5 ms·

Cool. Now do the Japan bubble in the late 1980s.

by sfblah 6y ago

throw0101a 6y ago
Already did in another comment: * https://news.ycombinator.com/item?id=26138600 https://news.ycombinator.com/item?id=26138600
- sfblah 6y ago
  Thanks. It sounds like you flipped the script and basically endorsed market timing based on the CAPE in that scenario. Maybe I’m misreading.
  - throw0101a 6y ago
    Asset allocation and portfolio management is about managing risk for the returns that are desired and/or needed. If I can achieve my (retirement) goals with only 4% returns, then why would I take on extra risk to get 6%? If I have 60% equities and 40% bonds to achieve my 4% returns, and equities go crazy, such that I've earned a pile of money in that portion of the portfolio such that they now make up (e.g.) 70%, then selling some off to rebalance is not about market timing, but rather about managing risk and not having too many financial eggs in a particular basket. The Nikkei 225 was 6700 in January 1980: * https://fred.stlouisfed.org/series/NIKKEI225 https://fred.stlouisfed.org/series/NIKKEI225 It had doubled by February 1986: you should have been taking money off the table as it went up. Take your profits and put it in other places: bonds, international. Further, as the valuations/CAPE went up, you should be expecting future returns to go down. By the time the Nikkei hit a CAPE of 50, that means expected returns would be 2%: is there any place where one could have put one's money that earned >2%? When the Nikkei hit a CAPE of 94, that means expected returns were ~1%. Japan 10-year bond were making 5% at the same time: * https://fred.stlouisfed.org/series/IRLTLT01JPM156N https://fred.stlouisfed.org/series/IRLTLT01JPM156N A bunch of money invested in Japan, in 1990, with a 30% JP equity allocation, a 40% JP bond allocation, and a 30% international equity allocation, would have funded a thirty year retirement using the 4% rule just fine: * https://www.gocurrycracker.com/lessons-from-japans-lost-decades/ https://www.gocurrycracker.com/lessons-from-japans-lost-deca... Why would anyone be investing 100% anywhere? Regardless of it being the Japan, US (S&P 500, NASDAQ, Russell 3000, etc), or any other other area/country? Harry Markowitz, who won the Economics Nobel for portfolio theory, said that diversification is the only free lunch in finance. * https://en.wikipedia.org/wiki/Harry_Markowitz https://en.wikipedia.org/wiki/Harry_Markowitz And answer to the "but Japan" quip is: diversification.

Cool. Now do the Japan bubble in the late 1980s.

by sfblah 6y ago

Cool. Now do the Japan bubble in the late 1980s.

Already did in another comment: * https://news.ycombinator.com/item?id=26138600 https://news.ycombinator.com/item?id=26138600

sfblah 6y ago
Thanks. It sounds like you flipped the script and basically endorsed market timing based on the CAPE in that scenario. Maybe I’m misreading.
- throw0101a 6y ago
  Asset allocation and portfolio management is about managing risk for the returns that are desired and/or needed. If I can achieve my (retirement) goals with only 4% returns, then why would I take on extra risk to get 6%? If I have 60% equities and 40% bonds to achieve my 4% returns, and equities go crazy, such that I've earned a pile of money in that portion of the portfolio such that they now make up (e.g.) 70%, then selling some off to rebalance is not about market timing, but rather about managing risk and not having too many financial eggs in a particular basket. The Nikkei 225 was 6700 in January 1980: * https://fred.stlouisfed.org/series/NIKKEI225 https://fred.stlouisfed.org/series/NIKKEI225 It had doubled by February 1986: you should have been taking money off the table as it went up. Take your profits and put it in other places: bonds, international. Further, as the valuations/CAPE went up, you should be expecting future returns to go down. By the time the Nikkei hit a CAPE of 50, that means expected returns would be 2%: is there any place where one could have put one's money that earned >2%? When the Nikkei hit a CAPE of 94, that means expected returns were ~1%. Japan 10-year bond were making 5% at the same time: * https://fred.stlouisfed.org/series/IRLTLT01JPM156N https://fred.stlouisfed.org/series/IRLTLT01JPM156N A bunch of money invested in Japan, in 1990, with a 30% JP equity allocation, a 40% JP bond allocation, and a 30% international equity allocation, would have funded a thirty year retirement using the 4% rule just fine: * https://www.gocurrycracker.com/lessons-from-japans-lost-decades/ https://www.gocurrycracker.com/lessons-from-japans-lost-deca... Why would anyone be investing 100% anywhere? Regardless of it being the Japan, US (S&P 500, NASDAQ, Russell 3000, etc), or any other other area/country? Harry Markowitz, who won the Economics Nobel for portfolio theory, said that diversification is the only free lunch in finance. * https://en.wikipedia.org/wiki/Harry_Markowitz https://en.wikipedia.org/wiki/Harry_Markowitz And answer to the "but Japan" quip is: diversification.