"I'm not buying stocks when they are at an all-time high" falacy | TigerDroppings.com

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slackster
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Houston
Member since Mar 2009
6462 posts

"I'm not buying stocks when they are at an all-time high" falacy



When did this become a legitimate argument for sitting out or selling? Frankly, I'm getting sick the concern with the nominal value of the indexes. To be clear, saying that stocks are expensive relative to earnings is a legitimate argument, but the nominal value is absurd. It is like saying Apple is more "expensive" than Citigroup just because you can buy 10 shares of Citigroup for every one share of Apple.

The S&P 500 set all-time highs nearly every year between 1950 and 2000. Sitting on the sidelines would have cost you hundreds of thousands of dollars during that time. Even intelligent investors are using this excuse at the moment.

Jim Rogers discussing all-time high as reason to invest elsewhere

Can anyone explain this thinking?

ETA: The old saying of buy low, sell high is talking about the relative price of items, not the nominal price, so it certainly doesn't fit here.



This post was edited on 3/29 at 5:14 pm



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StrangeBrew
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Salvation Army-Thanks Obama
Member since May 2009
13894 posts

re: "I'm not buying stocks when they are at an all-time high" falacy



quote:

Can anyone explain this thinking?


Here is your guy!

quote:

smilodonfatalis






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Vols&Shaft83
Tennessee Fan
Member since Dec 2012
17685 posts

re: "I'm not buying stocks when they are at an all-time high" falacy


quote:

"I'm not buying stocks when they are at an all-time high"



Hey, people are being cautious, I'm going to be greedy. When they start being greedy, then I'll start being cautious.

It really is, just that simple.






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fatboydave
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Fat boy land
Member since Aug 2004
6854 posts

re: "I'm not buying stocks when they are at an all-time high" falacy


spend the cash...you cant take it with you!!





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I Love Bama
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Alabama
Member since Nov 2007
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re: "I'm not buying stocks when they are at an all-time high" falacy


All time highs don't scare me. All time highs when the economy is in the shitter does





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Doc Fenton
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Member since Feb 2007
51086 posts

re: "I'm not buying stocks when they are at an all-time high" falacy


quote:

Frankly, I'm getting sick the concern with the nominal value of the indexes.


Yeah, it's a little silly.

The penultimate paragraph on Robert Shiller's Online Data webpage gives annual real returns for the S&P 500 going back to 1871, factoring in dividends, and factoring out consumer price inflation.

You can make the case for certain mini-bearish periods for U.S. equities (1819-1829, 1835-1843, 1853-1857, 1867-1877, & 1882-1884) using data even older than Shiller's, like that of Goetzmann ( LINK), but sticking to Shiller, you get the following 4 bearish periods for S&P 500 equity returns:

1906-1920, -25.6% (-1.95% per year), 15 years
1929-1941, -19.4% (-1.64% per year), 13 years
1966-1981, -20.8% (-1.45% per year), 16 years
2000-2012, -3.2% (-0.25% per year), 13 years

But that last period is obviously misleading, since the last 4 years have seen oddly good returns, which seems to indicate that another drop might be in store sometime in the near future--at least if you believe the theory that the modern bearish periods that last ~15 years should be roughly comparable.

2000-2008, -42.9% (-6.04% per year), 9 years
2009-2012, +69.6% (+14.12% per year), 4 years

2000, -8.58%
2001, -14.43%
2002, -22.05%
2003, +25.94%
2004, +2.98%
2005, +5.90%
2006, +11.01%
2007, -5.34%
2008, -35.15%
2009, +29.01%
2010, +14.31%
2011, +0.52%
2012, +14.40%

Another shocking piece of data analysis is just how much rates of return have changed since the beginning of the Great Society programs passed in the mid 1960s:

1871-2012, +6.53% per year, 142 years

1871-1965, +7.43% per year, 95 years

1966-2012, +4.74% per year, 47 years

And it was even worse a few years back before all the extraordinary monetary policy interventions:

1966-2008, +3.91% per year, 43 years

It almost seems as if that historical rate of about 7.4% per year has been effectively cut in half by various policies related to big pension funds and other mandated employee benefits.

According to the Fed's Flow of Funds report issued on March 7, private net wealth in the U.S. has increased to over $66 trillion:

2005, $61.19t
2006, $65.62t
2007, $66.12t
2008, $53.64t
2009, $55.72t
2010, $59.68t
2011, $60.61t
2012, $66.07t

As I've brought up in other threads (such as " Wealth-to-GDP Ratios in the U.S. Since 1945"), that raises the wealth-to-GDP ratio over 4, which makes for a somewhat unstable demographic situation regarding saved wealth--i.e., too many retiree savings plans chasing too few workers.






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NC_Tigah
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Member since Sep 2003
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re: "I'm not buying stocks when they are at an all-time high" falacy


quote:

Another shocking piece of data analysis is just how much rates of return have changed since the beginning of the Great Society programs passed in the mid 1960s:
You think that's cause and effect or simple association. I'd guess it would be a combination, but with attribution of the larger slice to association.


ETA: My visceral feelings about LBJ notwithstanding






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Doc Fenton
LSU Fan
Member since Feb 2007
51086 posts

re: "I'm not buying stocks when they are at an all-time high" falacy


Yeah, it's a combination. I'm not trying to establish a direct causal link with those stats, and there is a lot of cherry picking involved. At the same time, however, it is interesting that a new period just happened to begin right around 1966, with the 1982-2000 period now appearing to look more and more like a temporary aberration rather than something to which we will soon return.

I mention LBJ's programs not as the triggering mechanism in and of themselves, but simply as part of the larger zeitgeist of things that were occurring at the time, including things such as extended adolescence and the sexual revolution, which had almost nothing to do with intentional government designs. Obviously, they affected the types of things government did, but then you get into a chicken & egg type of argument there that I have no idea how to answer.

What I have studied recently over the past year or so is that favorable equity returns just cannot possibly be sustained without healthy population growth. Like I've said in another couple of threads on here, it just becomes a matter of having too much money chasing after the goods and services provided by too few workers. On top of that, such electorates will tend to demand reallocation of already existing resources rather than opportunities for growth. Society will become more closed-off and insular to those on the "outside." That's just the way it goes when electorates get older.

Which is not to say that I'm against zero population growth as a desirable endpoint sometime many decades into the future, but it is to say that I think we're traveling too quickly and abruptly in the direction of actual population decline for the developed world, producing unstable demographic imbalances.






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Doc Fenton
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Member since Feb 2007
51086 posts

re: "I'm not buying stocks when they are at an all-time high" falacy


Also, when it comes to the pension plans and stuff that I mentioned, that was a gradual process that in many respects went all the way back to the wage-control policies put in place during WWII.

ERISA was passed in 1974, I think, but it didn't so much seek to create huge employee funds so much as to attempt to regulate all the vice and corruption that had accumulated in those funds during the mafia-friendly labor union hey day of the 1950s and 1960s.






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Zach
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Member since May 2005
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re: "I'm not buying stocks when they are at an all-time high" falacy


quote:

Can anyone explain this thinking?

Don't know about others but I can explain my thinking.
I would buy additional stocks today even though the market is at an all-time IF we didn't have an anti-business administration.
But as long as Obama is in office I'm holding what I've got and spending the money I would be using to buy more stocks in 3 ways:
a. home improvements that could otherwise wait
b. donations to grand kids college fund account
c. new car in 2014






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Jp1LSU
LSU Fan
Key West
Member since Oct 2005
152 posts

re: "I'm not buying stocks when they are at an all-time high" falacy


Agree, not a valid excuse to keep cash under the mattress.





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