Have We Hit The Top?

[Gregmal]

4 minutes ago, Dinar said:

You are kidding, right?  30 year treasury issued in 2020-2021 is trading at less than 50 cents on the dollar.

Yea but if you timed the market or were savvy enough to identify the period of a clear bubble that people had been calling all decade, you avoided it. And made $750 investing in ibonds 

[james22]

2 hours ago, TwoCitiesCapital said:

I just don't buy that equities aren't riskier.

 

Buy-and-hold the S&P500 for over ten years and there's little risk.

 

 

The lowest annual return over any 30 year period going back to 1926 was 7.8%. That’s what you got had you invested at the peak of the Roaring 20s boom in September 1929. You would have lost more than 80% of your investment in the ensuing crash and still made more than 850% in total over 30 years.

 

https://awealthofcommonsense.com/2023/02/deconstructing-10-20-30-year-stock-market-returns/

[Luca]

28 minutes ago, james22 said:

Buy-and-hold the S&P500 for over ten years and there's little risk.

Totally matters on prices paid. If you look at the yearly PE ratio and compare that with the following 10 year return, 26x earnings will always look ugly compared to 15x earnings entry price. Now couple that with less great tailwinds, inflation, high debt, high political turmoil, geopolitical tensions and id not be a happy buyer of the index as of today. But i also dont need to buy the index because i am still able to find good businesses that will generate good returns. 

 

Would i recommend family and friends to put a lot of money into the index today? Probably not.

[TwoCitiesCapital]

56 minutes ago, james22 said:

 

Buy-and-hold the S&P500 for over ten years and there's little risk.

 

 

The lowest annual return over any 30 year period going back to 1926 was 7.8%. That’s what you got had you invested at the peak of the Roaring 20s boom in September 1929. You would have lost more than 80% of your investment in the ensuing crash and still made more than 850% in total over 30 years.

 

https://awealthofcommonsense.com/2023/02/deconstructing-10-20-30-year-stock-market-returns/

 

I gave you 20-30 years. That's why I said you need a 20-30 year horizon to believe stocks are of little risk. But most people don't have 20-years to wait for their funds to recover to retire OR to lower their spending for 20-years in retirement waiting for an eventual recovery. I personally don't want to 20-years to do "alright" when I could've just avoided buying what was stupidly  expensive to begin with. 

 

10-years has proven it's not enough in multiple instances. Great Depression? Significantly negative annualized returns over 10-15 years. Even more negative after consider inflation over that time.

 

Late 60s through most of the 70s? Nominal equity returns were single-digit positive but were still massively negative after inflation. Also, as I've mentioned ad nauseum, short and intermediate term bonds outperformed equities for much of this this period. 

 

Late 90s through mid 2000s? 10-year returns also sucked and look significantly worse after inflation. 

 

10-years isn't enough. 20-30 is what you need to say equity risk is reduced and to confidently outperform a static allocation to fixed income. 

 

Or you could just buy bonds when they're attractive and buy equities when they're attractive, but that's a highly controversial take here for whatever reason. 

 

1 hour ago, Dinar said:

You are kidding, right?  30 year treasury issued in 2020-2021 is trading at less than 50 cents on the dollar.

 

You're kidding me, right?!?!?  You're going to pick the worst performer and hold it up as the poster child for the entire asset class? Well shit, bonds still take it because the worst performing equities went down 100% over that time. 

 

Also, since you want to focus only on long duration instruments in what is an intellectually dishonest comparison, just acknowledge that 2022 was a terrible year for those bonds but they still absolutely crushed equities for the preceding 50-years before that. Still lower risk over the long term

Edited September 20, 2023 by TwoCitiesCapital

[Dinar]

@TwoCitiesCapitalYou claimed that bonds are much less riskier than stocks, and that bonds do not have the drawdowns that stocks have.  I showed you that bonds can have monster drawdowns.  

You claim that bonds crushed stocks from 1973 to 2023.  Care to provide proof?   S&P 500 did 10.31% per annum from 12/31/1972 to 12/31/2022.  How did the 30 year, 10 year, 5 year or 1 year do over that 50 year period?

 

 

Edited September 20, 2023 by Dinar

[thepupil]

10 minutes ago, Dinar said:

@TwoCitiesCapitalYou claimed that bonds are much less riskier than stocks, and that bonds do not have the drawdowns that stocks have.  I showed you that bonds can have monster drawdowns.  

You claim that bonds crushed stocks from 1973 to 2023.  Care to provide proof?   S&P 500 did 10.31% from 12/31/1972 to 12/31/2022.  How did the 30 year, 10 year, 5 year or 1 year do over that 50 year period?

 

He claimed that it’s easier to tell which bonds are riskiest than to tell which stocks are riskiest. A claim with which I wholeheartedly agree. 
 

you can pick where on the maturity/credit risk spectrum you invest and that will lead to a generally predictable payoff profile and low risk of nominal losses over the duration you pick. Many stocks aren’t like that and are all long duration quasi perpetuals (they are all 30 years). 

 

 

“ And unlike equities, there places you can be guaranteed to "hide-out" in bonds regardless of what other bonds are doing.”

 

he also made some comments about the relative level of “bonds” which typically means the agg, which has duration of 6 (was like 7.5) and has experienced like a 15%-20% peak to trough total return drawdown in the worst Ben bear market ever, which id say is consistent with a much lower than equity risk profile. 

Edited September 20, 2023 by thepupil

[TwoCitiesCapital]

10 minutes ago, Dinar said:

@TwoCitiesCapitalYou claimed that bonds are much less riskier than stocks, and that bonds do not have the drawdowns that stocks have.  I showed you that bonds can have monster drawdowns.  

You claim that bonds crushed stocks from 1973 to 2023.  Care to provide proof?   S&P 500 did 10.31% per annum from 12/31/1972 to 12/31/2022.  How did the 30 year, 10 year, 5 year or 1 year do over that 50 year period?

 

 

 

No, you a showed 'a bond' that had a monster drawdown. Or rather, a small handful of bonds, that had a monster drawdown. 

 

No broad based index of bondS, emphasis on the plural, looks anything like that and it's disingenuous use a small sub-index known for it's wild swings to represent a whole asset class that behaved nothing like those bonds do. Just like I'm not using an index of loss-making tech companies as my benchmark for equity returns...

 

And, no, i don't really care to provide proof. The data is out there. But just like all of my other claims about bonds outperforming equities over long time periods, it'd likely be summarily dismissed so why should I go through the effort of doing the leg work for you? 

Edited September 20, 2023 by TwoCitiesCapital

[TwoCitiesCapital]

17 minutes ago, thepupil said:

 

He claimed that it’s easier to tell which bonds are riskiest than to tell which stocks are riskiest. A claim with which I wholeheartedly agree. 
 

you can pick where on the maturity/credit risk spectrum you invest and that will lead to a generally predictable payoff profile and low risk of nominal losses over the duration you pick. Many stocks aren’t like that and are all long duration quasi perpetuals (they are all 30 years). 

 

 

“ And unlike equities, there places you can be guaranteed to "hide-out" in bonds regardless of what other bonds are doing.”

 

he also made some comments about the relative level of “bonds” which typically means the agg, which has duration of 6 (was like 7.5) and has experienced like a 15%-20% peak to trough total return drawdown in the worst Ben bear market ever, which id say is consistent with a much lower than equity risk profile. 

 

+1 

 

Peak to trough of -21% over 2+ years without accounting for the income distributions received over that time, so in reality -15% peak to trough is probably right... in the worst period ever for fixed income.

 

Pretty certain US equities, on average, went down more than that just in the last 3-months of 2018 without needing a recession to kick it off....

 

But yea, equities are low risk like bonds

Edited September 20, 2023 by TwoCitiesCapital

[Gregmal]

Well part of the debate too probably stems from cherry picking needing to be accounted for on both sides.
 

We say bonds, but yes there are definitely entire spectrums of nuance between them all. 
 

For instance, why is it satisfactory to miss out on 20-30% annual returns in stocks in exchange for 0-5% on bonds?

 

Why do we only discuss the drawdowns in stocks, completely ignoring the returns before an after them? We literally just isolate, like in the post above, “oh in one quarter stocks went down and bonds didn’t”…and it’s like ok but if you’re investing with a 3 month time horizon no one cares because that’s neither investing, nor a situation that warrants one being in the stock market in the first place. 
 

Or the argument, it’s happened a few times before in history so therefore it’s a real risk…ok. And bonds that were investment grade went belly up too.  
 

Ultimately, people have two ways to retire early. Earn a TON(in other words, most of your returns come from your time and earnings), or invest your way there. No one is retiring early making 5% a year with no upside. 

[TwoCitiesCapital]

7 minutes ago, Gregmal said:

Well part of the debate too probably stems from cherry picking needing to be accounted for on both sides.
 

We say bonds, but yes there are definitely entire spectrums of nuance between them all. 
 

For instance, why is it satisfactory to miss out on 20-30% annual returns in stocks in exchange for 0-5% on bonds?

 

Why do we only discuss the drawdowns in stocks, completely ignoring the returns before an after them? We literally just isolate, like in the post above, “oh in one quarter stocks went down and bonds didn’t”…and it’s like ok but if you’re investing with a 3 month time horizon no one cares because that’s neither investing, nor a situation that warrants one being in the stock market in the first place. 
 

Or the argument, it’s happened a few times before in history so therefore it’s a real risk…ok. And bonds that were investment grade went belly up too.  
 

Ultimately, people have two ways to retire early. Earn a TON(in other words, most of your returns come from your time and earnings), or invest your way there. No one is retiring early making 5% a year with no upside. 

 

And nobody here has advocated for buying only bonds for your entire life. 

 

But any time we've narrowed the range to the years where stocks failed as inflation hedges, or bonds outperformed stocks, even if those periods were 5-15 years long, I get accused of 'pinching' the timeline to work for me. 

 

These things are actively managed. There are times when stocks are attractive. There are times when bonds are. I contend this is one of those times.

 

So far, the primary argument against that has simply been all of you guys chirping about historical returns of stocks versus bonds, which leads me to respond with historical comparisons of long-periods of time where bonds do better (inflationary or otherwise), and then I get accused of 'pinching' again - or that I'm only focusing on the large segments of the bond market that were attractive (like short and intermediate) while ignoring the parts that did poorly (like long). And then the argument starts over again. 

 

So how is this for simplifying - a 30 yr mortgage @ par today will have a period of 20-30% pts of outperformance relative to the S&P 500 at some point in the next 36 months. Is that specific enough for you? 

Edited September 20, 2023 by TwoCitiesCapital

[hasilp89]

4 hours ago, TwoCitiesCapital said:

Meta was down 80+% in 2022

So if Meta was a private business and did not trade it would be less volatile?
 

In general risk of permanent capital loss in the equity ownership in a business is not related to the volatility in price at which the pieces of paper trades hands. 

(the counter examples are ones where leverage or failing business model are present - both of which imply business risk)

 

[Parsad]

On 9/19/2023 at 11:45 AM, fareastwarriors said:

 

Things are more expensive but some things are still so cheap. Saw chicken drumsticks at Costco for $0.59/lb couple weeks ago.

 

Eggs were on sale $0.99/dozen last week at a supermarket. Stocked up on 6 dozens.

 

 

I still see prices for whole chicken $0.69-0.99/lb at various markets all the time. 

 

Picked up some corn  at 6 per $1 last week. This week is 5 for $1. Few weeks ago, Roma tomatoes were on sale at 0.79/lb. Non-sale price is like $2-3... Bone-in pork shoulder could be had a $1-2 a pound still. My freezer still have a bunch of $4-5/lb Korean style beef short ribs and $2/lb pork ribs.

 

Sure some of these sales may be loss-leaders but there are deals to pick up every week.  I'm in Bay Area, CA so not exactly low cost area.

 

Your $2000 for a family of 5 is a lot but I can see it. NYC can add up fast. 

 

 

 

 

 

What do you do with all those eggs?  Do you freeze them...doesn't that change the texture?  Generally, the best before is about a month out.  Cheers!

[TwoCitiesCapital]

6 minutes ago, hasilp89 said:

So if Meta was a private business and did not trade it would be less volatile?
 

In general risk of permanent capital loss in the equity ownership in a business is not related to the volatility in price at which the pieces of paper trades hands. 

(the counter examples are ones where leverage or failing business model are present - both of which imply business risk)

 

 

It would have less risk - yes. In that it probably would've never have traded for as high as it did not as low as it did as a private company and thus you're likelihood of paying too much and selling for too little are greatly reduced. 

 

If you're talking about anything other than forever-money, than forced liquidity events present risk and greater volatility of the share price exacerbates those risks. 

[james22]

1 hour ago, Luca said:

Totally matters on prices paid. If you look at the yearly PE ratio and compare that with the following 10 year return, 26x earnings will always look ugly compared to 15x earnings entry price.

 

Sure. But again:

 

The lowest annual return over any 30 year period going back to 1926 was 7.8%. That’s what you got had you invested at the peak of the Roaring 20s boom in September 1929. You would have lost more than 80% of your investment in the ensuing crash and still made more than 850% in total over 30 years.

 

1 hour ago, Luca said:

Now couple that with less great tailwinds, inflation, high debt, high political turmoil, geopolitical tensions and id not be a happy buyer of the index as of today. But i also dont need to buy the index because i am still able to find good businesses that will generate good returns. 

 

Would i recommend family and friends to put a lot of money into the index today? Probably not.

 

The past 30 years were up 9.8% per year.

 

The most recent 30 year period since 1993 includes:

 

The Asian currency crisis, the dot-com crash, 9/11, the Iraq/Afghanistan wars, the Great Financial Crisis, the biggest global pandemic since 1918, the war in Ukraine and 9% inflation not to mention flash crashes, a few recessions, government shutdowns, trade wars, an insurrection, multiple impeachment hearings, 4 legitimate bear market crashes, 9 other stock market corrections and a whole bunch of other crazy and/or bad things I can’t think of right now.

[Parsad]

4 hours ago, Gregmal said:

Equities are definitely riskier if you don’t know what you’re doing. There’s accountability 100% of the time. Volatility is a feature not a bug. If someone can’t handle it they should buy bonds or CDs but then they get mediocre returns. 

 

+1!  Cheers!

[Gregmal]

If I took 31,000 shares of CKX and dumped them at the open, the stock would decline massively I assume. Let’s say I did that over a week. Average volume still indicates this would cause big time volatility. Like above, did the value of the business change? I guess it depends on how you view things. If you view your ownership as such, the value probably didn’t change despite the market playing poker with you. If you don’t know much and are just paper flingin or buying what others are buyin…I guess you would care. 
 

You just need to be confident that what you own is worth what you believe it to be, and not in the position where you are so desperate for cash that you need to liquidate into that quote. It’s really that simple. I saw Accenture quote me a penny during the flash crash. Is that proof that perfectly good business’s stocks can go down 99% in one day and thus one needs to be worried about that?
 

If I don’t have any ideas, yea, maybe 5% is appealing. It’s better than nothing(IE no ideas). 

[Parsad]

11 minutes ago, hasilp89 said:

So if Meta was a private business and did not trade it would be less volatile?
 

In general risk of permanent capital loss in the equity ownership in a business is not related to the volatility in price at which the pieces of paper trades hands. 

(the counter examples are ones where leverage or failing business model are present - both of which imply business risk)

 

 

+1!  Cheers!

[Gregmal]

4 minutes ago, james22 said:

The past 30 years were up 9.8% per year.

 

The most recent 30 year period since 1993 includes:

 

The Asian currency crisis, the dot-com crash, 9/11, the Iraq/Afghanistan wars, the Great Financial Crisis, the biggest global pandemic since 1918, the war in Ukraine and 9% inflation not to mention flash crashes, a few recessions, government shutdowns, trade wars, an insurrection, multiple impeachment hearings, 4 legitimate bear market crashes, 9 other stock market corrections and a whole bunch of other crazy and/or bad things I can’t think of right now.

It’s funny you highlight this. My buddies girlfriend was terrified of Trump getting re elected and looking to dump her entire retirement account and cash out and he asked me what I thought and noncommittally basically said EXACTLY that. Tech bubble, LTCM blow up, 9/11, GFC, Europe debt drama, flash crash, Asian August crash in 2016(iirc), the Xmas pants shitter event in 2018, COVID….and here we are.

Edited September 20, 2023 by Gregmal

[Parsad]

5 minutes ago, TwoCitiesCapital said:

 

It would have less risk - yes. In that it probably would've never have traded for as high as it did not as low as it did as a private company and thus you're likelihood of paying too much and selling for too little are greatly reduced. 

 

If you're talking about anything other than forever-money, than forced liquidity events present risk and greater volatility of the share price exacerbates those risks. 

 

It's why investors should keep a certain portion in cash so that they aren't forced into drawdowns when a stock or the markets are down.  It also allows them to buy more stock if that liquidity isn't required when a stock or markets are cheap.  Having some cash provides flexibility that negates the risk of inflation on that cash.  Cheers!

[james22]

1 hour ago, TwoCitiesCapital said:

But most people don't have 20-years to wait for their funds to recover to retire OR to lower their spending for 20-years in retirement waiting for an eventual recovery.

 

Most everyone working is investing for 20 years. And those near retirement and retired are investing a fraction of their portfolio for 20 years.

 

As investors recognize this, the equity (risk) premium will fall (and valuations will rise).

 

1 hour ago, TwoCitiesCapital said:

I personally don't want to 20-years to do "alright" when I could've just avoided buying what was stupidly  expensive to begin with. . . .

 

Or you could just buy bonds when they're attractive and buy equities when they're attractive, but that's a highly controversial take here for whatever reason. 

 

Of course you can do better if you can guess right.

 

But why bother? Buy-and-hold (better yet, dollar-cost-average) an equity index fund and you'll most likely do better.

[changegonnacome]

48 minutes ago, thepupil said:

you can pick where on the maturity/credit risk spectrum you invest and that will lead to a generally predictable payoff profile and low risk of nominal losses over the duration you pick. Many stocks aren’t like that and are all long duration quasi perpetuals (they are all 30 years). 

 

Howard Mark's latest memo has a bit about bond investing vs. stocks....how it's what Ben Graham called a negative art......in bonds as long as you can avoid the losers in a specific credit risk pool...the YTM you saw on the day you bought them is what you end up getting......your job is to weed out the losers........the beauty in the bond market ( at certain credit risk strata) is there are so few outright losers anyway......and so it takes in some respect LESS skill to assemble a portfolio where the anticipated YTM on Day 1 gets delivered upon maturity.....and conversely, cause they are so few outright losers, only a modest amount of diversification is required to get you close to the 'advertised' return even if you end up with a loser or two  i.e. the delta between your anticipated & actual returns is highly highly likely to be minimal.....which is to say your probabilistic expected & risk adjusted returns are high on a relative basis.....not as high on an absolute basis as the potential in stocks but then you know that already.

 

 

@thepupil is right the predictably of payoff & risk of nominal loss in the bond market with the yields where they are now is very interesting......and I'd argue we are in a curious time.......I think Buffett said once that when bonds become attractive as investments..... it's highly likely you should be buying stocks.....the curious thing today is that certain bonds do now offer attractive risk adjusted returns here.....equity like in their profile.......yet stocks haven't become attractively cheap IMO in response & it somewhat breaks Buffett's heuristic.

 

Link to Howard Mark's memo below....I find his writing style kind of tedious so recommend the audio/podcast version of these things that Oaktree has started putting out at the same time:

Audio - https://www.oaktreecapital.com/insights/memo-podcast/fewer-losers-or-more-winners

Memo - https://www.oaktreecapital.com/insights/memo/fewer-losers-or-more-winners

[Guest]

What would the 30 year returns have been at the bottom of the Great Depression?

 

I think it's unwise to just look at US equities when looking at this situation. Plenty of other countries have had bad equity returns over a 10, 20 or 30 year period. I know the US is special (ie world's reserve currency) but if the US losses that...we'll see what happens. 

[Dinar]

1 hour ago, TwoCitiesCapital said:

 

No, you a showed 'a bond' that had a monster drawdown. Or rather, a small handful of bonds, that had a monster drawdown. 

 

No broad based index of bondS, emphasis on the plural, looks anything like that and it's disingenuous use a small sub-index known for it's wild swings to represent a whole asset class that behaved nothing like those bonds do. Just like I'm not using an index of loss-making tech companies as my benchmark for equity returns...

 

And, no, i don't really care to provide proof. The data is out there. But just like all of my other claims about bonds outperforming equities over long time periods, it'd likely be summarily dismissed so why should I go through the effort of doing the leg work for you? 

You don't really care to provide proof because you cannot.  Bonds did not return 10.31% per annum from 12/31/1972 to 12/31/2022 like stocks did, and you know it.  So when you asserted that bonds have beaten stocks over the last 50 years, you were not accurate.  If we use 09/20/1973 to 09/20/2023, the comparison is even worse for you.  

 

I was a convertible bond and a distressed debt investor for a for a decade, I am happy to buy the right bonds at the right price.  But to assert that bonds do not have the drawdowns that stocks have and that bonds have beaten stocks over the past fifty years is not accurate.

[TwoCitiesCapital]

1 hour ago, james22 said:

 

Most everyone working is investing for 20 years. And those near retirement and retired are investing a fraction of their portfolio for 20 years.

 

As investors recognize this, the equity (risk) premium will fall (and valuations will rise).

 

 

Of course you can do better if you can guess right.

 

But why bother? Buy-and-hold (better yet, dollar-cost-average) an equity index fund and you'll most likely do better.

 

They're investing for 20+ years if they're 20-40. But a 50-year old?

 

Can't really afford to be wrong 15 years straight unless if they're ok delaying retirement. A 60-year old? Can't be wrong for 15+ years while living off of those funds in retirement. So what you're saying - blindly but equities because they've always been better with 20+ years - only works until you hit about 45-50 and then it starts to matter a helluvalot. 

12 minutes ago, changegonnacome said:

 

Howard Mark's latest memo has a bit about bond investing vs. stocks....how it's what Ben Graham called a negative art......in bonds as long as you can avoid the losers in a specific credit risk pool...the YTM you saw on the day you bought them is what you end up getting......your job is to weed out the losers........the beauty in the bond market ( at certain credit risk strata) is there are so few outright losers anyway......and so it takes in some respect LESS skill to assemble a portfolio where the anticipated YTM on Day 1 gets delivered upon maturity.....and conversely, cause they are so few outright losers, only a modest amount of diversification is required to get you close to the 'advertised' return even if you end up with a loser or two  i.e. the delta between your anticipated & actual returns is highly highly likely to be minimal.....which is to say your probabilistic expected & risk adjusted returns are high on a relative basis.....not as high on an absolute basis as the potential in stocks but then you know that already.

 

 

@thepupil is right the predictably of payoff & risk of nominal loss in the bond market with the yields where they are now is very interesting......and I'd argue we are in a curious time.......I think Buffett said once that when bonds become attractive as investments..... it's highly likely you should be buying stocks.....the curious thing today is that certain bonds do now offer attractive risk adjusted returns here.....equity like in their profile.......yet stocks haven't become attractively cheap IMO in response & it somewhat breaks Buffett's heuristic.

 

Link to Howard Mark's memo below....I find his writing style kind of tedious so recommend the audio/podcast version of these things that Oaktree has started putting out at the same time:

Audio - https://www.oaktreecapital.com/insights/memo-podcast/fewer-losers-or-more-winners

Memo - https://www.oaktreecapital.com/insights/memo/fewer-losers-or-more-winners

IIRC correctly - Buffett's comments were regarding distressed/discounted corporate bonds/preferreds. I.e. when you see deals on these offerings significantly less than par and significantly less than their peers in the market, it's typically made better sense to buy the stock. It wasn't so much a "never buy bonds argument" as much as it was "distressed investing delivers superior returns to equity when the issuer doesn't fail" which I agree with. 

[Santayana]

1 hour ago, Parsad said:

What do you do with all those eggs?  Do you freeze them...doesn't that change the texture?  Generally, the best before is about a month out. 

In my house we go through a couple dozen per week, so those 6 dozen wouldn't even last a month!