Coronavirus seems way worse than 2008.
& yet prices are way above 2008.dow was around 9k. now it's at 21k.
very few businesses that I would buy at this point.
mayb ppeople think vaccine might be found or warmer weather? but even if everyone went back to work today, seems like stocks still overpriced.
buy long term. dollar cost average. don't time the market. but... this seems like worst business environment I've experienced.
thoughts?
If you buy on emotion...you'll sell on emotion --- i.e. likely sell for a loss later on.
We're seeing a bear market rally and so many are feeling the "oh, I missed the bottom, I need to buy now." I know that based on the low volume in the markets on this up days. Low volume = average joe buyers.
I also get texts from family members and see posts on social about "what stocks to buy right now" from people who've never bought stocks before (or were serious).
Same thing happened with crypto...tech bubble.
Those folks will get slaughtered (again).
Think about it...
We spend all this time analyzing real estate deals. We spend 0 time deciding on what to stock to buy.
But just buying a stock because it "looks" on sale right now is a terrible strategy.
Airlines and cruise stocks for example...we've heard nothing about the numbers they're experiencing. We don't know when people will start flying/cruising again...
Would you buy a house if you didn't know have full info on its value?
Worst...you don't know which companies could go bankrupt from it all or get bought out at a low price.
Why?
Because most companies overleveraged the past 10 years due to low interest rates. (airlines being one) And now the heat is coming.
"Oh, but I plan to hold for the long-term so it's okay if stocks go down again."
Doubt it.
Buy on emotion, you'll sell on emotion. (I write, market and invest in the stock market for my full-time income)
@Kirk R. - Having been in the stock market for several years, I would agree with your approach, as I have felt for the last several years that the stock market is overpriced, and even today, continues to be overpriced, predominantly due to the inflation of unprotected 401k plans, many new investors entering just to make a quick buck, and many companies having done away with "protected" pension plans. In stocks, as with everything else in life, it pays to be diversified, invest for the long term, and not do panic selling (i.e., time the market).
@Kirk R. - Having been in the stock market for several years, I would agree with your approach, as I have felt for the last several years that the stock market is overpriced, and even today, continues to be overpriced, predominantly due to the inflation of unprotected 401k plans, many new investors entering just to make a quick buck, and many companies having done away with "protected" pension plans. In stocks, as with everything else in life, it pays to be diversified, invest for the long term, and not do panic selling (i.e., time the market).
seems like the market is in some ways "rigged" to go up. As proven by the fed. & no easy ways to short the market in retirement accounts. (etfs can short but from my research is expensive).
I look at Google. Most of their income is from advertising. Who is gonna pay for advertising at this point?
Mayb ppeople think the market will recover quickly if the coronavirus goes away? unemployment rate is incredible.
Curious to see if it's just a slow down cycle. I can't imagine a big pop up. seems like overpriced businesses to buy at this point. But I'm most wrong & have bad timing :)
I have avoided the equities since the '87 crash when I was already deep into REI & seller holds. I also enjoyed reading "Where Are the Customers' Yachts?".
Equities have never intrigued me as much as the pain & frugality of 'all in for the ride' rehab & rent real estate. Leverage rather than margin was been a more manageable exit, BUT once you hit free & clear it's a great relief & allowed for an early retirement. Our tax deferral strategy was 401(k)-solo's all invested in REI & that lack of diversification HAD produced some heat from financial guys, family & business partner. But not lately!!!.
@Pat L. - agreed with everything you said. Unfortunately, there haven't been too many good deals over the past few years, and I doubt that this will change anytime soon. All of the financial gurus are saying that this will be a short-lived event, and with the government stepping in to provide massive relief to homeowners and renters, there isn't going to be that much opportunity any time soon. Thoughts?
I won’t say it’s rigged. The level of sophistication in equities is very high, many more variables at play and plenty of smart highly educated brains are chasing that asset class vis a vis Real estate.
I see it two ways. I don't think my long term investment picture changes which is all done via 401k, IRA instruments. I was not touching that portfolio on its way up and not touching it on its way down. All my investments are in world class companies who have lots of cash on the balance sheet and long reach records of existence and execution. Several of those I have worked at or worked with in the past to understand them inside and out. I would invest in them otherwise. Definitely not because they are "hot" or because a friend of a friend or Jim Cramer or CNBC thinks they are a good investment.
I also have a short term “play” portfolio. There I have been hedging since early part of the year with a sizable short on the SPY. I have covered on it since but now gone back in with a smaller short position because I feel the market has not priced in a fear based capitulation. I feel that’s coming but who knows. I am not building any long positions for now.
@Pat L. - agreed with everything you said. Unfortunately, there haven't been too many good deals over the past few years, and I doubt that this will change anytime soon. All of the financial gurus are saying that this will be a short-lived event, and with the government stepping in to provide massive relief to homeowners and renters, there isn't going to be that much opportunity any time soon. Thoughts?
We've found a quite a few & are still investing heavily. A recent one was a 3-unit the old landlord approached us about. We went back & forth for 6 months & then he put on a new roof with all new sheeting & gave us back our EM, so we figured it was a dead issue. But a month later he just bumped his asking price to $46k from $42k??? So we grabbed it as 3-units were averaging $80-$110k rehabbed. But we now hold it contract-fo-deed for a lot more @ 15% & the client is rehabbing it as the units become vacant.
We concentrate on that lower median price range so that it's easier to flip & hold the financing while mkt rents still give them enough of a $$$/door incentive. We do not rehab, rent or manage, but leave that to the 'client'. It's worked well for us for 25+ years & we still see a lot of demand for these 'unfashionable' properties & I believe it will continue.
Fair question... what is different from 2008 though is that it is 12 years later. We have 1.2 BILLION MORE people on earth today. Remember, the stock market is a reflection of the good and services that publicly traded companies provide. Today, MUCH more good and services are need compared to 2008. With that being said, there is no guarantee to stock market will go up tomorrow or next week or next month... BUT, it WILL go up over the long term just as it always has and always will. The average P/E of the stock market historically is about where it is RIGHT NOW ( around 16) so I would say things are not heavily overvalued or undervalued right now. When buying stocks, you should always target companies you want to own long term. If you desire to sell after you've made a profit in the short or mid term, that is fine. But worst case you have a company you will hold long term.
@Kirk R. As stated, its rigged now. It wasn't before but it is now. The Fed is using a 3rd party to buy stocks, keeping the prices artificially high in order to fake it so the crash doesn't seem as bad as it really is. With that said, it took 19 months until we hit bottom when the housing bubble popped, we're 1 months in. The government has only passed enough stimulus to rig part of the system for 2 months, there will be another dip in 5 weeks, them another stimulus package worth another 2 or 3 Trillion, it will go up again and slowly come down. They will hold another stimulus package out like a carrot until elections and maybe pass it after elections, who the package actually helps will depend on who wins and loses on election day. We are far from the bottom coming though so give it time
@Kirk R. - agree with this. At least for amounts that wouldn’t crush you if you lost.
Fair question... what is different from 2008 though is that it is 12 years later. We have 1.2 BILLION MORE people on earth today. Remember, the stock market is a reflection of the good and services that publicly traded companies provide. Today, MUCH more good and services are need compared to 2008. With that being said, there is no guarantee to stock market will go up tomorrow or next week or next month... BUT, it WILL go up over the long term just as it always has and always will. The average P/E of the stock market historically is about where it is RIGHT NOW ( around 16) so I would say things are not heavily overvalued or undervalued right now. When buying stocks, you should always target companies you want to own long term. If you desire to sell after you've made a profit in the short or mid term, that is fine. But worst case you have a company you will hold long term.
RIGHT NOW pe 16. but this doesn't reflect the garbage quarter(s) yet to be reported? so PEs should go way up. granted some businesses profiting right now.
1.2 billion more people (didn't know that :). but wouldn't 1.2 billion more people be creating businesses? ie #of businesses isn't static. maybe goood/great businesses get much larger share like Amazon/Google.
@Kirk R. As stated, its rigged now. It wasn't before but it is now. The Fed is using a 3rd party to buy stocks, keeping the prices artificially high in order to fake it so the crash doesn't seem as bad as it really is. With that said, it took 19 months until we hit bottom when the housing bubble popped, we're 1 months in. The government has only passed enough stimulus to rig part of the system for 2 months, there will be another dip in 5 weeks, them another stimulus package worth another 2 or 3 Trillion, it will go up again and slowly come down. They will hold another stimulus package out like a carrot until elections and maybe pass it after elections, who the package actually helps will depend on who wins and loses on election day. We are far from the bottom coming though so give it time
didn't realize fed was buying stocks. knew they were messing around though. seems like it should bleed down to lower than 2008. But Fed may just keep hitting enter on it's excel spreadsheet that can print an infinite amount of money.
At some point gonna have to pay the piper IMO. Hyper inflation maybe or US consumers can't buy anything overseas. Then I guess they'd want our goods maybe. Increasing the money supply can't see how it wouldn't have a bad consequence at dome point?
@Kirk R. Prices today are post QE. In my opinion, stocks are probably priced about the same as 2008, but the reduced value of the dollar from $4 trillion or so of QE makes the stock market seem inflated compared to 2008, although today’s prices are the “new norm”.
RE prices should be higher than 2008 comps too for the same reason, but due to barriers to entry as lending returned to normal in 2009-present (no more “undocumented loans”) RE prices aren’t as run up as the stock market. I’m hoarding as much cash as I can, but that’s my 2 cents. Good luck to you, and us all in these unprecedented times.
@Kirk R. Prices today are post QE. In my opinion, stocks are probably priced about the same as 2008, but the reduced value of the dollar from $4 trillion or so of QE makes the stock market seem inflated compared to 2008, although today’s prices are the “new norm”.
RE prices should be higher than 2008 comps too for the same reason, but due to barriers to entry as lending returned to normal in 2009-present (no more “undocumented loans”) RE prices aren’t as run up as the stock market. I’m hoarding as much cash as I can, but that’s my 2 cents. Good luck to you, and us all in these unprecedented times.
why/for what are you hoarding cash? I'm about 90% cash but all in 401ks/IRAs.
Stock prices continue to go up as inflation goes up. More money in circulation. Access to cheap money, etc.
That's what we've had for the past 10 years, which is why the Fed rate is always talked about so much...and it also contributes to the bigger and bigger gap between the rich and poor.
The gap = the rich can leverage inflation to make money on top of money, while the poor have no idea how to do it.
For stocks to ever reach 2009 levels, you'd need two things:
1) The most massive selloff ever seen by both big money and individuals
2) Massive deflation
Massive deflation could happen for a short period as long as consumers aren't spending...but with the strength of the dollar still as the reserve currency, it likely won't happen.
****
Over the long-term, the stock market measures the profits and value of the underlying companies.
In the short-term, it measures human psychology and emotion.
Ergo...
At some point in the next 12 months, human emotions will likely take over again and cause another drop in the market...
But in the long-term, it'll recover and go to 30,000 DOW and beyond.
In general, dollar cost averaging into a broad low-cost index fund or ETF is the best strategy for just about any retail investor. You're not going to be able to time the market and dollar cost averaging automatically enforces a key temperament: that of discipline. If you're buying index funds anyway, then just continue dollar cost averaging.
If you are an entrepreneurial investor, and can dedicate the amount of time required to research a company (reading 10-Ks, 10-Qs, understand the company's competitive position, understanding the firms moats), then there might be more deals now than 3 months ago.
That said, the market is still relatively expensive - the Shiller PE (AKA the "cyclically adjusted price-to-earnings/CAPE") ratio is around 24.5 and and the vanilla PE is about 19.5. Compare those numbers to a historical median of 15.8 (Shiller) /14.8 (vanilla). Critically, it's not as if investors freaked out about nothing: businesses really have closed their doors. I would be unlikely to invest in an airline or cruise line right now; they're effectively lottery tickets since there's a good chance they go bankrupt, take on debt, dilute the heck out of me, etc. However, if some company's price got crushed because investors got emotional while the prospects for the company look great, that could be an opportunity. Be cautious there too though, since prices were largely so high pre-crisis that the decline might still not put the stock price below intrinsic value.
@Kirk R.. Well....I don't know. The DOW is currently up 1,000 today. Not a clue why. I'm just sticking to my guns. Dollar cost averaging every 2 weeks via maxing out my 401k. Monthly contributions into Vanguard VTSAX (about 3,600 stocks in that fund). I wouldn't take a gamble on any single stock right now. But then again, I don't study the market or study individual companies either. I'm down about 25% this year, after making 30% last year. Like 2008, I am going to ride the down, and then hopefully enjoy the up over the next several years.
There have been six 10-year periods since 1900 when equity returns were negative or low (below 3%). Three of those 10 year periods were negative. The most recent era of low returns was 2002-2011 where the average return was 2.9% for the period. My conclusion is that timing and stock selection is important.
Good discussion. Also remember, the real movers in the market are managers of 10's and 100's of millions of dollars, not someone like me who has "play" money who will buy 5 of 10 shares of Amazon.
And the Stock market can be heavily driven by emotions. Real estate deals with purchases that take 30-40 days, instead of 2 seconds on the computer w/ stocks.
All that being said... I still like buying shares of Carnival cruise line at $8 or 9 / share, when they were at $60 !!! about a month ago.
Either they completely got out of business (possible..) or they will be back and raring to go in 1 year or so. Ppl love those freaking buffets!
Anthony, dollar cost averaging into your 401k is one of the better ways to unemotionally buy into the market over time. Timing the market is a dangerous game, but it is tough to argue the "discount" on many stocks and funds right now compared to just a few short months ago so there is value to be had like you said, James.
The caution I would advise with their 401k is one that ties in a comment made earlier in this thread regarding "paying the piper" at some point and the debt our country is taking on. Historically, we have by far the highest debt we've ever had and we also have the lowest marginal tax brackets RIGHT NOW over almost any other time in history (google: historical marginal tax brackets). If we had to guess (based on those two facts): are tax rates going to be higher or lower 10, 20, 30 years from now; what would you say?
So that begs the question: why would we choose to put money into a place that will be taxed later at an unknown rate (401k)? I'm all for getting a match (free money), but I'm not for maxing out a vehicle that will get hammered with taxes on the way out. $1 in a 401k is not worth $1 to you- it's worth $0.70 or maybe $0.60 or maybe $0.50 when you retire and go to pull the money out...
That'd be like putting all of your purchases over the next 25 years on a credit card and in 25 years the credit company (or worse, the government) gets to tell you what % you are paying on it all.
Anthony, dollar cost averaging into your 401k is one of the better ways to unemotionally buy into the market over time. Timing the market is a dangerous game, but it is tough to argue the "discount" on many stocks and funds right now compared to just a few short months ago so there is value to be had like you said, James.
The caution I would advise with their 401k is one that ties in a comment made earlier in this thread regarding "paying the piper" at some point and the debt our country is taking on. Historically, we have by far the highest debt we've ever had and we also have the lowest marginal tax brackets RIGHT NOW over almost any other time in history (google: historical marginal tax brackets). If we had to guess (based on those two facts): are tax rates going to be higher or lower 10, 20, 30 years from now; what would you say?
So that begs the question: why would we choose to put money into a place that will be taxed later at an unknown rate (401k)? I'm all for getting a match (free money), but I'm not for maxing out a vehicle that will get hammered with taxes on the way out. $1 in a 401k is not worth $1 to you- it's worth $0.70 or maybe $0.60 or maybe $0.50 when you retire and go to pull the money out...
That'd be like putting all of your purchases over the next 25 years on a credit card and in 25 years the credit company (or worse, the government) gets to tell you what % you are paying on it all.
wow! good post Randall.
@Kirk R. As stated, its rigged now. It wasn't before but it is now. The Fed is using a 3rd party to buy stocks, keeping the prices artificially high in order to fake it so the crash doesn't seem as bad as it really is. With that said, it took 19 months until we hit bottom when the housing bubble popped, we're 1 months in. The government has only passed enough stimulus to rig part of the system for 2 months, there will be another dip in 5 weeks, them another stimulus package worth another 2 or 3 Trillion, it will go up again and slowly come down. They will hold another stimulus package out like a carrot until elections and maybe pass it after elections, who the package actually helps will depend on who wins and loses on election day. We are far from the bottom coming though so give it time
didn't realize fed was buying stocks. knew they were messing around though. seems like it should bleed down to lower than 2008. But Fed may just keep hitting enter on it's excel spreadsheet that can print an infinite amount of money.
At some point gonna have to pay the piper IMO. Hyper inflation maybe or US consumers can't buy anything overseas. Then I guess they'd want our goods maybe. Increasing the money supply can't see how it wouldn't have a bad consequence at dome point?
All of the "temporary" QE that was done in 08+ was barely ever let expire. For the most part they just kept rolling the treasuries they were buying when they matured. The fed has now gone way past the peak of the 08 QE and in the last two weeks alone that they have reported on have purchased over $1T in various "assets" that are very much worthless in a lot of cases (mortgage backed, car loan backed, corporate debt on companies that will default, etc). We're all going to be left holding the bag when this is done to the tune of many many trillions of worthless dollars. The only way the government doesn't default is to create massive inflation. IMO it will get very much out of control and hit hyper inflation territory in short order. Their 2% "target" was already a "2% averaged target" and we were above 3% even by the BS government standards before this even happened. They are also claiming there is a "cash shortage" and they need to print dollars to "create balance in the system". They printed over $1T in cash so far since this started. I am going to preface this by saying I am not a monetary expert and this should not be taken as advice. There is a higher possibility that inflation gets away from them than they can control it, for this reason I am going to be using as much leverage as I can while keeping my real money in appreciating assets (real appreciation, not by dollar standards) so that if inflation does balloon up, the debt is partially wiped out with inflation and when I convert my real assets back to dollars I will be getting a better ration and spending less real money to pay off the debt. Worst case my real asset to dollar ration doesn't move and when I cash it in as payments are due I am getting the same ratio.
@Kirk R. the dollar value of 401(k) and Roth IRAs fluctuates daily. In most cases the last few years, lenders view 401(k) loans and Roth’s as your reserves, and count them as cash equivalents for your debt to income ratio. My personal view is that equities haven’t completed their fall, and just like 2008, it will take about 12 months or so to reach the “bottom” of the Corona virus market. I have used these instruments as cash equivalents in the past, but no longer wish to due so as volatility has returned.
I also don’t want to put money into the stock market, which I feel is still headed down, knowing I need cash to make it through the next few months, and want cash to continue growing my RE portfolio once Corona virus is behind us.
Good luck to you and the rest of BP
@Kirk R. You should really re read your whole OP and ask yourself if you could be missing anything obvious here?
Like in 2008-2019 did he companies do anything? Anything at all? Like grow their customer base? Scale their operations? I mean, why are they suppose to go to 2008 prices....
This is like reading, hey Mother’s Day is coming up next week, buy hallmark