Is it all too good to be true?

squirrelpie

Don't forget the current AI/Tech bubble.

michaels

Hoenir said:

leosayer said:

Hoenir said:

Albermarle said:

tichtich said:

I haven't read the whole thread, so apologies if I'm repeating something that's already been said.

I've always found it a bit odd that many people use a withdrawal rate (such as the traditional 4%) based on the market price of their portfolio at the time they retire, without taking into account whether the market is over- or under-priced. If investments are over-priced, then future returns (on that price) are likely to be significantly lower than if they are appropriately- or under-priced.

The same applies if you are still some way from retirement, though probably to a lesser degree, as there is more time to recover from the next down-turn. So I think the OP is wise to apply a discount to his current portfolio price. (I like to call it "price", and save the word "value" for the underlying worth of investments, based on their expected future cash flows.)

A market can not be over or under priced, as if this was the consensus, the market would have already moved to correct that. 
Of course you can have your own personal opinion, but it is just as likely to be wrong as right, especially in the short term. 

Markets are priced on forward expectations not historic. When individual companies fail to meet the expectations set. The shares sell off. When the sell off extends to a greater number of companes.  Then the herd stampedes for the exits.

With the concentration of trading into fewer and fewer global stocks. The risks have steadily increased. Likewise passive investing is generic. Drives price purely on sale or purchase. Who is determining the actual stock prices? 

Take a look at the historic Tesla share price chart. Entry into the S&P500 and Global Indices was December 2021. Who made the money on the stock. When the indices were forced to rebalance. 

Stock prices are driven by supply and demand which arises from trading activity. When there is a surplus of buyers over sellers then prices rise. 

Bubbles form and pop, fundamentals will never go out of fashion. The 1980's property and stock market bubble. The 1998-2000 Dot Com bubble. The 2006-2008 property and finance bubble. All had similarities. Not least investor euphoria. With hindsight, the hype and craze surrounding those bubbles were a dead giveaway that they couldn’t last.

Three good rules to follow

Rule No. 1: Don’t Invest in What You Don’t Understand

Rule No. 2: Cash Flow Is King

Rule No. 3: The Valuation Must Make Sense

John Maynard Keynes:

Markets can remain irrational longer than you can remain solvent

BikingBud

michaels said:

Hoenir said:

leosayer said:

Hoenir said:

Albermarle said:

tichtich said:

I haven't read the whole thread, so apologies if I'm repeating something that's already been said.

I've always found it a bit odd that many people use a withdrawal rate (such as the traditional 4%) based on the market price of their portfolio at the time they retire, without taking into account whether the market is over- or under-priced. If investments are over-priced, then future returns (on that price) are likely to be significantly lower than if they are appropriately- or under-priced.

The same applies if you are still some way from retirement, though probably to a lesser degree, as there is more time to recover from the next down-turn. So I think the OP is wise to apply a discount to his current portfolio price. (I like to call it "price", and save the word "value" for the underlying worth of investments, based on their expected future cash flows.)

A market can not be over or under priced, as if this was the consensus, the market would have already moved to correct that. 
Of course you can have your own personal opinion, but it is just as likely to be wrong as right, especially in the short term. 

Markets are priced on forward expectations not historic. When individual companies fail to meet the expectations set. The shares sell off. When the sell off extends to a greater number of companes.  Then the herd stampedes for the exits.

With the concentration of trading into fewer and fewer global stocks. The risks have steadily increased. Likewise passive investing is generic. Drives price purely on sale or purchase. Who is determining the actual stock prices? 

Take a look at the historic Tesla share price chart. Entry into the S&P500 and Global Indices was December 2021. Who made the money on the stock. When the indices were forced to rebalance. 

Stock prices are driven by supply and demand which arises from trading activity. When there is a surplus of buyers over sellers then prices rise. 

Bubbles form and pop, fundamentals will never go out of fashion. The 1980's property and stock market bubble. The 1998-2000 Dot Com bubble. The 2006-2008 property and finance bubble. All had similarities. Not least investor euphoria. With hindsight, the hype and craze surrounding those bubbles were a dead giveaway that they couldn’t last.

Three good rules to follow

Rule No. 1: Don’t Invest in What You Don’t Understand

Rule No. 2: Cash Flow Is King

Rule No. 3: The Valuation Must Make Sense

John Maynard Keynes:

Markets can remain irrational longer than you can remain solvent

Markets are irrational because people are.

Herd instinct is real!

That is why markets can never be modelled and only hindsight always spots the "obvious" markers.