I wonder if anyone has the chops to do the math for what I’m wondering?
Assume the an 80/20 S&P/total bonds portfolio that ended up the same percentage over the past 35 years with someone dollar averaging the same amount in every year. Rebalancing annually.
What would be the difference between where would have been if the return was consistent each year versus having had the bad decade we had?
FWIW ChatGPT answers:
If you DCA’d 1989–2024 into 80/20 with real returns, your ending balance would be about 10–15% higher than if returns had been perfectly smooth but ended with the same long-term CAGR.
To the degree we trust what it says. Actually I’m surprised it’s not a bigger difference. Point though - for someone at @Spice_Weasel ’s point in career dollar cost averaging (DCA above) and an early bear market is a very good thing.
I was 55 when the 2008 financial crisis hit. Scared the shit out of me, as I was just beginning to calculate my funds for retirement. All of a sudden my 401k was one helluva lot smaller that it used to be.
I didn’t know what to do, but my boss, a savvy investor, told me to stay the course, and things would be fine. He was right. I am now 72, retired, and am more comfortable than I ever thought I would be.
I’ve lucked out twice that way. I started working in 1996, making pretty paltry wages. In early 2000 I made a significant jump and was able to max out my 401k, right into the dot com aftermath.
Later, I got a retention bonus after my employer was acquired, paid as a lump sum into my 401k (I had to stay the year, and it was a significant bonus). That paid out in Jan 2009.
If you have 20 years, buy the dip.
I have maybe 5, so it’s all I can do to remind myself that under the mattress is not a good idea.
Quite. There are clickbait stories of how an investor turned $1000 into $100,000 in a year by trading. But of course, they never mention the other thousands of would-be traders who started with $1000… and lost it all almost immediately….
Michael Burry, of The Big Short fame, is out. He predicted the housing bubble, and made lots of money by betting it would crash. “Sometimes, the only winning move is not to play,” because, he claims observes, market values are completely untethered from fundamentals. He is also looking at book cooking and other problems around AI, datacenters, and GPUs.
He is closing his Scion Capital hedge fund, after shorting Palantir and Nvidia. I’m not quite sure exactly what that means, if he has outstanding short positions, if he sold them, or they’re personal, or what.
Yep, that is mostly how I read it. The biggest problem is he can be right on every single one of his claims about accounting problems and valuations, and the market might still go up for another 10 years.
The point I wanted to make by posting it, which maybe I should have written… was the extremity he is going to. Closing down and getting out completely is way past rebalancing and taking a position in gold, or whatever. He believes it’s going to crash soon.
He hasn’t lost it yet. If I understand correctly, he spent $9.1 million at about $2/share, on the right to sell PLTR at $50/share in 2027. Right now PLTR is around $170, so he’s betting that by 2027 it will drop to below $48.
The price of options changes before expiry. You would say someone lost money if they bought a stock that decreased in value even if they haven’t sold it yet.
Yes, but the $9.2 million isn’t the amount he’s lost, it’s how much he spent on the put contract. Maybe today he could by that same contract for $7 million, so he’s “lost” $2 million, but saying he lost $9.2 million today is wrong.
When the contract matures, and PLTR is trading at $200/share, then he’s definitely lost $9.2 million.
Two, I’m not making any moves because I know I shouldn’t
But
I have a feeling that this is the start of the correction. Sentiment about the economy is not good, there’s been a lot of layoffs announced, and despite the official numbers, inflation is pretty rough in the places where people feel it most. In particular, I’m still shocked at what I’m spending at the grocery store. I’m fortunate in that I have the ability to not really care, but two pounds of deli meat and a loaf of bread was $20 the other day.
In a way, this could be good, because I’d rather see a normal economic cycle recession/correction than a nasty bubble pop, but I’m calling it and you can all make fun of me if next week we’re right back to infinite PE ratios.
Well rationally that makes perfect sense … which of course means it won’t play out like that!
All year I have stayed the course with only minimal repositioning but entirely expecting and prepared for the bottom to drop at any moment. It makes no rational sense to me what the market has been doing in the face of disastrous policies. My mindset is to look at my balance and halve it with an expectation of a decade to recover fully and comport myself as if that is current reality. One of these days it, or something close enough to it, will happen. I think. I believe. But my absolute lack of confidence in the ability of my rational analysis to accurately predict the near to moderate term has been to the benefit of those balances to date!
Straws in the wind… but I think it’s too soon to call. I just looked at the S&P graph over a variety of timescales up to a year, and I can’t say I see a trend yet?
As you say, a ‘soft landing’ would be a lot better than a crash… but as the saying goes:’prediction is difficult, especially about the future’….
I’m doing as much as I can. I don’t know if it will be University of Michigan money, but it will help.
Holy crap, it worked! I sent my husband your quote and he called a lawyer to make a will today.
I talked to our financial advisor today, because I was thinking of taking some of this money and paying off my student loans. He didn’t really pressure me either way but I decided to leave the money in because as much as I hate debt, the investments are obviously making more money. He said he is not worried about the market right now. We decided to go the opposite direction and we scheduled an appointment to put some money into CDs (just stuff sitting around in our checking account doing nothing.)
Our health insurance just went up 30% so I’ve been a little worried about cash flow, but I decided to just wait and see if things get really tight before getting rid of that debt. So far we are fine.
I think it’s a fair question (that I can’t answer). We do define bubbles and their timing after the fact, so one should be able to make a statement like: Any time we have at least X% rise over Y time period, the resultant bull market has been deemed a bubble.
An economic bubble is marked by rapidly increasing asset prices that exceed intrinsic value, leading to a sudden market contraction known as a “crash.”
