# Bear market signal? S&P 500 dividend payout ratio



## james4beach (Nov 15, 2012)

This article suggests that the S&P 500 dividend payout ratio may be an indication that a bear market is coming
http://www.greatponzi.com/articles/20130528-spx-div-payout-ratio.html

If companies increase dividends without having the underlying earnings growth, this causes the dividend payout ratio to creep higher. I think this is what's happening now. This chart is from FactSet as of March 28, 2013.










From this data, the dividend payout ratio seems to be past its lowest point and is now rising. The previous two bear markets began within one year of this inflection. Of course, no two runs through the business cycle are identical, and this time we have historically unprecedented stimulus and QE.

Perhaps the stimulus will delay the latter part of the cycle, but I don't think it's stopping the cycle from happening. I'll go out on a limb and say that I expect the bear market to arrive by April 2014.​


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## GoldStone (Mar 6, 2011)

james4beach said:


> I'll go out on a limb and say that I expect the bear market to arrive by April 2014.[/INDENT]


Please be more precise. Bear market typically means a 20% correction. Are you calling a 20% correction in S&P500 before April 2014?

BTW, leading indicators are dime a dozen.


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## james4beach (Nov 15, 2012)

Yeah these indicators really are a dime a dozen. I think the author means economic slowdown / recession, but there's no reference to stock declines.


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## GoldStone (Mar 6, 2011)

So what's the call?

S&P500 20% correction before April 2014. 

Yes or No?

:biggrin:


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## cainvest (May 1, 2013)

I wonder what that chart looks like prior to 2000?


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## james4beach (Nov 15, 2012)

GoldStone said:


> So what's the call?
> 
> S&P500 20% correction before April 2014.
> 
> ...


I don't know, I was quoting the article.


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## james4beach (Nov 15, 2012)

cainvest said:


> I wonder what that chart looks like prior to 2000?


Wonder no more! searched and found this


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## cainvest (May 1, 2013)

Doesn't seem like a good indicator going farther back ...


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## phrenk (Mar 14, 2011)

You want a signal of bearishness ? Just take a look at all of the IPOs coming in the past month and the dividend recapitalizations being completed by PE firms. 
It's only been 6 months and both the S&P 500 and DJ have increased nearly 15%. A 10% correction is due.

Everyone is cashing out.


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## FrugalTrader (Oct 13, 2008)

Apparently construction of sky scrapers is a bear indicator, and China is currently building the world tallest building! 

http://business.financialpost.com/2...rs-predicted-historys-worst-financial-crises/


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## lonewolf (Jun 12, 2012)

Prechter with his socialnomics instutute is the research leader of how the digital recording of mass pshycology in the stock market can predict the actions of man.


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## andrewf (Mar 1, 2010)

That 'world's tallest building' is a bit different than previous ones. It's intended as a demonstration of new building technology (modular skyscrapers) than as a vanity project. Hence how ugly it is.


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## james4beach (Nov 15, 2012)

All these various predictive signals are so tough to rely on 

But there certainly is a bull/bear market cycle. Bulls last 4 years or so, don't they? This one began in early 2009 when the huge stimulus kicked in. It's now been going on for 4 years and I think it's a generally accepted view that we're in the latter stages of the cycle.

That doesn't mean stocks will necessarily drop. I think "the cycle" just refers to growth of corporate earnings, versus a contraction. Generally the stock prices go along with that but not necessarily.


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## Belguy (May 24, 2010)

Well, I've been on this roller coaster ride for many years now and one thing that I have learned is that the markets do not go up forever and, when they are rising, they are getting closer and closer to the top.

That said, I have also concluded that market timing is a mug's game and so I just stay invested through all market conditions with confidence in my target asset allocation.

Getting you allocation right, according to your own personality and economic situation is what allows you to sleep well whenever the markets drop and not force you to buy and sell at just the wrong times thus avoiding the 'heard mentality'.:sleeping::sleeping::sleeping::sleeping:

Buy, hold, rebalance and prosper.

Oh, and by the way, as I have stated many times, most investors overestimate their risk tolerance and only discover that when the markets take a tumble as they periodically are want to do.

To thine own self be true.


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## cainvest (May 1, 2013)

james4beach said:


> All these various predictive signals are so tough to rely on


Predictive signals are tough to read though I do see a correlation to sunspot high and low times with market corrections!










If so, the next correction looks like it'll be anytime now.


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## james4beach (Nov 15, 2012)

Belguy said:


> as I have stated many times, most investors overestimate their risk tolerance and only discover that when the markets take a tumble as they periodically are want to do.


I totally agree. People overestimate what % stocks they can tolerate in their portfolio. Here's the simple test I use... add up all your equity exposure, and divide be two. You could potentially lose that much in stocks (e.g. 100k in stocks -> 50k potentially to lose).

Personally I have around 10% equity exposure, and I'm in my 30s. This is the appropriate amount of equity exposure for me.


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## Emma (May 18, 2013)

As you may recall we finally got rid of the MF "advisor" but are still awaiting the funds transfer. This could be a good thing when you mention the word correction. Would you keep the cash for now? Or is it all relative, sold at market high, buy at market high. Selling high and buying low would be a first for me, I almost always choose the wrong line!!


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## Belguy (May 24, 2010)

Not a good day ESPECIALLY for the higher yielding stocks both in Canada and the U.S. Is this a harbinger of things to come or just a 'one off' day?

When it comes to yield, it might be a good time to reconsider bonds!!

What say you?


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## Spudd (Oct 11, 2011)

I don't know about the higher yielding stocks particularly, but the TSX was only down 0.14% on the day - what's so scary about that?


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## My Own Advisor (Sep 24, 2012)

wow, surprised james4beach. 10% equity.


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## Canuck (Mar 13, 2012)

Belguy said:


> Not a good day ESPECIALLY for the higher yielding stocks both in Canada and the U.S. Is this a harbinger of things to come or just a 'one off' day?
> 
> When it comes to yield, it might be a good time to reconsider bonds!!
> 
> What say you?


Ugly day for pipelines . How low can these things drop with rising bond yields?


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## Belguy (May 24, 2010)

Could the five year bull market for dividend stocks be coming to an end?

montonjournal.com/business/Stock+market+pulls+back+investors+shift+highdividend+stocks/8451341

http://www.reuters.com/article/2013/05/29/us-markets-stocks-idUSBRE94R0DB20130529


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## fatcat (Nov 11, 2009)

reits and utilities got creamed ...
are we in pamplona yet ?


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## Canuck (Mar 13, 2012)

Belguy said:


> Could the five year bull market for dividend stocks be coming to an end?
> 
> montonjournal.com/business/Stock+market+pulls+back+investors+shift+highdividend+stocks/8451341
> 
> http://www.reuters.com/article/2013/05/29/us-markets-stocks-idUSBRE94R0DB20130529



I'm sure this has been hashed out somewhere in this forum, but i don't have the time to find it, is there a Canadian bond etf that investors on here prefer?


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## Belguy (May 24, 2010)

As U.S. stocks hit record highs, money flows into equities has slowed to a trickle while flows into bonds has surged:

http://blogs.wsj.com/marketbeat/2013/04/12/cash-trickling-into-stocks-still-pouring-into-bonds/


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## My Own Advisor (Sep 24, 2012)

Interesting read james4beach.


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## james4beach (Nov 15, 2012)

My Own Advisor: I have minimal stock exposure because I'm bearish on stocks and the economy. I think they're very overvalued, and I think that ZIRP and QE have distorted stock prices (pushing them upwards) and also distorted corporate earnings, which makes it hard to see that stocks are overvalued. But this is just my opinion... I avoid the stock market because I'm bearish on stocks.


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## james4beach (Nov 15, 2012)

And guys, my original post -- about dividend payout ratios -- is relevant to what's been going on for the last few days in these REITs, utilities, dividend paying stocks.

What that chart in my first post shows is that companies are paying out a larger proportion of their earnings. If this trend keeps up, companies are going to have trouble maintaining dividends because they don't have the earnings to support them.

I think the selloff we're seeing now may be a response to two things
1) a direct response to rising interest rates, bond yields rising
2) a response to the fact that payout ratios are marching higher, meaning *high distributions are at risk of getting cut*


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## Belguy (May 24, 2010)

I still feel that it all comes back to your target asset allocation. Get that right, according to your own particular circumstances, time horizon, and risk tolerance and you can ride out all market conditions while getting a good night's sleep. 

Other than that, you are basically trying to time the markets which is not a successful investment strategy in the long run.


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## lonewolf (Jun 12, 2012)

[Other than that, you are basically trying to time the markets which is not a successful investment strategy in the long run.[/QUOTE]

Belguy (did you get a new dog ?)

This makes no cents why not try to buy stocks @ a low price & sell @ a high price ?

The coach potatoe method does try to time the market. The rebalancing is the timing.


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## dogcom (May 23, 2009)

Market timing in my opinion does work, not by getting the time right by the day or the exact month, but by doing much research and using technical, seasonal and cycles to make it work. Very few people are able to work through what needs to be done that is why not everyone can't do it and thus mass copied to make it not very useful. Look at gold stocks today as an example they are out of everyones portfolio and yet when are closing in on a period of seasonal strength that should elevate them and only a few of us will see this potential. Once they do take off probably this summer or earlier then you will see all the reasons coming out on why they are a great investment and suddenly the negatives will be tossed aside. I am hearing insiders are buying them 10 to 1 at this point which sounds good to me.

Of course I have lost money over the last 6 months on gold and gold stocks because I tried to be cute and think that prices are low so the timing and seasonality should change and it didn't so I held on. I didn't sell so of course the last few days have been great but it could still go bad before it gets better. Had I had the patience like I did last year I would not have seen the losses I did and instead had ridden this Fed induced stock rally. Still I think the seasonality is speaking badly for the markets and dividend stock mentioned in the title and if we don't get a good correction here then I think we will see a massive correction this fall.

Also most of the reasons the media puts out for this huge rally is just because stocks are going higher and not for any reason of why they really should go higher other then the Fed feeding it.


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## dogcom (May 23, 2009)

By the way I am not wise enough or work hard enough to the timing conditions mentioned above so market timing will not work as well for me.


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## Emma (May 18, 2013)

james4beach, with only 10% in the market, what is the other 90% invested in if you don't mind my asking. I am sure you are a lot younger than me but if I put 90% in fixed I may not have enough for that pricey retirement home down the road! Belguy, as hubby says if we had an expiration date stamped on our foreheads, decisions would be so much easier.


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## james4beach (Nov 15, 2012)

With 10% in equity, the rest of my assets is a mix of savings accounts, foreign currency, GICs, bonds, and minimal hard assets.

I stay away from stocks because I don't like the risk/reward proposition. I'm not trying to time the market... I couldn't care less if stocks go way up from here. The TSX could pull a Japan for all I care.

I just don't like the current conditions in the financial system. I don't like the inflated asset prices and credit-fueled speculation. I don't like how involved the central banks are in manipulating asset prices. I don't like the instability and the conditions that can cause a flash crash in which liquid large caps plummet 90%. I don't like the trillions$ of derivative exposure the banks have, and their ridiculously high leverage. Personally I think the western financial system is on life support, with emergency-level zero rates, and is acting broken. I don't feel comfortable throwing my chips into a rigged, broken, unstable casino.

If central banks returned to more historically normal involvement, zero interest rates went away, and companies (and consumers) demonstrated they could survive & thrive with normal interest rates then it would be very different. I would be happily investing in stocks! I'm not fundamentally opposed to stocks.


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## james4beach (Nov 15, 2012)

Emma said:


> james4beach, with only 10% in the market, what is the other 90% invested in if you don't mind my asking. I am sure you are a lot younger than me but if I put 90% in fixed I may not have enough for that pricey retirement home down the road!


And you may end up with even less by investing in stocks. You may get a negative return, who knows? That's a gamble you're willing to make, I guess. I realize that I'm getting a positive nominal return but may lose to inflation, if there is inflation. That's the gamble I'm willing to make.


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## james4beach (Nov 15, 2012)

My description of why I dislike the market may have been a bit rambly. If you want a more professional description of what bugs me, check out this excellent post
http://www.tfmkts.com/the-t-report-pachinko-the-markets-qe/


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## dogcom (May 23, 2009)

james4beach said:


> With 10% in equity, the rest of my assets is a mix of savings accounts, foreign currency, GICs, bonds, and minimal hard assets.
> 
> I stay away from stocks because I don't like the risk/reward proposition. I'm not trying to time the market... I couldn't care less if stocks go way up from here. The TSX could pull a Japan for all I care.
> 
> ...


This is exactly the way I look at the stock market today as rigged, broken and unstable casino. If the plunge protection team the Fed and so on only mandate was to help in a 1987 style crash and only for a very limited time I might be fine with it but now they have their paws rigging everything. They even rig the employment reports and how the economy appears and so on. They have the media under the control of a few big corporations so real reporting is impossible in the markets and world events. For the life of me I can't figure out why so many people on this forum can't see that.


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## Belguy (May 24, 2010)

I don't know if this is a valid point but I often compare myself to my cousin who we will call Vinny.

Vinny does not like the stock market and so he has always had his money invested in a ladder of one to five year GIC's. It is the ultimate Couch Potato portfolio. This is the way that Vinny has invested for the past twenty five years. He spends virtually zero time in managing his portfolio and could care less if others have done better than him by investing in the markets.

I, on the other hand, have a more greedy bent and decided, twenty five years ago, to invest my money in a portfolio of managed mutual funds. When that didn't turn out very well, I decided to set up my own self managed account with a discount broker and began investing primarily in index products. Over those twenty five years, I have been buffeted around pretty good by all of the gyrations of the market including a few outright crashes. After those crashes, it took many months for me to gain back my paper losses.

As of now, I can't give you the result of who did better but I can say that neither of us is rich and I have gone through a lot more turmoil with my investments than Vinny has with his.

If I had to do it all over again, and taking everything into consideration, and I could go back twenty five years, I would go the same route that Vinny did.

Anyway, that's how I feel after twenty five years in the markets investing first in a portfolio of managed mutual funds which I converted ten or so years ago into a portfolio of mainly index products. During that time, I was pretty much a buy-and-hold through all market conditions investor.

As for the dog situation, I still miss Tara every day but I do not plan to replace her because of my age and because dogs are a lot of work (which I don't regret) and a big expense, especially if you run into health issues with them as I did with Tara's heart condition. Her heart medication alone cost over $100 a month since September 2010 but they did keep her alive and relatively well until I had to have her put down on March 31. Also, I don't think that I want to ever again go through the loss of a beloved pet and best friend, as Tara has been for the past 15 years. I will never forget her. She was the best dog ever!!! Thanks for asking, lonewolf.


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## CanadianCapitalist (Mar 31, 2009)

It seems to me that all this crystal gazing is a giant waste of time. The market is what it is. It goes up, it goes down. I would start with a target strategic allocation. Lower allocation to stocks is fine but it should flow from one's capacity and ability to bear risk, not crystal gazing. Make sure you keep some cash and bonds and diversify as broadly as possible. Mix in some REITs. If stocks go up and exceed your targets, sell some and rebalance. If it falls, buy some and rebalance. Same for other asset classes. Keep investing regularly through good and bad markets. Yes, some of your buys will be at market peaks but you'll also be buying some in market lows. 

Chances are those who are bearish today were also the ones that were bearish in the market crash and were waiting for even lower prices. When stocks went up, they were probably thinking it was a head fake and staying out of the market and all the time, the markets have more than doubled from the lows (at least in the US). That's what markets do. They climb a wall of worry. Has there been any asset class more hated than stocks in the recent past? The answer is a resounding no. Just look at mutual fund flows.

If I were a betting person, I'd take the bet that stocks will outperform bonds over the next decade. It's simple math really. Bonds are yielding 2.1%. The *dividend yield* on stocks in 2.1%. The earnings yield is 6.6%. That kind of spread is massive when you consider that bond coupons are fixed but you can expect your stock "coupons" to increase over time. Valuations are average these days, so expected returns from stocks are in mid-to-high single digits in nominal terms.


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## lonewolf (Jun 12, 2012)

Any way it is sliced if an investor buys or sells it is market timing. dollar cost averaging, coach potatoe or anyway it is done it is all market timing. Even Suzy Orman fails to understand it when she says not to try to time the market & use dollar cost averaging. 

Belguy as well as all I want the best for you all.


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## cainvest (May 1, 2013)

CanadianCapitalist said:


> If I were a betting person, I'd take the bet that stocks will outperform bonds over the next decade.


Well ... probably BUT lets look at the S&P500 returns over the past few decades.

Decade / Approx. Average Annual Growth

60-69 / 7%
70-79 / 5%
80-89 / 17%
90-99 / 18%
00-09 / -0.9%

So things might not always be great for stocks over the long haul. Granted we've had a good run since 2009 with new highs but remember we're only about 10% up from the 2000 peak and what has compounding done for us over this 13 year period?


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## jcgd (Oct 30, 2011)

My goodness, I look at those numbers and salivate. Those look like fantastic numbers to me, over the long haul. Over the short term I can see why you need to be in for the long haul.


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## CanadianCapitalist (Mar 31, 2009)

cainvest said:


> Well ... probably BUT lets look at the S&P500 returns over the past few decades.
> 
> Decade / Approx. Average Annual Growth
> 
> ...


The explanation for poor 00-09 returns is right there in the previous two lines: double digit returns throughout the 80s and 90s. The S&P 500 earnings yield in 2000 was, if memory serves right, somewhere around 3%. Bonds were yielding 7% (again going by memory, so don't shoot me if this turned out to wrong). The dividend yield was 1%. p/e was a sky high 33. So, even though corporate earnings grew through the 00s and investors earned 1% to 2% in dividends, the drop in p/e acted as a headwind. That's not where we are today. Valuations are average in historical terms. We are starting off with higher dividend yields. So, even in a low-growth environment, stocks should do reasonably over the next decade, with high odds of outperforming bonds.


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## Belguy (May 24, 2010)

Let's all meet back here in ten years and review how stocks have performed over the decade.

By then, we should all be (very) rich!!!:encouragement::tickled_pink::cool2::congratulatory:

http://www.cnbc.com/id/100431712

Looks like CC might be right!!!


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## CanadianCapitalist (Mar 31, 2009)

lonewolf said:


> Any way it is sliced if an investor buys or sells it is market timing. dollar cost averaging, coach potatoe or anyway it is done it is all market timing. Even Suzy Orman fails to understand it when she says not to try to time the market & use dollar cost averaging.
> 
> Belguy as well as all I want the best for you all.


That may be *your* definition of market timing. Doesn't mean it's the commonly accepted one.


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## cainvest (May 1, 2013)

I would tend to agree with that CC and hopefully we'll return to a more normal growth pattern in the next few years. It would appear likely, given the current global economic state, that higher volatility will continue for some time though.


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## cainvest (May 1, 2013)

Belguy said:


> Let's all meet back here in ten years and review how stocks have performed over the decade.
> 
> By then, we should all be (very) rich!!!:encouragement::tickled_pink::cool2::congratulatory:
> 
> ...


I don't look at the market as a means of getting rich, all I need are modest compounding returns over the next 5-10 years. I will likely back down my equity position, was ~70%, during my current readjustment and will not hesitate to reinvest more if a 20% correction were to hit real soon before I'm all invested again.


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## CanadianCapitalist (Mar 31, 2009)

cainvest said:


> It would appear likely, given the current global economic state, that higher volatility will continue for some time though.


Yes, agree. Stock investors have to learn to live with volatility. If they can't they should sell down to a level that they'll be comfortable with.


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## james4beach (Nov 15, 2012)

I actually do share the outlook that stocks will outperform bonds going forward... that being said, I still have problems with various factors in the current environment (as I posted in my ramble). From a risk perspective, they keep me away from stock investment.

For instance I've got forecasts in my head such as 2% annual return from bonds going forward, and more like 4% in stocks (based on earnings and GDP growth). Then I ask myself, am I willing to take on stock risk for just an extra +2% per year? With equity investment comes the danger that due to a shock to our hyperleveraged banks or real estate market we could get a -40% TSX year. Do I like that tradeoff? And I answer myself ... no ... but these are just based on my projections.


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## james4beach (Nov 15, 2012)

I also ask myself, do I want to join the crowd and simply buy stocks based on the assumption that unlimited central bank money is going to levitate stocks perpetually? Much excitement about the stock market in the last few years is based on QE hype and the expectation that printed money will flow into stocks. Do I believe that will happen? Well the money didn't flow into commodities... why was that? Is there a guarantee money will flow into stocks? Just thinking aloud to share my process with you.


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## CanadianCapitalist (Mar 31, 2009)

james4beach said:


> For instance I've got forecasts in my head such as 2% annual return from bonds going forward, and more like 4% in stocks (based on earnings and GDP growth). Then I ask myself, am I willing to take on stock risk for just an extra +2% per year? With equity investment comes the danger that due to a shock to our hyperleveraged banks or real estate market we could get a -40% TSX year. Do I like that tradeoff? And I answer myself ... no ... but these are just based on my projections.


2 percent returns from bonds is reasonable. 4 percent from stocks seems too low. Dividend yield alone is 3 percent. Inflation is 2 percent. Say, 2 percent earnings growth and you get expected returns of 7 percent. If you disagree, let's see your assumptions.


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## cainvest (May 1, 2013)

CanadianCapitalist said:


> Yes, agree. Stock investors have to learn to live with volatility. If they can't they should sell down to a level that they'll be comfortable with.


Overall volatility of the market is fine providing you have the time to ride out the downturns, typically what ... 2-3 years? I think many people have issues with seeing their investments tank not realizing they were proably way ahead of their target but instead just focus on the percent lost from the peak.


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## james4beach (Nov 15, 2012)

CanadianCapitalist said:


> 2 percent returns from bonds is reasonable. 4 percent from stocks seems too low. Dividend yield alone is 3 percent. Inflation is 2 percent. Say, 2 percent earnings growth and you get expected returns of 7 percent. If you disagree, let's see your assumptions.


I project annual GDP growth of 1.5% and thus 1.5% annual growth in corporate earnings (they track well over time)... and no more, since the consumer is already maxed out on credit so we can't artificially boost it any higher than we've already done. I don't expect much inflation, and in fact have a deflationary bias, but I'll guess another 1.5% for inflation. That gives me 3% stock return and I throw in another 1%. All in all I think I'm being very generous with a 4%/year projection.

Or alternatively if you use Buffett's calculation, nominal GDP growth + dividend yield (I guess that's what CC was saying), then I get 1.5% nominal GDP + 3% div yield = 4.5% ... same ballpark as above

Yes I realize my nominal GDP estimate is pessimistic, but an underlying part of my assumptions is that the economy has been stagnating since 2000. A further supporting argument is that interest rates now seem stuck forever at 0%, which also goes with a zero real GDP environment. If growth was actually non-zero, interest rates would be non-zero.

These numbers are still the optimistic side of my projections. Our banking system is highly leveraged (and so is Europe and USA) and deleveraging will inevitably happen at some point. When that happens, I think we get deflation leading to 0% stock returns. But yes longer term, I agree stock returns should be positive.


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## lonewolf (Jun 12, 2012)

James4beach (appriciate your well thoughtout posts)

How do you have the disapline to avoid the dopamine & the endopherine high of being with the herd ? Do you think of all those hotties on the beach going against the herd will allow you to have fun with ?


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## fatcat (Nov 11, 2009)

james4beach said:


> Yes I realize my nominal GDP estimate is pessimistic


ya think ? ... that isn't even escape velocity and the fed will just keep printing money 



> A further supporting argument is that interest rates now seem stuck forever at 0%, which also goes with a zero real GDP environment.


except you contradict yourself directly in another thread by referencing the rapid rise in rates and fall in bond prices and the presumptive end of qe all of which point to a rise in rates


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## lonewolf (Jun 12, 2012)

Come on guys

Do you really think the fed is a match for mass pshycology ? They are just part of it. The thinking of the mases can bend the thinking of even the most advanced of intellect. Intellegence wont make anyone rich without commitment to reason. I might have a bird brain sometimes but it does not matter if my commitment to reason is strong.


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## james4beach (Nov 15, 2012)

lonewolf said:


> How do you have the disapline to avoid the dopamine & the endopherine high of being with the herd ? Do you think of all those hotties on the beach going against the herd will allow you to have fun with ?


Thanks... I read a lot and am careful to seek contrarian viewpoints, since mainstream media polarizes along the bullish axis and generally spews the same bullet points _ad nauseam_. I try to remember that above all else, they have a monetary interest in tricking me & you into buying. Bull markets are good for money management business. Bear markets are bad for business.

And when it gets difficult, I just look at my own numbers for a reality check.

My RRSP is 100% fixed income, AAA gov bonds and CDIC insured GICs. It is as conservative as you can possibly get. Since inception in April 2007, *I have made 2.72%* annual rate of return. Now compare that to the combined 50/50 return of the S&P 500 and TSX. As of today, at such high stock valuations, the *stock performance was 2.97%* including divs.

Even being generous to stocks by calculating this today, at highs, stocks only outperformed me by +0.25% /yr... and they plummeted -50% in the middle of that, whereas my portfolio steadily marched higher, with no losses. No stress. This is why I don't crave stocks.


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## james4beach (Nov 15, 2012)

fatcat said:


> except you contradict yourself directly in another thread by referencing the rapid rise in rates and fall in bond prices and the presumptive end of qe all of which point to a rise in rates


The stuck-at-zero rate is the Fed funds rate, not the bond market rates. The Fed has said there are no rate increases on the horizon (they mean the overnight fed funds policy rate).


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## lonewolf (Jun 12, 2012)

Even being generous to stocks by calculating this today, at highs, stocks only outperformed me by +0.25% /yr... and they plummeted -50% in the middle of that, whereas my portfolio steadily marched higher, with no losses. No stress. This is why I don't crave stocks.[/QUOTE]

Few realize if the market out performs GICs it should be taken with a grain of salt. A few years back I remember reading the best performing mutual fund for the last 10 years the average investor invested in it lost money. The average gain I remember was in the double digits. This did not matter when the average investor was buying high & selling low. Who cares what the S&P does the only thing that matters is how your method is performing. I think the GIC holder beats the pants off the average stock holder over thier lifetime.(unless everything melts down) It takes a lot of work to be able to extract money from the market without adding liquidity. I totally failed to realize how tough the journey would be


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## fatcat (Nov 11, 2009)

james4beach said:


> Thanks... I read a lot and am careful to seek contrarian viewpoints, since mainstream media polarizes along the bullish axis and generally spews the same bullet points _ad nauseam_. I try to remember that above all else, they have a monetary interest in tricking me & you into buying. Bull markets are good for money management business. Bear markets are bad for business.
> 
> And when it gets difficult, I just look at my own numbers for a reality check.
> 
> ...


that is a post that makes a lot of sense to me james ... you know what you want and where your comfort level is ... you have been greatly helped by the fact that we have been in a state of deflation or very low inflation and you are comparing to the tsx which is commodity rich which haven't been doing well ... if commodities catch fire and we see inflation, your 2.72 might not look very good, though presumably we will see a corresponding rise in gic yields ... sleeping well at night is priceless


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## CanadianCapitalist (Mar 31, 2009)

james4beach said:


> I project annual GDP growth of 1.5% and thus 1.5% annual growth in corporate earnings (they track well over time)... and no more, since the consumer is already maxed out on credit so we can't artificially boost it any higher than we've already done. I don't expect much inflation, and in fact have a deflationary bias, but I'll guess another 1.5% for inflation. That gives me 3% stock return and I throw in another 1%. All in all I think I'm being very generous with a 4%/year projection.
> 
> Or alternatively if you use Buffett's calculation, nominal GDP growth + dividend yield (I guess that's what CC was saying), then I get 1.5% nominal GDP + 3% div yield = 4.5% ... same ballpark as above
> 
> ...


You are contradicting yourself. First, you are saying that corporate profits track GDP growth and assuming 1.5 percent real growth (agree with that). Then you are adding 1.5 percent for inflation (ok, that seems reasonable too). You then don't have to "throw in" anything. Just add the current dividend yield and you get 1.5 + 1.5 + 3 = 6 percent, not 4. Then right away, you are saying real GDP growth will be zero. Then you should have it at zero in your first calculation too, not at 1.5 percent.


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## cainvest (May 1, 2013)

james4beach said:


> Since inception in April 2007, *I have made 2.72%* annual rate of return. Now compare that to the combined 50/50 return of the S&P 500 and TSX. As of today, at such high stock valuations, the *stock performance was 2.97%* including divs.


Just for comparison sake, what would those numbers be for inception dates of April 2006,2008,2009 ?


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## james4beach (Nov 15, 2012)

cainvest said:


> Just for comparison sake, what would those numbers be for inception dates of April 2006,2008,2009 ?


I don't have those numbers but obviously it would change the results quite a bit.


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## james4beach (Nov 15, 2012)

CanadianCapitalist said:


> You are contradicting yourself. First, you are saying that corporate profits track GDP growth and assuming 1.5 percent real growth (agree with that). Then you are adding 1.5 percent for inflation (ok, that seems reasonable too). You then don't have to "throw in" anything. Just add the current dividend yield and you get 1.5 + 1.5 + 3 = 6 percent, not 4. Then right away, you are saying real GDP growth will be zero. Then you should have it at zero in your first calculation too, not at 1.5 percent.


Buffett's estimates are just his method by the way. Just because they've become popular doesn't mean his equation is golden. I just had another way of estimating it, as my first calculation. I did not mean 1.5% real growth, I meant 1.5% nominal growth and 0% real growth after inflation. I expect zero real growth in years ahead, especially after government deleveraging (they have been artificially boosting GDP with borrowing activities). For better clarity here, using Buffett's formula:

Expected return = Real GDP growth + inflation + dividend yield
= 0 + 1.5 + 3.0 = 4.5%

So yes I'm willing to boost my estimate to 4.5% :encouragement:


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## cainvest (May 1, 2013)

james4beach said:


> I don't have those numbers but obviously it would change the results quite a bit.


Yup, a fair difference ... found a handy online calculator for annualized rate of return (with dividend reinvestment) that quickly does the job, just for the S&P500 though ...

From April 2006 to May 2013 5.2%
From April 2007 to May 2013 3.8%
From April 2008 to May 2013 5.5%
From April 2009 to May 2013 19.4%
From April 2010 to May 2013 12.3%
From April 2011 to May 2013 11.8%
From April 2012 to May 2013 17.3%

Some pretty good numbers there!


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