Author Topic: TIME TO HIBERNATE FIRST POST  (Read 1195 times)

scorpioncapital

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Re: TIME TO HIBERNATE FIRST POST
« Reply #10 on: February 26, 2017, 10:41:21 PM »
There is a very strong correlation between risk free rates and valuations. If the risk free rate tomorrow jumps to 20%, you can be sure stocks are not going to be trading for an average market P/E of 20 (or 5%) yield. You can just buy the government bond and get 20% , why would you buy a stock yielding 5%? On the other hand, if rates are zero, 5% is looking somewhat better. It looks even better if earnings can grow better in a low-inflation environment than a high one. But I think you have a point that within a certain range, it doesn't matter so much. It's the outliers that are dramatic...like now. Less than 1% for a decade is pretty far out. So is 20%. I believe there was a study published that showed that as rates move up modestly to some neutral level, stocks actually do very well, rising quite a bit more along the way. Beyond this critical level, they start to encounter some turbulence. Where this is is hard to say. I think Buffett in a lecture to students a few months ago said it was 4% and that stocks were extremely cheap if rates don't go above that. So while we don't know what rates will do they have a very big effect on whether stocks will turn out to be very cheap today, or very expensive, or perhaps the most likely case, something in the middle. Btw, Ken Fischer (http://www.financialsense.com/art-hill-technicals-ken-fisher-2017-market-outlook), son of Philip Fischer  , made a good observation about market forecasters. For 2017 he said because the consensus is more of the same, it could very well be + or - quite a bit either way.
« Last Edit: February 26, 2017, 10:44:43 PM by scorpioncapital »

thefatbaboon

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Re: TIME TO HIBERNATE FIRST POST
« Reply #11 on: Today at 12:15:36 AM »
I don't really understand this less/more opportunities thing many investors refer to. 

Personally, I never have many ideas.  Last year I had a couple ideas. The year before I had a couple.  This year i've already had one and hope I'll have one or two more.

Sometimes I have too many ideas like 08,09.  But as I can't guess when massive crashes come I cannot go to cash or raise my hurdle rate in expectation. So my money runs out and the surfeit of ideas is of no use. 

Using simple arithmetic and the historical fact of the great infrequency of severe crashes I can calculate that it is FAR better to assume every year is normal and look for and take my normal couple ideas than it is to prepare for unpredictable crashes.

Obviously if you're not finding ideas then you're not finding ideas - and of course you musn't go buying things you don't want. But the financial world is massive and financial information abundant and I bet there are many good investments out there to be found. 

Unless of course you see an important market crash around the corner?!




CorpRaider

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Re: TIME TO HIBERNATE FIRST POST
« Reply #12 on: Today at 04:44:11 AM »
I often wonder how much of the motivation for WEB's recommendation to just average into passive index funds is due to a great reduction in the compulsion to try and market time.  It seems likely that a resignation to obtain the market return, whatever that is, would eliminate many of the opportunities to make decisions and improve the dollar weighted returns for the vast majority of investors (I wonder if it would not be of a greater impact than the cost savings/advantage of the low cost index funds).  I suppose if one employs absolute valuation hurdle that would make your decisions systematic, one would potentially be an exception.
« Last Edit: Today at 04:50:44 AM by CorpRaider »