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- Manlobbi
Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A) ❤
No. of Recommendations: 3
It was supposed to be the year of the great money-market exodus.
Between Federal Reserve interest-rate cuts and the rally in stocks and bonds that would naturally follow, all the elements were there, Wall Street prognosticators said, to prompt investors to yank cash out of money-market funds en masse.
They were wildly off. For while the rate cuts came and stocks soared, companies and households have kept shoving cash into money funds, pushing the total assets held in those accounts above $7 trillion this week for the first time ever. The relentless rush into those funds — which buy Treasury bills and other short-dated instruments — underscores just how attractive benchmark rates above 5% have been for an investor base that had grown accustomed to them being closer to 0% this century.
Even as those rates now slide to 4.5%, money-market funds are still throwing off a steady stream of nearly risk-free revenue that is bolstering the finances of many households and offsetting to some extent the damage that rate hikes have caused in other parts of the economy. And with signs mounting that the Fed may not cut benchmark rates much more, many on Wall Street are now predicting that Americans aren’t going to fall out of love with cash any time soon.
https://www.bloomberg.com/news/articles/2024-11-15...It’s not just Buffett who thinks cash is the best option currently.
No. of Recommendations: 3
Even as those rates now slide to 4.5%, money-market funds are still throwing off a steady stream of nearly risk-free revenue that is bolstering the finances of many households
4.5% - 1% (taxes for 22% tax bracket) - 2.5% inflation = 1% ... is a real 1% all that great?
No. of Recommendations: 6
is a real 1% all that great?
Depends what you expect the alternatives to return. I expect a negative total return for equities in the next 3-5 years.
No. of Recommendations: 16
s a real 1% all that great?
...
Depends what you expect the alternatives to return. I expect a negative total return for equities in the next 3-5 years.
One of the best posts of the year.
Besides, the "value" return on cash isn't the interest rate. That's a side show. It's the incremental return it gives you the opportunity for by deploying it at a decent rate when the time comes.
The fact that short term interest rates currently (and anomalously) offer a positive real return after tax is just a happy bonus, though not really material. It's about the pouncing.
Jim
No. of Recommendations: 6
"I expect a negative total return for equities in the next 3-5 years."
I do, too. 10-12 years as well. Many indicators are saying that: forward returns vs P/E, P/S, CAPE, market cap/GDP, non-farm market cap/gross value added (Hussman), non-farm equity/debt (
https://fred.stlouisfed.org/graph/?g=qis), GMO's proprietary model, etc. All of these are forecasting zero to negative stock market returns. Some high flying stocks are already starting to turn over. ASML, for example, is down 39% over the last 4 months.
What do you recommend to protect ourselves? Hussman is buying puts. GMO is selling short. Dealraker is selling equities where capital gains taxes are minimal. Buffett is selling overvalued stocks.
I believe that T-Bills will outperform the stock market over the next 5-10 years, even if T-Bill yields fall. What is an investor with a short investment life ahead to do?
No. of Recommendations: 2
the "value" return on cash isn't the interest rate ... It's the incremental return it gives you the opportunity for by deploying it at a decent rate when the time comes ... It's about the pouncing.
That assumes too much which might oder not be true for individual investors.
If you are consistently(!) good with your "pouncing", yes, then this applies to you. But what about us mere mortals who can't say that about ourselves? For us the interest rate is the bird in the hand - versus maybe getting the two in the bush (IF pouncing correctly).
No. of Recommendations: 1
Depends what you expect the alternatives to return. I expect a negative total return for equities in the next 3-5 years.
I agree that you should always invest in the alternative that will gain the most. And I also agree that you should always get back in at or near the lows (some time in 3 to 5 years for you).
But the assertion here was that the higher short-term rates now are "bolstering the finances of many households". And that is what I commented about. Does a 1% real return really bolster the finances of mnay out there?
No. of Recommendations: 1
I don't know about bolstering finances, but it has been apparent for a while that people's feelings about the economy (and their personal position in it) can diverge sharply from reality.
Needless to say, the economy is not unique in this respect.
Baltassar
No. of Recommendations: 0
That assumes too much which might oder not be true for individual investors.
OT....Said, did you just allow a word of German to slip into your usually perfect English? I've spent years failing miserably in multiple languages, and am in awe of your abilities in a non-native language. Good to see you are a "mere mortal."
No. of Recommendations: 7
I do, too. 10-12 years as well. Many indicators are saying that: forward returns vs P/E, P/S, CAPE, market cap/GDP, non-farm market cap/gross value added (Hussman), non-farm equity/debt (https://fred.stlouisfed.org/graph/?g=qis), GMO's proprietary model, etc. All of these are forecasting zero to negative stock market returns.True, but having tracked many of those metrics myself for quite some time, I can attest that these indicators have been predicting this for many years while the market continues to rise. How much longer could that continue? Another 5 years? Another 10? More?
I've never been one to believe "this time it's different", yet the more I ponder on what a potential future could look like if a US-led AI boom truly does spark a new industrial revolution marked by enormous increases in productivity and business earnings as some predict, the more I find myself having doubts about the merits of sitting on even a modest cash pile or hedges, and more and more concerns about potentially missing out.
I find myself questioning: what if currently elevated valuation ratios across the market are accurately reflecting a coming wave of earnings surges driven by AI in the next few years?
...Meanwhile the devil's advocate in me questions if my sentiment is just a symptom of the late stages of bubble bursting, where the unwashed masses feel panicked to get into the stock market for fear of missing out, only to be left holding the bag soon after when the bubble pops...
No. of Recommendations: 0
What is an investor with a short investment life ahead to do?
Use a decent timing method to signal when to get out of stocks and when to get back in.
This reduces the average long-term return but also greatly reduces the deep drops of a big bear market.
Question: How long do you consider "short investment life"?
No. of Recommendations: 0
Use a decent timing method to signal when to get out of stocks and when to get back in.
This reduces the average long-term return but also greatly reduces the deep drops of a big bear market.
It reduces the average long-term return, which is a fair exchange for the protection is provides. BUT, it reduces most of the big drops, but not all of them, sometimes it does not work, and worse, it sometimes causes an exit after a big drop. Maybe it happens only once every 50 or 75 years, but if you hit that "once" at te wrong time, you could be very negatively affected financially for the remainder of your life.
Question: How long do you consider "short investment life"?
Now that I am retired, I think about this a lot. While I may have 30+ years left, it is more likely to be a bit under 30 years. So I have to think about using the typical 30-year investing horizon at this point. Maybe I should be using 25 now? I don't really know ...
No. of Recommendations: 5
it reduces most of the big drops, but not all of them, sometimes it does not work, and worse, it sometimes causes an exit after a big drop. Maybe it happens only once every 50 or 75 years, but if you hit that "once" at te wrong time, you could be very negatively affected financially for the remainder of your life.
There is no way to a survive the end of the world.
There is plenty of evidence & claims that big sharp drops are like potholes that recover pretty quickly.
For actual bear markets, they start slowly and give you plenty of time to get out.
Ken Fisher famously says that the first two-thirds of a bear market usually accounts for about one-third of the total percentage drop, while the final third of the bear market accounts for about two-thirds of the drop.
So I have to think about using the typical 30-year investing horizon at this point. Maybe I should be using 25 now?
Nah, 25 is essentially the same as 30.
It is once you get down to looking at around 5-10 years of life expectancy that it is reasonable to be hyper sensitive to bear markets. Because you may not live long enough to recover from the bear.
The secret to ride out this is to have a large large portfolio, so that even a 25%-35% drop won't change your standard of living.
No. of Recommendations: 13
I do, too. 10-12 years as well. Many indicators are saying that: forward returns vs P/E, P/S, CAPE, market cap/GDP, non-farm market cap/gross value added (Hussman), non-farm equity/debt (https://fred.stlouisfed.org/graph/?g=qis), GMO's proprietary model, etc. All of these are forecasting zero to negative stock market returns.
...
True, but having tracked many of those metrics myself for quite some time, I can attest that these indicators have been predicting this for many years while the market continues to rise. How much longer could that continue? Another 5 years? Another 10? More?I think there is perhaps a useful distinction to make.
Prices are extremely high on any metric these days. But future market valuation levels are extremely hard to predict--as noted, they could be outrageously expensive for an indeterminate amount of time.
So, on the one hand, you should EXPECT low returns, since that's the sensible assumption. Plan your pension funding accordingly. You have a low cyclically adjusted earnings yield.
On the other hand, don't do anything that ASSUMES that valuations will be around (or below) their historically typical levels any time soon.
Be prepared for low returns, but don't wager hard money on it happening at any given time.
This advice sounds sensible, but it doesn't tell you whether to buy or sell the index. Does moving to cash constitute gambling on lower prices some time soon? Only sort of, but you can't hold your breath forever if you need a positive real return. My personal solution is to avoid the index: hold only those things that I consider individually not too painfully expensive given their prospects.
Jim
No. of Recommendations: 1
There is no way to a survive the end of the world.
I wasn't referring to an "end of the world" scenario. A perfect example would be 1987, many of the timing methods would have caused an investor to [mostly] exit equities after black Monday. Now had the investor been relatively young at that time (as I was) then they wouldn't have been hurt too much by that, but if the investor were recently retired, they would have been mortally wounded by that timing action and it would affect their financial health for the rest of the life.
There is plenty of evidence & claims that big sharp drops are like potholes that recover pretty quickly.
This is very true. Just look at any long-term chart and it becomes obvious. That's why a timing method that could potentially get you out at the wrong time (once every 50 or 75 years) is risky.
For actual bear markets, they start slowly and give you plenty of time to get out.
I agree, most bear markets start slowly. But some of them (about once every 50 or 75 years) do not start slowly.
It is once you get down to looking at around 5-10 years of life expectancy that it is reasonable to be hyper sensitive to bear markets. Because you may not live long enough to recover from the bear.
That's yet another good reason to begin social security at 70. In my case, they tell me that if I wait till 70, they will give me $4800/mo, and my wife will get about $2400/mo. Even if we spend (or lose) every penny of our retirement savings, we can still live reasonably on $7200 a month (inflation adjusted, of course).
The secret to ride out this is to have a large large portfolio, so that even a 25%-35% drop won't change your standard of living.
It's no secret! It's called retiring 5 1/2 years later. Yet another one of those trade-offs that life gives us.
No. of Recommendations: 8
A perfect example would be 1987, many of the timing methods would have caused an investor to [mostly] exit equities after black Monday.
Not true.
43 week SMA:
Out on 10/19/87 at 248.22
In on 11/9/87 at 245.64
43 week SMA, for 4 consecutive on weeks:
Did not signal a sell on Black Monday. Next out on 01/03/88
if the investor were recently retired, they would have been mortally wounded by that timing action and it would affect their financial health for the rest of the life.
Yup. My Dad told me years later that the worst investing mistake he had ever made was to panic and call his broker the next day to sell everything.
That's why a timing method that could potentially get you out at the wrong time (once every 50 or 75 years) is risky.
If you live in the wrong times, you will get clobbered. There is nothing you can to do avoid this fact.
In my case, they tell me that if I wait till 70, they will give me $4800/mo, and my wife will get about $2400/mo. Even if we spend (or lose) every penny of our retirement savings, we can still live reasonably on $7200 a month
That's the cool think if you have guaranteed income (pension, SS, etc.) that will supply 100% of your needs.
In that case, it does not matter what happens in your portfolio.
But as long as you have a reasonably diversified investment portfolio, it will NOT go to zero. If it does go to zero, we've hit essentially the end of the world. Because all that guaranteed income will also go to zero.
Pensions in Russia in Jan 1917 didn't last after October 1917. That's effectively an end of the world scenario. Of course, for many it was literally the end of the world for them.
No. of Recommendations: 0
Did not signal a sell on Black Monday. Next out on 01/03/88
Yes, 1/3/88 is "after black Monday", and is pretty much equivalent to exiting at/near the low. Just one year later in January of 1989, it was already up by nearly 20% from the low.
If you live in the wrong times, you will get clobbered. There is nothing you can to do avoid this fact.
First of all, this ("living in the wrong times") wasn't my point. My point was that if you SELL at just the wrong time (using a timing method), you will get clobbered. Second of all, there IS SOMETHING you can do to avoid it, what you can do is make sure that your withdrawal rate is safe enough to overcome any previous calamitous period of 30 years (or whatever period you choose to use). That way you will not get clobbered unless the times are worse than the worst previous time ever was.
No. of Recommendations: 28
No. of Recommendations: 2
"2022-09-29 (can't find a post)"
This one is on mungofitch.com.
No. of Recommendations: 1
Just for fun, timing the timing indicator
3/4/2009
8/8/2011 887
10/4/2011 57
9/30/2015 1457
1/22/2016 114
10/24/2018 1006
12/21/2018 58
3/16/2020 451
9/29/2022 927
---
11/21/2024 784
Hmmm, its been a while, but another 2 years of waiting wouldn't be outside of this limited data set.
tecmo
...
No. of Recommendations: 1
Jim, not sure how easy this would be to run but a strategy
1. Deploy all available capital when the trigger hits
2. Wait 120 days
3. Sell 5% per quarter after that (you would be 100% in cash after ~20ish quarters, roughly 5 years)
Curious how a trading system off this might work vs. buy and hold... (the number of data points is probably too small to execute on such a strategy)
tecmo
...
No. of Recommendations: 7
This one is on mungofitch.com.
Ha! No wonder I couldn't find it. That's a very obscure web site : )
Jim
No. of Recommendations: 6
Curious how a trading system off this might work vs. buy and hold...
There isn't any very obvious way, because no matter what you do at the bottom, you have to undo it at some point.
Annualized average rates of return are quite good even out to 2 years after a signal, so you don't have to act too quickly.
The closest is what I have sometimes suggested: wait for Berkshire to be cheap, say <1.35 P/B or something. Sell half your stock and use all the proceeds to buy the deepest in the money, longest dated call options you can. Roll them forward if needed. The first time the stock trades at a good level (say >1.55 P/B), sell all the call options and put the proceeds back into regular stock.
So, you could do something similar I guess: on a major market bottom signal, switch from being an index fund holder to a holder of calls on the index or index fund. Switch back perhaps after the market has risen 30% or some such number.
It's good to recognize that market bottoms tend to be very pointy. The drops are fast, and so are the bounces, so things tend to be very volatile just around about the time that you want to be all-in and more. Even with a very good signal, the odds are that you won't nail the bottom, maybe just near an intermediate bottom before or after "the" bottom. One's account balance goes up and down a lot for a while. It's simple, but not easy.
Jim
No. of Recommendations: 5
Deciding when to sell is really, really hard. Some folks can do it, but I'm not an expert, despite trying.
On the other hand, I don't find it quite so hard to find good times to buy. So I find having a bit of cash on hand for pouncing works pretty well.
This is exactly correct for me as well. Right now I have about 35% in cash, mostly stashed away in T-bills of all durations and a tiny bit in 2-year T-notes.
I've also found over the decades that selling has cost me WAY MORE than not selling has cost me. I'll give my regular example, but there are plenty of them. Way back, I bet on TDFX (instead of Nvidia, but that's a different story) winning the graphics chip race. I bought some at around 20, and then doubled down in the low teens. I rode it all down to zero. So I lost an average of say $14 a share. I also bought and sold some UNH hack in 2008 in the 20s, and I made decent profit a few times by buying in the low 20s and later selling in the mid-to-high 20s. However, those sales of UNH have cost me over $500 a share so far (I held onto some UNH, but I *should* have held on to all of it). You can clearly see that I "lost" MUCH more on my sales of UNH than I ever lost on my non-sales of TDFX. And the same has held true for nearly every position over time.
Buying on the other hand is usually relatively easy. I have this trade that I do every few years. When Apple swoons and experiences a large drop, I "pounce" and sell a stack of puts at ridiculously low prices where I would surely be willing to buy it. For example, near the end of 2022, in September and again in December, Apple dropped into the 130s and I sold some near-the-money Jan '25 puts (LEAPS). Those will expire worthless in January, or if I want to take the short-term capital gain in 2024, I will close the trade in late December (the additional optionality of when to take the capital gains is another good feature of these LEAPS). And again in October 2023 when it dropped into the 160s, I sold some more puts, this time of the Jan '26 vintage.
No. of Recommendations: 6
“Deciding when to sell is really, really hard. Some folks can do it, but I'm not an expert, despite trying.”
I typically sell way too early and hence don’t often sell. FYI- I just sold to close a call option after I listened to Jim & bought a couple in Fall ‘22.
Sold to close the call LEAP exp. Jan.‘25 BRKB 160 strike for $316.12 (~140% gain) for a little pre-holiday cash. Sold a similar 150 call a couple weeks ago.
Many Thanks Jim, as no way I would have understood the concept & much less pulled the trigger years ago.
No. of Recommendations: 0
There isn't any very obvious way, because no matter what you do at the bottom, you have to undo it at some point.
My suggestion was to wait 120 days and then sell 5% a quarter after that to raise reserves for the next opportunity. (would be very hard emotionally to execute on this!)
tecmo
...
No. of Recommendations: 6
My suggestion was to wait 120 days and then sell 5% a quarter after that to raise reserves for the next opportunity. (would be very hard emotionally to execute on this!)
I'm not sure that would be a good direction to follow. Bull markets can be looooong. Reducing from call leverage to straight long might be, in this context, a better bet...outright selling, switching to cash in the early innings of a long bull might be a big drag even if done gradually.
A bull market is a terrible thing to waste.
Jim
