are in-between or business as usual.

I'm definitely no expert of all those sectors, but I think it all makes sense.

Gold is up because it got a boost from the crash uncertainty and money printing
Energy is down because of all the lockdowns, reducing transportation and traveling
REITs are down because of all the lockdowns, period
Tech and comm. are up because of everybody working from home and relying on tech and comm. and online entertainment
Healthcare is up because of the pandemic
Consumer discretionary is up because of e-commerce
Industrials are mostly up because many are essential services, but airlines dragged the sector down
Consumer staples are mostly essential services and it's mostly business as usual
etc.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> A bit off topic, but look at how well PH&N Balanced Fund has been doing lately. I'm wondering how they got 13.23% in the last year, when the above asset class returns suggest something more like 7% to 9% would be expected after MER.


The answer that no index investor wants to hear : great active portfolio management.

It holds 30% of RBC Global Equity Focus Fund O which has easily beaten MSCI World index in 2020 (and many other years). 23.8% vs 13.87% for the index or 11.66% for XWD.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> The answer that no index investor wants to hear : great active portfolio management.
> 
> It holds 30% of RBC Global Equity Focus Fund O which has easily beaten MSCI World index.


Wow interesting. So you found that this 'RBC Global Equity Focus Fund' was the outlier, vs the index?

So now all you have to do is successfully time your allocation of capital between RBC Global Equity Focus Fund and Mawer Canadian Equity, both of which (sometimes) beat the index. But you have to get the timing right! 

It's worth noting that the PH&N fund has not always outperformed the index. At the moment though, I'm pretty impressed by what I see.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> Wow interesting. So you found that this 'RBC Global Equity Focus Fund' was the outlier, vs the index?
> 
> So now all you have to do is successfully time your allocation of capital between RBC Global Equity Focus Fund and Mawer Canadian Equity, both of which (sometimes) beat the index. But you have to get the timing right!
> 
> It's worth noting that the PH&N fund has not always outperformed the index. At the moment though, I'm pretty impressed by what I see.


I didn't check on every holding, but the bond holding (25% of PH&N Bond Fund) has also easily beaten its index. Some other holdings underperformed, but have less weight.

The main outperformance is certainly due to RBC Global Equity Focus Fund O which has been a constant outperformer since inception in April 2014.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> The main outperformance is certainly due to RBC Global Equity Focus Fund


Interesting. It doesn't have a long history, but the idea of a skilled active manager is an intriguing concept (could just be random chance of course).

At first I thought that maybe they are tilted heavily towards tech, but that does not appear to be the case. They have a leaning towards growth & momentum, the same style which has served me well in the last few years.

Growth/momentum also tends to sharply drop when bull markets are exhausted, so it will be interesting to see how they navigate into a slowdown or bear market. I wonder (and worry) about the same thing with my own growth/momentum stocks.

It can be a rough time when such themes come to an end. It's really amazing how strong the bull market of the last few years has been.


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## james4beach (Nov 15, 2012)

Regarding growth and momentum... I just took a peek at MTUM. While the S&P 500 is up 19% for the trailing year, MTUM is up 33% - just amazing!

Over 5 years, annual returns are
SPY 18.7%
MTUM 23.6% ... that's 4.9% CAGR better

Pretty wild. MTUM has successfully kept high exposure to momentum champs TSLA, AAPL, MSFT, etc.

Every couple years, I look at MTUM and say to myself, this is very neat but surely it's a bad idea to pile into momentum. And yet ...


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## MrBlackhill (Jun 10, 2020)

MrBlackhill said:


> I hope NASDAQ won't touch 14,000 this year. *If it does, I hope it'll correct itself pretty fast.*





MrBlackhill said:


> NASDAQ reached 14,000...


Maybe NASDAQ will listen to my advice after all...


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## nobleea (Oct 11, 2013)

NASDAQ is down 5-7% from peak. Is this the 5-7% retracement and then upwards that most were expecting? Or a sign of a bubble starting to deflate.


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## MrBlackhill (Jun 10, 2020)

nobleea said:


> NASDAQ is down 5-7% from peak. Is this the 5-7% retracement and then upwards that most were expecting? Or a sign of a bubble starting to deflate.


I expect more because I believe that NASDAQ should not end the year above 14,000. This recent move is simply healthy.


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## MrBlackhill (Jun 10, 2020)

What a crazy intraday for NASDAQ... Drops from 13,500 to 13,000 and now back to 13,500.


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## MrMatt (Dec 21, 2011)

Yawn, so what the market is volitile.
Amazon is flat YTD, but up 50 over the last year.
I'm happy


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## MrBlackhill (Jun 10, 2020)

MrMatt said:


> Yawn, so what the market is volitile.
> Amazon is flat YTD, but up 50 over the last year.
> I'm happy


I also don't care about volatility, I find it funny. Saw my portfolio go down below -4% and end up at -0.82%.

But it was a fun day because a friend of mine texted me at 9:30 saying she's about to through her phone because she was at -13% and her boyfriend was at -20%. And we're talking about the intraday here.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> I also don't care about volatility, I find it funny. Saw my portfolio go down below -4% and end up at -0.82%.


You might find it bothers you more when you have larger amounts invested.

Imagine you had 500K invested all in stocks, and saw it plummet 12% one morning ... a loss of $60,000.

I think that would hurt. Once people invest enough money, they will start to see their portfolio fluctuate more in a week than their entire annual salary.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> Imagine you had 500K invested all in stocks, and saw it plummet 12% one morning ... a loss of $60,000.


I'm a numbers guy, I never look at the numbers in $, only in %. Everything has to be relative when playing with the market.


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## MrMatt (Dec 21, 2011)

james4beach said:


> You might find it bothers you more when you have larger amounts invested.
> 
> Imagine you had 500K invested all in stocks, and saw it plummet 12% one morning ... a loss of $60,000.
> 
> I think that would hurt. Once people invest enough money, they will start to see their portfolio fluctuate more in a week than their entire annual salary.


Not quite that much (unfortunately) but I've seen some pretty big drops.
I really enjoy the days where I earn more than a weeks salary in a single day. But I know it well enough to see it as nothing more than a silly numbers trick.


Remember 2 of the 10 worst days for the S&P 500 were within the last year.





List of largest daily changes in the S&P 500 Index - Wikipedia







en.wikipedia.org






Not surprisingly 2 of the 10 best days were also last year.


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## MrMatt (Dec 21, 2011)

MrBlackhill said:


> I also don't care about volatility, I find it funny. Saw my portfolio go down below -4% and end up at -0.82%.
> 
> But it was a fun day because a friend of mine texted me at 9:30 saying she's about to through her phone because she was at -13% and her boyfriend was at -20%. And we're talking about the intraday here.


Perhaps they should look at their risk tolerance, and not take it out on their phone.


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## doctrine (Sep 30, 2011)

james4beach said:


> You might find it bothers you more when you have larger amounts invested.
> 
> Imagine you had 500K invested all in stocks, and saw it plummet 12% one morning ... a loss of $60,000.
> 
> I think that would hurt. Once people invest enough money, they will start to see their portfolio fluctuate more in a week than their entire annual salary.


This was me in March. It's unnerving. I have a lot more money than 2008. But there was some good bears in 2014 and 2018 as well that caused nearly similar moves, certainly on a % basis, so I believe that prepared me. As well, as soon as I started modelling out what my returns were going to be moving forward, buying stocks like CNQ at $11 and Teck at $10 and GSY at $35, WEF at $0.60, BMO at $63, I became a lot more comfortable. 

I think here we are in a strange market. Many stocks are cheap or fair valued, and others are absolute nosebleeds. I'm thinking of reducing exposure over the next few months to get ahead of 'sell in may' and likely higher interest rates and taper tantrums. Maybe I can find a few more good stocks to hedge those risks too.


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## james4beach (Nov 15, 2012)

Interestingly, the S&P 500 now competes for yield with the (guaranteed safe) 10 year treasury bond.

SPY yield = 1.54%
10 year treasury = 1.46%

Not a huge deal, but there are some investors who chase yield and compare stocks vs the 10 year.


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## james4beach (Nov 15, 2012)

Here's a lengthy article debating whether the US market is in a bubble, or not.

Various interesting things. Using a Price/Sales multiple for the S&P 500, the market is the most expensive ever, even surpassing the 2000 bubble peak. Then there's Ray Dalio, who applies various measures. Dalio thinks the market is very expensive (not a great time to buy), but thinks it's quite a bit short of the 2000 peak valuations.

There's no way to know if we're at a peak, or even if we're in a bubble. But people have opinions!


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> Here's a lengthy article debating whether the US market is in a bubble, or not.
> 
> Various interesting things. Using a Price/Sales multiple for the S&P 500, the market is the most expensive ever, even surpassing the 2000 bubble peak. Then there's Ray Dalio, who applies various measures. Dalio thinks the market is very expensive (not a great time to buy), but thinks it's quite a bit short of the 2000 peak valuations.
> 
> ...


Interesting article. I think I like the price-to-liquidity ratio. It's telling we're not in a bubble yet.

I personally keep believing that S&P 500 is not dangerous, but NASDAQ is. I said that NASDAQ should not touch 14,000 and correct itself quickly if it does. That's what it did. We'll see what happens next time it touches 14,000.

I don't agree with the P/S analysis. I think ratios like P/S and P/E needs context. That's why there's the PEG ratio. There should be a PSG ratio. A stock with a P/S of 10 could be considered expensive if it's barely increasing its revenues anymore, but if it's growing its revenues at a +50% annual rate then I'll find it pretty cheap (depending on the industry and margins).


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## MrBlackhill (Jun 10, 2020)

MrBlackhill said:


> I expect more


There you go. NASDAQ is now very slightly below 13,000. Do I expect more? Yes. It's healthy to avoid the bubble territory.

Energy will be on the spotlight and NASDAQ has no energy sector. That's why TSX will be the best performer this year. And S&P 500 may also outperform NASDAQ.


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## james4beach (Nov 15, 2012)

I still think 2021 will mark an (interim) high in the stock market, as I voted on this question


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## Tostig (Nov 18, 2020)

Your criteria is pretty specific.

This chart shows the DOW results under every President since Harding. Only Truman's DOW performance shows a peak in his first year and then a drop that stayed down until it recovered in his second term. Other Presidents who enjoyed a peak and a drop, the drop recovered within the second year. I wouldn't think the S&P would be that different.









Stock Market Performance by President


This interactive chart shows the running percentage gain in the Dow Jones Industrial Average by Presidential term. Each series begins with the closing value of the month of inauguration and runs to the closing value of the last month of the term. The y-axis shows the total percentage increase...




www.macrotrends.net


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