Inflation and Idiots
122 RepliesJump to last post
Morean, Obviously GE was over valued. As was most of the market. But a 2/3 drop? And then there is this: it is only with the 20-20 benefit of hindsight that WS recognizes its valuation miscue. Where does that leave us today?
I didn't buy GE until it was actually undervalued. Not in the late nineties. So if you bought undervalued back then, you would be fine today. Just because everyone SAYS that something is quality, doesn't mean it is.
[quote=iceco1d][quote=Gaddock][quote=Ron 14]
I do believe the decades of 15% annual returns are gone. 8% annual returns over 10 year periods in stocks is still very much achievable and I believe has to be part of an effective retirement portfolio. If bonds are in the 4% range and with an obvious risk premium to stocks, 8% is a mathematical probability. 20 years ago you could only make money is US markets, now it is global. JUMP ON !!!
[/quote] How so? I'm quadrupling that now. I guess it's all how you play the game.[/quote] Gad, I'm curious to know something (and this is a serious question)... Do you expect the returns you've gotten over the past 18 months or so to continue once the market returns to "normal?" Market neutral or not, I don't think a regular trading environment really plays into your hand. Obviously, don't reveal anything proprietary, OR anything that would compromise your identity for the sake of answering this question.[/quote] Just like knowing where the market is going, like many of the talking heads on TV think they do, I have zero clue where it will go. Same thing with my trading I can't foresee the future. I can say this; it brings in an additional stream of revenue few use. If I keep my probabilities at 85% or better the larger the sample the more relevant the percentile becomes. That being said and again having that extra stream I should still be able to bring additional alpha to the table that others are not. The beta I'm kicking out at the moment is .37. As far as risk is concerned I consider this strategy to be significantly lower than others that are having like returns. I do admit I have used the volatility to my benefit and will be sorry to see it go.[quote=Gaddock][quote=iceco1d][quote=Gaddock][quote=Ron 14]
I do believe the decades of 15% annual returns are gone. 8% annual returns over 10 year periods in stocks is still very much achievable and I believe has to be part of an effective retirement portfolio. If bonds are in the 4% range and with an obvious risk premium to stocks, 8% is a mathematical probability. 20 years ago you could only make money is US markets, now it is global. JUMP ON !!!
[/quote] How so? I'm quadrupling that now. I guess it's all how you play the game.[/quote] Gad, I'm curious to know something (and this is a serious question)... Do you expect the returns you've gotten over the past 18 months or so to continue once the market returns to "normal?" Market neutral or not, I don't think a regular trading environment really plays into your hand. Obviously, don't reveal anything proprietary, OR anything that would compromise your identity for the sake of answering this question.[/quote] Just like knowing where the market is going, like many of the talking heads on TV think they do, I have zero clue where it will go. Same thing with my trading I can't foresee the future. I can say this; it brings in an additional stream of revenue few use. If I keep my probabilities at 85% or better the larger the sample the more relevant the percentile becomes. That being said and again having that extra stream I should still be able to bring additional alpha to the table that others are not. The beta I'm kicking out at the moment is .37. As far as risk is concerned I consider this strategy to be significantly lower than others that are having like returns. I do admit I have used the volatility to my benefit and will be sorry to see it go.[/quote] Gaddock, you know I am referring to the returns of the overall equity market during the 80's and 90's. You and I have discussed this at length. What you are doing is much different than 99% of advisors out there. Im referring to simple asset allocation, rebalancing, etc.[quote=Ron 14][quote=Gaddock][quote=iceco1d][quote=Gaddock][quote=Ron 14]
I do believe the decades of 15% annual returns are gone. 8% annual returns over 10 year periods in stocks is still very much achievable and I believe has to be part of an effective retirement portfolio. If bonds are in the 4% range and with an obvious risk premium to stocks, 8% is a mathematical probability. 20 years ago you could only make money is US markets, now it is global. JUMP ON !!!
[/quote] How so? I'm quadrupling that now. I guess it's all how you play the game.[/quote] Gad, I'm curious to know something (and this is a serious question)... Do you expect the returns you've gotten over the past 18 months or so to continue once the market returns to "normal?" Market neutral or not, I don't think a regular trading environment really plays into your hand. Obviously, don't reveal anything proprietary, OR anything that would compromise your identity for the sake of answering this question.[/quote] Just like knowing where the market is going, like many of the talking heads on TV think they do, I have zero clue where it will go. Same thing with my trading I can't foresee the future. I can say this; it brings in an additional stream of revenue few use. If I keep my probabilities at 85% or better the larger the sample the more relevant the percentile becomes. That being said and again having that extra stream I should still be able to bring additional alpha to the table that others are not. The beta I'm kicking out at the moment is .37. As far as risk is concerned I consider this strategy to be significantly lower than others that are having like returns. I do admit I have used the volatility to my benefit and will be sorry to see it go.[/quote] Gaddock, you know I am referring to the returns of the overall equity market during the 80's and 90's. You and I have discussed this at length. What you are doing is much different than 99% of advisors out there. Im referring to simple asset allocation, rebalancing, etc. [/quote] I guess, if that's true it's sad. I think we should consider how to add alpha to our clients accounts and reduce their fees at the same time. Here come the referrals.What is sad about it for you ? You are exactly where a business wants to be. You are offering a unique service, at a low cost, that nobody else is offering.
Why are you sure that GE is under valued today? GE is one market shake up from being 10 or lower. And if we have to be so careful as to nitpik whether or not a company of GE's size and stature is "Quality", what does that say for the rest of the U.S. equity markets. But i digress, GE isn't the point. Using the stock market as an inflation hedge is the point. With the S&P 500 still about 25% lower than where it started the decade stock's days as an inflation hedge that a retiree could count on are done. Most who did count on them are in the hole. The average mattress has outperformed stocks over the past ten years and retirees would have been better off investing with Sealy than with financial advisors selling stocks as an inflation hedge. And, that advisors charged a yearly fee for that advice is classic sheep getting shorn. A year ago the fear ruled this board. Now everyone is a genius again. Not unlike the crash of 87. When the market crashed, fear ruled. Everyone had been burned and no one liked how it felt. A year after the crash you'd be hard pressed to find anyone who'd lost money. They all saw it coming and got out.[quote=BondGuy] Morean, Obviously GE was over valued. As was most of the market. But a 2/3 drop? And then there is this: it is only with the 20-20 benefit of hindsight that WS recognizes its valuation miscue. Where does that leave us today? [/quote]
I didn’t buy GE until it was actually undervalued. Not in the late nineties. So if you bought undervalued back then, you would be fine today. Just because everyone SAYS that something is quality, doesn’t mean it is.
BondGuy - I was never one ruled by fear. Static buy and hold policies will get you nowhere as an inflation hedge. Accurately pricing securities will. As for GE being “quality” - that was certainly not my opinion. My personal opinion is that GE is currently close to being overvalued - when that occurs, we will sell all of our positions in GE.
I’ve postulated this before. Most analysts are have a condition known as “anchoring” and have a difficult time accurately pricing equities. They are anchored to these higher prices and thus their calculations are off.
As for the “average mattress”. I completely agree. I believe my job is to not be “average” for people. Others will say that that is crap. But just my personal opinion. I’m always looking for ways to add value to my company’s clients.
BTW - “Investing with Sealy” is hilarious!
Just so you know, I am disagreeing respectfully. I appreciate your posts and have gotten a lot out of them. Most of mine are inane and useless. Your contributions are appreciated by a lot of people, including me.
Bondguy - I am no genius and I did not see this coming, nor did I get anybody out. I follow the classic asset allocation, rebalancing, boring philosophies that nobody, advisors included, believe in anymore. In 10 years of a flat market a balanced strategy is right at a 5% annual return. In a 10yr period that included two absolute disasters that isnt bad at all. It sure as hell isn’t going to scare me away from equities.
A year ago the fear ruled this board. Now everyone is a genius again. Not unlike the crash of 87. When the market crashed, fear ruled. Everyone had been burned and no one liked how it felt. A year after the crash you’d be hard pressed to find anyone who’d lost money. They all saw it coming and got out.
The increased volatility (and I think trading range of US equities) is going to force advisors to become more dynamic. It will be detrimental since many of them will start to actively manage, or trade, and that will be disastrous. Learning to trade with client's capital is not good.
It takes years, and some experienced hedge fund guys still manage to blow-up. That is why many refuse to have watermarks on their performance.
5% return on a re-balanced portfolio is too low considering the volatility of this last year. If you have 50% swings on non-margined accounts, that should warrant a much higher return at year-end. Take a look at the John Henry Systematic Funds - he regularly takes those type of swings with leveraged accounts, but with returns in the mid 20's over the last few decades.
Everytime something unusual happens in the market the cry is “this time is different.” It isn’t even a market thing, it is a cultural thing. People want results, now. They don’t want to be patient, they don’t want to put effort in, they just want easy money, easy returns, easy weight loss. You can take your ab roller and your jenny craig and it may or may not work, daily exercise and a balanced diet will and always has. You can take your hedge funds and your Jim Cramers and all that crap, it may work and it may not. Taking ownership stake in quality companies while sticking to diversification, asset allocation, and rebalancing always has.
Ron, I have to agree with you here. Look at where we have come from when the Dow was at 6700. Of course you have the self proclaimed experts who warn of a huge selloff instead of being optimistic. I'm not saying that it's not going to happen but because of these "warnings", how many people are sitting on the sidelines? The world was going to end after 9/11, according to the media and that time it was "different" as well. Emotions obviously have an effect on what is going on as well. Markets go up, markets go down but over the long haul, they go up a lot more than they go down. I, for one, will continue to pick up some good stocks at these discounted prices. When you have Bank of America, that was trading at $3/share and now is trading at $17, that's a bad thing? People slammed Mitt Romney during the elections when he said it's a buying opportunity. He was right.Everytime something unusual happens in the market the cry is “this time is different.” It isn’t even a market thing, it is a cultural thing. People want results, now. They don’t want to be patient, they don’t want to put effort in, they just want easy money, easy returns, easy weight loss. You can take your ab roller and your jenny craig and it may or may not work, daily exercise and a balanced diet will and always has. You can take your hedge funds and your Jim Cramers and all that crap, it may work and it may not. Taking ownership stake in quality companies while sticking to diversification, asset allocation, and rebalancing always has.
Morean- How do you define quality?
BTW- I'm not saying don't buy stocks. I'm saying don't sell them as an inflation hedge. And even for you genius market timers/position builders out there- there is no way as an investor that i would trust your ability to protect me from harm. No one is that good![quote=BondGuy] Morean- How do you define quality?
BTW- I’m not saying don’t buy stocks. I’m saying don’t sell them as an inflation hedge.
And even for you genius market timers/position builders out there- there is no way as an investor that i would trust your ability to protect me from harm. No one is that good!
[/quote]
BondGuy - I believe in varying levels of quality companies. I was mocking the “flight to quality”. In my opinion, there aren’t really any quality companies, because they can very quickly become “crap”. You do the best you can based on what you think is true value given a thorough analysis. And not value as most analysts see it.
I believe in quality indexes. Stocks are not an inflation hedge per se, inflation is not good for stocks. But if you look at all of the professionals trying to beat indexes, and you look at some mixture of stocks and bonds over time (60-40/40-60), I think you can still provide a lot of value to the average Joe.
Mainly through the accumulation of yield and dividends, obviously, stocks have been flat for over decade, and bonds have outperformend over longer time frames now. BUT, what about going forward? With the U.S. printing and borrowing money, interest rates are going to have to rise to attract foreign capital. The dollar is increasingly funny money. In that sense, going beyond the historical time frame of ten or more years, but without dumbly relying on the "stocks have outperformed over long periods of time" mantra, I think you can still say, " We own good quality dividend producing stocks to help hedge inflation". Along with your home, your business, and any other "real" assets. As for bonds, obviously, as we need to tighten duration and quality, they are less attractive. And in my view, short term bond indexes are more attractive over trading individual issues. Not saying my way or the highway, just saying, Americans are a little bond (fund) crazy right now, with respect to stocks and cash. http://www.milyunair.com/I don't. I don't have the time or knowledge or research power to be out kicking the tires of enough companies to give any type of individual stock recommendations and this is exactly what I tell my clients. That is why I hire asset managers to do it for me.Define a “quality company” Ron.
[quote=Moraen]Define a “quality company” Ron.
I don’t. I don’t have the time or knowledge or research power to be out kicking the tires of enough companies to give any type of individual stock recommendations and this is exactly what I tell my clients. That is why I hire asset managers to do it for me. [/quote]
How do you know that the asset managers are buying “quality” companies?
[quote=Moraen] [quote=Ron 14] [quote=Moraen]Define a “quality company” Ron.[/quote]
I don't. I don't have the time or knowledge or research power to be out kicking the tires of enough companies to give any type of individual stock recommendations and this is exactly what I tell my clients. That is why I hire asset managers to do it for me. [/quote]
How do you know that the asset managers are buying "quality" companies?[/quote] We hire guys like you Moraen.
[quote=Moraen] [quote=Ron 14] [quote=Moraen]Define a “quality company” Ron.
I don’t. I don’t have the time or knowledge or research power to be out kicking the tires of enough companies to give any type of individual stock recommendations and this is exactly what I tell my clients. That is why I hire asset managers to do it for me. [/quote] How do you know that the asset managers are buying “quality” companies?[/quote]
We hire guys like you Moraen. [/quote]
Yes. Ron - let me take a look at your clients’ portfolios. I’ll get them set up.
You too Army.
According to any equity American Fund MSFT is about the only quality company on the planet.