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It's interesting to note that at the beginning of the best periods to invest (the big green regions on the graph, like 1942-1960s or 1980s-2000), the stock mark

It's interesting to note that at the beginning of the best periods to invest (the big green regions on the graph, like 1942-1960s or 1980s-2000), the stock market was often not just low in terms of broad valuation. It was just "empty". It had typically gone through many years of very little participation, little activity and low liquidity. E.g. in 1980 the (Belgian) stock market was pretty much comatose. The typical stock owners were wealthy families, often holding their family fortune as a large stake in a single company. To most non-financial people in 1980, owning public common stock would have been something from a bygone era. They didn't consider it an option. Rather, people in 1980 were standing in line to buy gold coins. People then feared that Volcker's dramatic rate hikes would cause severe problems. When the stock market sprang to life in early and mid 80s, back offices were often not able to keep pace and doing transactions could be cumbersome. Compare this with 2016, where central bankers are walking on egg shells to hike rates with as little as 0.25%. Stocks and bonds are more expensive than ever. Yet almost everybody I know has a trading account. Regular people can trade advanced derivatives with minimal hassle. Every time I visit a bank, I see desks and booths filled with people getting talked into investing their savings into various kinds of "high" yielding constructions. Because "TINA". Feels to me like the worst time to invest. 36 years of buy-the-dip reinforcement learning. But then again I've felt like this for years.

dbancajas 10y ago
TINA??
- unknown_apostle 10y ago
  TINA -- "There is no alternative". Many people in 2016 are being talked into stocks and bonds on the conviction that central bankers give them no other choice. Or on its corollary, that central bankers are committed (and are capable) to keep the prices of stocks and bonds elevated to fight global deflation.
  - rublev 10y ago
    Well? What's a wiser choice? I know nothing about investing and only started making $ a few months ago so I'm curious what the alternatives are. Just put it in ETF's, rebalance yearly, and wait 20 years?
    - kgwgk 10y ago
      Keep your $ and wait. They won't go up but they won't go down. And when everything else goes down, you invest. (Of course this strategy is good only if everything is overvalued and goes down to fairly valued eventually.)
      - dbancajas 10y ago
        how do you know the bottom of "down"? this is essentially timing the market. good if you are nostradamus i guess. not trying to be a dick here but am looking for average joe plumber advice here.
        ianai 10y ago
        A wise professor once told me "once the last stalwart hold out has bought into the market the end is near". Once you're to the point where everyone is seemingly in the market and people that shouldn't be are in, too, you're probably in for a swing downward. The Feds aversion to raising rates is really telling.
        kgwgk 10y ago
        You don't have to wait until the bottom, but it's obviously better to buy assets when they are "cheap" rather than "expensive". Valuation and long-term future returns seem indeed related historically https://www.oppenheimerfunds.com/private-client-groups/article/asset-allocation-through-the-business-cycle/valuation-is-a-limited-predictor-of-asset-returns https://www.oppenheimerfunds.com/private-client-groups/artic... For a more detailed treatment: https://personal.vanguard.com/pdf/s338.pdf https://personal.vanguard.com/pdf/s338.pdf Of course this kind of arguments are not bullet-proof, see for example: http://www.philosophicaleconomics.com/2014/06/critique/ http://www.philosophicaleconomics.com/2014/06/critique/ And one could have missed the last years of bull market applying these arguments already in 2013 (it doesn't mean that the conclusion was wrong with the 2023 horizon, though). Anyway, ignoring valuation completely doesn't seem the right thing to do and people try to forecast returns to make asset allocation decisions: https://www.researchaffiliates.com/en_us/asset-allocation.html https://www.researchaffiliates.com/en_us/asset-allocation.ht... I wouldn't call that market timing.
tonyedgecombe 10y ago
"Stocks and bonds are more expensive than ever." Which is what you would expect most of the time in a growing economy.
- unknown_apostle 10y ago
  You're right. High valuation multiples imply high expectations about future profits. But those expectations will need to be met before you can look back and say you've done a good investment.
- jazzyk 10y ago
  Growing economy? The growth rate in the past several years in the developed world has been the lowest in any economic expansion. In the US, around 1.5% lately and is only positive because the inflation rate calculated by the government (by which it is adjusted) is significantly under-estimated.
  - tonyedgecombe 10y ago
    I wasn't making a political statement.
    - ericd 10y ago
      I don't think his was a political statement either, just that your implication that it's the result of growth doesn't seem accurate.
  - ArkyBeagle 10y ago
    CPI is often ( generally? ) considered to overstate inflation.
- kgwgk 10y ago
  "More expensive than ever" doesn't mean that the price is higher than ever. The S&P 500 was higher in 2012 than in 2004 but it was less expensive.
gmarx 10y ago
You've been right for years. Easy money has kept things stable but starting from right now, if you invest in stocks and bonds and hold for 20 years, you should expect pretty low returns. Everything is expensive
- unknown_apostle 10y ago
  Since 1980 and especially since 2000, people have learned that buying into a crash will be rewarded within 2-3 years because of central bank response. They think "you can't loose with stocks long-term", which I believe is largely correct. But they have lost all historical perspective on what "long-term" has occasionally meant. And they underestimate the interim carnage in those instances (1930s, 1970s).
Jugurtha 10y ago
One rather successful man I e-know put it this way: business is the stuff you do to make money; investing is the stuff you do not to lose it. He said that because often the part that sees the thing for what it is gets shorted when the average person sees it through the "investment" prism.
torkins 10y ago
If you're interested in an alternative to the traditional suggestions, I'd suggest the derivative-trading approach you can find espoused at tastytrade.com. It's not for those who don't want to learn and engage though.
- torkins 10y ago
  Anonymous downvotes not withstanding, I'm interested in comments from anyone informed on the subject who's critical of the approach I mentioned. I don't find much discussion on the subject in forums.
cloudjacker 10y ago
Except there are alternatives, there are plenty of alternatives, and in the year 2046 your successor is going to be writing the same post as this one cleverly pointing out how the assets to be in during the 2010s had comparatively little activity and little liquidity.
- unknown_apostle 10y ago
  Sure there are alternatives. For the record and as a direct response to cloudjacker, my proposed alternative is called precious metals. What's yours?
  - cloudjacker 10y ago
    The counterpoint to precious metals, despite the "it can only go up" logic that is quite convincing, is that there were extremely prolonged periods of losses in precious metals like gold during periods of economic uncertainty way worse than today. Such as the period from 1982 till 2006 (let alone the losses sustained by holding gold from 1980). The price of precious metals simply did not react according to the logic presented today. There are plenty of growing sectors and there will continue to be. Of course, if you want to dollar cost average your whole salary in low growth sectors or metals for 25 years, you should still come out ahead on any uptick two dozen years from now.
    - unknown_apostle 10y ago
      > "during periods of economic uncertainty way worse than today. Such as the period from 1982 till 2006" The bulk of the period you mention is referred to as Great Moderation by high fiving central bankers. It’s part of one of the great green areas on the chart of the original post. It was marked by disinflation, fall of the Iron Curtain, corporate adoption of computers, globalization, trade and offshoring. (And rising central banker activism and financialization.) And yes, gold went through a gruelling secular bear market during the Great Moderation. Conversely, all big red areas on the chart saw positive action in gold. In the 1930s-1940s large quantities of gold were being hoarded. The official price of gold itself was fixed but e.g. gold mines did great. In 1960s gold was being hoarded again, to the extent that by 1971 they had to give up the fixed price and let it float. Since 2000 gold has being doing great again (with corrections in 2008 and a bigger one since 2011). Interestingly enough, the latest correction seems to have reversed the exact day Yellen decided to hike rates with 0.25%. Imagine you could reconstruct a performance chart for gold, similar to the S&P chart of the original post. I’m fairly sure it would be roughly inverse to the original S&P chart. (In practice it’s hard to really do this, because the gold price was fixed until 1971. So before 1971 you’d need to reconstruct perhaps some kind of measure of “stress” on the price fix, or use an imperfect proxy such as gold mines.) > "There are plenty of growing sectors and there will continue to be." True. But in some eras an investor can make a 1000 mistakes and still expect a good outcome. In other times there’s much less room for mistakes in terms of timing and securities picking. Things are harder, like really much harder. The difference is caused by general valuation levels, the kind of profits that are being priced in, and by the amount of eyes that are looking at the same things. That's just a different formulation of the exact same message the original chart is telling us. The last great investment desert ended ~35 years ago. Once again, around the time when people where lining up to buy gold. Crawling out of that desert, if you thought you had found a bargain on the stock market, a real gem of mispricing, chances were good that it actually was a bargain. In my humble opinion, we're somewhere deep inside another investment desert. This one appears to have longer lasting and more elaborate fata morgana's than before. But I expect we will witness a few serious extinction events before we can even think about crawling out.

dbancajas 10y ago

TINA??

unknown_apostle 10y ago
TINA -- "There is no alternative". Many people in 2016 are being talked into stocks and bonds on the conviction that central bankers give them no other choice. Or on its corollary, that central bankers are committed (and are capable) to keep the prices of stocks and bonds elevated to fight global deflation.
- rublev 10y ago
  Well? What's a wiser choice? I know nothing about investing and only started making $ a few months ago so I'm curious what the alternatives are. Just put it in ETF's, rebalance yearly, and wait 20 years?
  - kgwgk 10y ago
    Keep your $ and wait. They won't go up but they won't go down. And when everything else goes down, you invest. (Of course this strategy is good only if everything is overvalued and goes down to fairly valued eventually.)
    - dbancajas 10y ago
      how do you know the bottom of "down"? this is essentially timing the market. good if you are nostradamus i guess. not trying to be a dick here but am looking for average joe plumber advice here.
      - ianai 10y ago
        A wise professor once told me "once the last stalwart hold out has bought into the market the end is near". Once you're to the point where everyone is seemingly in the market and people that shouldn't be are in, too, you're probably in for a swing downward. The Feds aversion to raising rates is really telling.
      - kgwgk 10y ago
        You don't have to wait until the bottom, but it's obviously better to buy assets when they are "cheap" rather than "expensive". Valuation and long-term future returns seem indeed related historically https://www.oppenheimerfunds.com/private-client-groups/article/asset-allocation-through-the-business-cycle/valuation-is-a-limited-predictor-of-asset-returns https://www.oppenheimerfunds.com/private-client-groups/artic... For a more detailed treatment: https://personal.vanguard.com/pdf/s338.pdf https://personal.vanguard.com/pdf/s338.pdf Of course this kind of arguments are not bullet-proof, see for example: http://www.philosophicaleconomics.com/2014/06/critique/ http://www.philosophicaleconomics.com/2014/06/critique/ And one could have missed the last years of bull market applying these arguments already in 2013 (it doesn't mean that the conclusion was wrong with the 2023 horizon, though). Anyway, ignoring valuation completely doesn't seem the right thing to do and people try to forecast returns to make asset allocation decisions: https://www.researchaffiliates.com/en_us/asset-allocation.html https://www.researchaffiliates.com/en_us/asset-allocation.ht... I wouldn't call that market timing.

tonyedgecombe 10y ago

"Stocks and bonds are more expensive than ever." Which is what you would expect most of the time in a growing economy.

unknown_apostle 10y ago
You're right. High valuation multiples imply high expectations about future profits. But those expectations will need to be met before you can look back and say you've done a good investment.
jazzyk 10y ago
Growing economy? The growth rate in the past several years in the developed world has been the lowest in any economic expansion. In the US, around 1.5% lately and is only positive because the inflation rate calculated by the government (by which it is adjusted) is significantly under-estimated.
- tonyedgecombe 10y ago
  I wasn't making a political statement.
  - ericd 10y ago
    I don't think his was a political statement either, just that your implication that it's the result of growth doesn't seem accurate.
- ArkyBeagle 10y ago
  CPI is often ( generally? ) considered to overstate inflation.
kgwgk 10y ago
"More expensive than ever" doesn't mean that the price is higher than ever. The S&P 500 was higher in 2012 than in 2004 but it was less expensive.

gmarx 10y ago

You've been right for years. Easy money has kept things stable but starting from right now, if you invest in stocks and bonds and hold for 20 years, you should expect pretty low returns. Everything is expensive

unknown_apostle 10y ago
Since 1980 and especially since 2000, people have learned that buying into a crash will be rewarded within 2-3 years because of central bank response. They think "you can't loose with stocks long-term", which I believe is largely correct. But they have lost all historical perspective on what "long-term" has occasionally meant. And they underestimate the interim carnage in those instances (1930s, 1970s).

Jugurtha 10y ago

One rather successful man I e-know put it this way: business is the stuff you do to make money; investing is the stuff you do not to lose it. He said that because often the part that sees the thing for what it is gets shorted when the average person sees it through the "investment" prism.

torkins 10y ago

If you're interested in an alternative to the traditional suggestions, I'd suggest the derivative-trading approach you can find espoused at tastytrade.com. It's not for those who don't want to learn and engage though.

torkins 10y ago
Anonymous downvotes not withstanding, I'm interested in comments from anyone informed on the subject who's critical of the approach I mentioned. I don't find much discussion on the subject in forums.

cloudjacker 10y ago

Except there are alternatives, there are plenty of alternatives, and in the year 2046 your successor is going to be writing the same post as this one cleverly pointing out how the assets to be in during the 2010s had comparatively little activity and little liquidity.

unknown_apostle 10y ago
Sure there are alternatives. For the record and as a direct response to cloudjacker, my proposed alternative is called precious metals. What's yours?
- cloudjacker 10y ago
  The counterpoint to precious metals, despite the "it can only go up" logic that is quite convincing, is that there were extremely prolonged periods of losses in precious metals like gold during periods of economic uncertainty way worse than today. Such as the period from 1982 till 2006 (let alone the losses sustained by holding gold from 1980). The price of precious metals simply did not react according to the logic presented today. There are plenty of growing sectors and there will continue to be. Of course, if you want to dollar cost average your whole salary in low growth sectors or metals for 25 years, you should still come out ahead on any uptick two dozen years from now.
  - unknown_apostle 10y ago
    > "during periods of economic uncertainty way worse than today. Such as the period from 1982 till 2006" The bulk of the period you mention is referred to as Great Moderation by high fiving central bankers. It’s part of one of the great green areas on the chart of the original post. It was marked by disinflation, fall of the Iron Curtain, corporate adoption of computers, globalization, trade and offshoring. (And rising central banker activism and financialization.) And yes, gold went through a gruelling secular bear market during the Great Moderation. Conversely, all big red areas on the chart saw positive action in gold. In the 1930s-1940s large quantities of gold were being hoarded. The official price of gold itself was fixed but e.g. gold mines did great. In 1960s gold was being hoarded again, to the extent that by 1971 they had to give up the fixed price and let it float. Since 2000 gold has being doing great again (with corrections in 2008 and a bigger one since 2011). Interestingly enough, the latest correction seems to have reversed the exact day Yellen decided to hike rates with 0.25%. Imagine you could reconstruct a performance chart for gold, similar to the S&P chart of the original post. I’m fairly sure it would be roughly inverse to the original S&P chart. (In practice it’s hard to really do this, because the gold price was fixed until 1971. So before 1971 you’d need to reconstruct perhaps some kind of measure of “stress” on the price fix, or use an imperfect proxy such as gold mines.) > "There are plenty of growing sectors and there will continue to be." True. But in some eras an investor can make a 1000 mistakes and still expect a good outcome. In other times there’s much less room for mistakes in terms of timing and securities picking. Things are harder, like really much harder. The difference is caused by general valuation levels, the kind of profits that are being priced in, and by the amount of eyes that are looking at the same things. That's just a different formulation of the exact same message the original chart is telling us. The last great investment desert ended ~35 years ago. Once again, around the time when people where lining up to buy gold. Crawling out of that desert, if you thought you had found a bargain on the stock market, a real gem of mispricing, chances were good that it actually was a bargain. In my humble opinion, we're somewhere deep inside another investment desert. This one appears to have longer lasting and more elaborate fata morgana's than before. But I expect we will witness a few serious extinction events before we can even think about crawling out.