Author Topic: What do folks think or do while markets are at highs?  (Read 9192 times)

zippy1

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Re: What do folks think or do while markets are at highs?
« Reply #10 on: February 26, 2018, 01:25:15 PM »
I don't know whether this is the right time to push this thread up.

But with long bond yield moves recently, I wonder whether we should discuss what we can do to protect ourselves?


rb

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Re: What do folks think or do while markets are at highs?
« Reply #11 on: February 26, 2018, 03:28:48 PM »
Well I think it's better to do nothing when rates are going up. Now you at least get something on your cash.

LC

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Re: What do folks think or do while markets are at highs?
« Reply #12 on: February 26, 2018, 03:34:42 PM »
Bought a house and am knee deep in renovations.
"Lethargy bordering on sloth remains the cornerstone of our investment style."
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brk.b | cash

valuedontlie

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Re: What do folks think or do while markets are at highs?
« Reply #13 on: February 26, 2018, 03:57:58 PM »
Working to improve private businesses as I find less (or stretched) actionable public investments...

Viking

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Re: What do folks think or do while markets are at highs?
« Reply #14 on: February 26, 2018, 05:01:29 PM »
While I try not to be a macro guy, my spidey senses are tingling right now.
1.) QE juiced financial assets when it was implemented by central governments; it makes senses to me that unwinding QE will not be good for financial assets.
2.) It appears that the 30 year bond bull market is over; constantly falling interest rates was very good for financial assets for the past 3 decades. If interest rates indeed rise by 0.75-1% this year and another 0.75-1% next year then this will at some point start to act as a drag on financial assets.

As a result, in the short term, I have gotten much more cautious with my portfolio. I have locked in some stellar gains from the past 16 months and now sit at 33% cash and 67% equities. If I find well managed companies at what I feel is an attractive valuation I will buy; as an example I bought a little BRK 2 weeks ago (wish I had bought more). I also recently bought some FFH.

And I am going to keep reading and learning about QE and interest rates. I am watching bond yields. If they continue higher I expect we will get another sell off in stocks. I will be ready with my cash.

If stocks continue higher and bond yields begin another leg higher I will likely sell more stocks (lock in more gains) and happily sit on more cash and wait for the next big sell off. I also think volatility is back so I am pretty confident patience and cash will be rewarded with bargain prices at some point later this year. If I am wrong and stocks go to the moon I am ok with that too.

If you are sitting on cash, now is a great time to get your list of stocks ready that you want to buy when the next sell off happens. Sell offs tend to be violent and it can be hard to think clearly when everyone is losing their mind. The more you canít think out and prepare for in advance the better.
« Last Edit: February 26, 2018, 05:06:27 PM by Viking »

rb

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Re: What do folks think or do while markets are at highs?
« Reply #15 on: February 26, 2018, 05:05:47 PM »
Very well reasoned Viking. I'll probably do the same. I'm less eager to sell because of tax issues but after a certain level it's hard to ignore prices/valuations.

nickenumbers

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Re: What do folks think or do while markets are at highs?
« Reply #16 on: February 26, 2018, 05:14:11 PM »
I agree that Forward PEs, revenue growth rates, and GDP growth is important.  And put that all relative to itself on a graph over time to give it comparison, context and background.

Market corrections and panics will happen, and that is something to be prepared for.

With that said, I try to remember that being in record territory is actually normal.  Whenever a graph moves upward to the right over time, it continues to break previous records.  It makes mathematical sense.  Ignore the dollar sign, and just think of the math of it.  The fact that we broke another stock record is somewhat irrelevant in a growing economy with a little inflation.

What is more relevant is if the current price has outpaced the underlying value, and forward growth rates.

Don't be afraid of record breaking.  If we are all committed to compounding over time, we will continue to move upward and to the right.
The fastest Cheetah still waits for the lame baby antelope.  ..patience..

Viking

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Re: What do folks think or do while markets are at highs?
« Reply #17 on: February 26, 2018, 05:15:15 PM »
rb, as I have said before, all of my investments are in tax protected accounts (RRSP, TFSA, LIRA, RESP) and this greatly simplifies my decisionmaking process. They are also in self directed accounts so  I only pay $10 per trade (so my transaction costs are essentially zero as I do not make a lot of trades) - my trading fees each year run about 0.1 of 1%. Peter Lynch is certainly correct when he says small investors have so many advantages over the big funds.

I really do believe that QE and rising bond yields COULD be a game changer for equity markets. So until I better understand this dynamic I am going to get cautious (part of my capital preservation thesis).
« Last Edit: February 26, 2018, 05:18:33 PM by Viking »

Viking

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Re: What do folks think or do while markets are at highs?
« Reply #18 on: February 26, 2018, 05:25:34 PM »
nickenumbers, I have not been overly concerned about stocks hitting all time highs for a few years. Buffett has consistently said with US 10 year bonds at 2% yields stocks were cheap at elevated PEís. The US 10 year is now approaching 3%; my guess is if it moves towards 3.5% we will get a big sell off in stocks. I have no idea what WILL happen. I do think their is a decent chance (20-30%) we could see the US 10 Year at 3.5% in the next year.

EdWatchesBoxing

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Re: What do folks think or do while markets are at highs?
« Reply #19 on: February 26, 2018, 07:51:14 PM »
Like Viking has mentioned, I am watching US treasuries. I imagine at some point the rate increases will likely point to a drop in stocks, and I'll be busy then.

Over the past year and a half, I have been studying volatility/VIX and options. I have been reverse engineering Feb 5 (XIV/SVXY drop) and look forward to seeing that type of event return.