Author Topic: S&P indexing is moronic right now  (Read 9987 times)

Cigarbutt

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Re: S&P indexing is moronic right now
« Reply #80 on: November 27, 2017, 09:28:12 AM »
Did not plan to come back here but re-visited an article written by Mr. Benjamin Graham who "could not understand how securities were valued in the later 1950s".

https://www8.gsb.columbia.edu/sites/valueinvesting/files/files/DOC003.pdf

For some reason this article came across my desk at the same time as an issue leading me to President Eisenhower's Farewell Address to the Nation (1961).

Excerpts:

"But each proposal must be weighed in light of a broader consideration; the need to maintain balance in and among national programs – balance between the private and the public economy, balance between the cost and hoped for advantages – balance between the clearly necessary and the comfortably desirable; balance between our essential requirements as a nation and the duties imposed by the nation upon the individual; balance between the actions of the moment and the national welfare of the future. Good judgment seeks balance and progress; lack of it eventually finds imbalance and frustration."
...

"Another factor in maintaining balance involves the element of time. As we peer into society's future, we – you and I, and our government – must avoid the impulse to live only for today, plundering for, for our own ease and convenience, the precious resources of tomorrow. We cannot mortgage the material assets of our grandchildren without asking the loss also of their political and spiritual heritage. We want democracy to survive for all generations to come, not to become the insolvent phantom of tomorrow."


An hypothesis is that the comments from the past simply come from another epoch and only have historical value.
Another hypothesis is that Mr. Graham's 1974-5 comments may have an unusual degree of relevance in our time.
Haunted by the absolute/relative valuation conundrum.
The problem is that one of the options is moronic.


KinAlberta

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Re: S&P indexing is moronic right now
« Reply #81 on: December 05, 2017, 09:27:18 AM »
Once in a while, anyone should look to see if their theories have any value. Hussman has been wrong for so long, I wonder why anyone listens to him. Even if what he predicts does end up happening someday, someone would be richer by not having listened to him at all than by having listened to him. Opportunity costs are real.

The problem with perma bears in a world where stock markets are up way more than they are down on average over the long-term is that it leads to something like this:

"This is a fake market, a house of card, it'll crash any day now, look at these charts and metrics, better stay cash and/or short"

*market doubles or triples over many years*

"Any day now the big one will come!"

*Market falls 20%*

"This is the big one! The 50%+ drop, great depression, here we come! I'll just wait a bit more before deploying capital..."

*Market bounces back*

"This is a dead cat bounce, it'll start falling again any day now"

*Market keeps growing for a few more years before another 10% correction*

"The big one is coming any day now! We're still too high on the CAPE, look at the gold ratio, these debt levels... Someday I'll get to invest that cash at great depression levels!"

*years pass*

Meanwhile, someone who started with the same capital and just rode it all out in great companies generating good returns is probably 10x richer than the permabear.


Hussman has a strong belief that valuations matter. Similar to Graham’s nonsense that in the long run the market is a weighing machine.  This underlying faith in investors someday suddenly coming to some sort of quantitative value based assessment of the market they invest in, is constantly being brought up by value investors.  I think Jeremy Grantham correctly surmised that the weighing machine proposition is just a belief in regression to the mean.


Here again (see below) I’d say this common view is wrong, and is basically nonsense. The idea that valuations will only appear in the long run, that a look at the long run somehow a series of presents will change into a useful measure of value to influence investors to  act accordingly is nonsense.this somehow out of an analysis of a series of prices which will average volatility right up to the last or most current point in the analysis . If capital flows always drive valuation in the short term, they therefore drive valuations in the long term. There is no long run weighing machine. Simply put, we can only live in the present and we can never escape the present to live in the mystical long run where suddenly valuations become apparent.

Quote
The Danger on Which Gurus Agree

“Bill Ackman ...wrote in his early 2016 letter :

We believe that it is axiomatic that, while capital flows will drive market values in the short term, valuations will drive market values over the long term. ...”

https://finance.yahoo.com/news/danger-gurus-agree-180442861.html


« Last Edit: December 05, 2017, 09:46:17 AM by KinAlberta »

Foreign Tuffett

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Re: S&P indexing is moronic right now
« Reply #82 on: December 06, 2017, 11:46:16 AM »
Once in a while, anyone should look to see if their theories have any value. Hussman has been wrong for so long, I wonder why anyone listens to him. Even if what he predicts does end up happening someday, someone would be richer by not having listened to him at all than by having listened to him. Opportunity costs are real.

The problem with perma bears in a world where stock markets are up way more than they are down on average over the long-term is that it leads to something like this:

"This is a fake market, a house of card, it'll crash any day now, look at these charts and metrics, better stay cash and/or short"

*market doubles or triples over many years*

"Any day now the big one will come!"

*Market falls 20%*

"This is the big one! The 50%+ drop, great depression, here we come! I'll just wait a bit more before deploying capital..."

*Market bounces back*

"This is a dead cat bounce, it'll start falling again any day now"

*Market keeps growing for a few more years before another 10% correction*

"The big one is coming any day now! We're still too high on the CAPE, look at the gold ratio, these debt levels... Someday I'll get to invest that cash at great depression levels!"

*years pass*

Meanwhile, someone who started with the same capital and just rode it all out in great companies generating good returns is probably 10x richer than the permabear.


Hussman has a strong belief that valuations matter. Similar to Graham’s nonsense that in the long run the market is a weighing machine.  This underlying faith in investors someday suddenly coming to some sort of quantitative value based assessment of the market they invest in, is constantly being brought up by value investors.  I think Jeremy Grantham correctly surmised that the weighing machine proposition is just a belief in regression to the mean.


Here again (see below) I’d say this common view is wrong, and is basically nonsense. The idea that valuations will only appear in the long run, that a look at the long run somehow a series of presents will change into a useful measure of value to influence investors to  act accordingly is nonsense.this somehow out of an analysis of a series of prices which will average volatility right up to the last or most current point in the analysis . If capital flows always drive valuation in the short term, they therefore drive valuations in the long term. There is no long run weighing machine. Simply put, we can only live in the present and we can never escape the present to live in the mystical long run where suddenly valuations become apparent.

Quote
The Danger on Which Gurus Agree

“Bill Ackman ...wrote in his early 2016 letter :

We believe that it is axiomatic that, while capital flows will drive market values in the short term, valuations will drive market values over the long term. ...”

https://finance.yahoo.com/news/danger-gurus-agree-180442861.html



I think I understand what you're saying in a philosophical sense; insofar as the "long term" cannot be anything other than a series of "short terms."

In Ackman's defense though, he may be trying to imply that capital flows can reverse relatively quickly, and that elevated valuations create or at least positively correlate with the conditions that can cause inflows into the capital markets to turn into outflows.

I am personally somewhat bearish on the US stock market, but I look for individual securities (businesses) to purchase and try not to get overly concerned about the overall market's valuation. Right now I think it's tough to find bargains.