7 ms·

I put all my 401k into treasury bonds about a year and a half ago, for one simple reason: the market was no longer offering me rational prices for stocks. The

I put all my 401k into treasury bonds about a year and a half ago, for one simple reason: the market was no longer offering me rational prices for stocks. The market is trying to sell me a Ford Fiesta for 100k, and I’m not buying it. You can stand there and say, the value of a Ford Fiesta has gone up 10% a year for ten years, or whatever, and I’m glad that makes you happy but I don’t care. I’m still not buying a Ford Fiesta for 100k because if I’m not pulling my money out for 30 years, it doesn’t matter much what the year to year fluctuations in value are. I’m not speculating on market movements. I just want to get fair value for my money, and if nobody’s going to give it to me then I’m happy to put my money on a pile and sit on it. Eventually the market will turn and someone will offer me a fair deal, I don’t care how long it takes. I’ll take a nap and wait. I know there’s a quote out there that says “the market can stay irrational longer than you can stay solvent” but that doesn’t apply in this case. I don’t need this money. It’s for later. I can stay solvent indefinitely. The market can go suck eggs. If it stays at this inflated level forever, I still haven’t really lost anything. If the cost of a Ford Fiesta goes to a million, well c’est la vie. But everyone knows that it isn’t actually worth that much so it seems like a dumb assumption to make that that will happen. Why would you just assume there’s always going to be a bigger idiot? You eventually run out of idiots and someone will come to me hat in hand and say, “...what about 15k?” and then I’ll get off my pile of money.

quickthrowman 6y ago
If you didn’t buy the dip in March, you never will.
- pinky1417 6y ago
  I don’t think that’s true. For one, that dip lasted a very short time, which is atypical. Second, it wasn’t clear that the market fell below its value. Maybe the value of the market was 40% below its earlier highs. “Buying the dip” is a bad strategy if it’s not paired with understanding value. Dips are sometimes temporary overreactions or part of a continued decline. Enron had a big “dip” soon after reaching its high. I suppose if you bought the dip then sold very quickly after, you’d make money, but you’d have to choose the right dip.
  - quickthrowman 6y ago
    Cmon now, Enron != VTI/SPY/index funds
    - pinky1417 6y ago
      Oh, I didn't mean to suggest they're the same, just explaining why buying the dip isn't a good principal on its own. Something like VTI has the advantage that it's not going to ever be totally worthless unlike any one particular stock. "Buying the dip" as a strategy only makes sense in hindsight. Say it's late 2007 and you have some cash. On Sep 28 of that year, the VTI was at $75.60. By April 2008, it had fallen over 12% to around $66. But it would still go down even more. Same thing as in early 2020: the market falls 5%... do you buy then? Once it fell around 30%, could you identify that as the "bottom" given the information you had at the time?
- fallingfrog 6y ago
  Yeah, I’m not really interested in dip buying, because a dip only has meaning relative to some other peak, and I’m not interested in comparing prices with other prices, I’m comparing prices with real value. And I still felt like the market price of stocks was above what they were really worth. Needed to go down another 30 or 40 percent I think, to reach neutral pricing. To use my Ford Fiesta analogy, if you come to me and say “this Ford Fiesta is only 60k! That’s 40 percent off! I would say you’re using a sleazy sales tactic on me, because it’s not worth 60k either. Comparing it with some other, even more outrageous price and then claiming that it’s therefore cheap is not something I’m going to fall for.
  - wskinner 6y ago
    How do you compute real value? And does your model for real value include the quantity of money and future expectations for the same?
  - quickthrowman 6y ago
    Ok, enjoy your treasuries, I’ll stick with dollar-cost averaging S&P 500. I’m sure your valuation models are better than Wall Street. Hope the treasury yields moving up don’t wreck you, if yields move N%, then bond values move (N*years remaining)% down. Disregard if you buy individual bonds and hold until redemption.
    - jdmoreira 6y ago
      That’s great and all. S&P 500 is a great passive investment. Just keep buying every month whatever the price for long enough and you will most likely hit 10% a year on average. The problem is that you could lose money for 10 years. 1970-80. Mindless buying S&P 500 is great but you might want to do better. Most people will do worse if they try to beat the index but some people will do 20% a year for as long as they keep buying good businesses at good prices.
pinky1417 6y ago
There’s value in the optionality of cash! I know there’s good reason to dollar-cost average (for someone who squirrels money away primarily into index funds) since it’s difficult or impossible to time the market... and the market tends to go up over long periods. But I don’t think it’s unreasonable for an indexer to carry more cash now. I’m not as extreme as you are (I just stop adding to my indexes rather than liquidating them), but the worst case is that I lose wealth to inflation. Best case is that, if market prices decline well past fair value, I can deploy capital. And, since I’m not solely an indexer, if I happen to see a particular undervalued asset while the market remains high, I can purchase it.
- fallingfrog 6y ago
  I wish there was some way I could just put money into a weighted bucket of every international currency in case one or a few of them inflate to nothing. That’s the only thing that worries me.
  - pinky1417 6y ago
    In my humble opinion, that might overcomplicate things without providing much in the way of risk reduction. Owning a basket of currencies might make sense in a world where, globally, only some central banks had loose money policies. But, at least right now, central banks are all printing money. If you’re a US investor like me, you might have inflation concerns, but if inflation occurs globally, I might do worse owning a basket of currencies than owning USD. What would I do if I were concerned about inflation but wanted cash? I suppose this doesn’t help anyone who’s solely into indexing, and I know this locks up cash, but I’d look for unlikely-to-fail dividend-paying companies that are relatively protected against inflation and that are trading at relatively fair values. Essentially, you’d be saying “I don’t care if I can’t sell this stock for 10 years so long as the 4%+ current dividend yield ratchets up at or above inflation.”
jsight 6y ago
I'm curious what metrics you use to determine that the market is currently overvalued as a whole?
- benibela 6y ago
  There is this: http://www.currentmarketvaluation.com/ http://www.currentmarketvaluation.com/
  - jsight 6y ago
    I feel like any model that is based on earnings during the covid era is going to have a few issues. When earnings fall simultaneously, combined with large stimulus, things will get pretty interesting. I'm not saying it isn't overvalued, just that there needs to be more detai here than just "the P/E is historically high".
mshumi 6y ago
Have you considered the possibility of a crash up in asset prices (currency devaluation, negative interest rates). Cash wouldn't be so good in that scenario. I feel similarly about current market valuations and mostly hold cash-equivalents, however I've also bought a significant amount of otm call leaps on agriculture/metals funds to hedge a crash up scenario.

quickthrowman 6y ago

If you didn’t buy the dip in March, you never will.

pinky1417 6y ago
I don’t think that’s true. For one, that dip lasted a very short time, which is atypical. Second, it wasn’t clear that the market fell below its value. Maybe the value of the market was 40% below its earlier highs. “Buying the dip” is a bad strategy if it’s not paired with understanding value. Dips are sometimes temporary overreactions or part of a continued decline. Enron had a big “dip” soon after reaching its high. I suppose if you bought the dip then sold very quickly after, you’d make money, but you’d have to choose the right dip.
- quickthrowman 6y ago
  Cmon now, Enron != VTI/SPY/index funds
  - pinky1417 6y ago
    Oh, I didn't mean to suggest they're the same, just explaining why buying the dip isn't a good principal on its own. Something like VTI has the advantage that it's not going to ever be totally worthless unlike any one particular stock. "Buying the dip" as a strategy only makes sense in hindsight. Say it's late 2007 and you have some cash. On Sep 28 of that year, the VTI was at $75.60. By April 2008, it had fallen over 12% to around $66. But it would still go down even more. Same thing as in early 2020: the market falls 5%... do you buy then? Once it fell around 30%, could you identify that as the "bottom" given the information you had at the time?
fallingfrog 6y ago
Yeah, I’m not really interested in dip buying, because a dip only has meaning relative to some other peak, and I’m not interested in comparing prices with other prices, I’m comparing prices with real value. And I still felt like the market price of stocks was above what they were really worth. Needed to go down another 30 or 40 percent I think, to reach neutral pricing. To use my Ford Fiesta analogy, if you come to me and say “this Ford Fiesta is only 60k! That’s 40 percent off! I would say you’re using a sleazy sales tactic on me, because it’s not worth 60k either. Comparing it with some other, even more outrageous price and then claiming that it’s therefore cheap is not something I’m going to fall for.
- wskinner 6y ago
  How do you compute real value? And does your model for real value include the quantity of money and future expectations for the same?
- quickthrowman 6y ago
  Ok, enjoy your treasuries, I’ll stick with dollar-cost averaging S&P 500. I’m sure your valuation models are better than Wall Street. Hope the treasury yields moving up don’t wreck you, if yields move N%, then bond values move (N*years remaining)% down. Disregard if you buy individual bonds and hold until redemption.
  - jdmoreira 6y ago
    That’s great and all. S&P 500 is a great passive investment. Just keep buying every month whatever the price for long enough and you will most likely hit 10% a year on average. The problem is that you could lose money for 10 years. 1970-80. Mindless buying S&P 500 is great but you might want to do better. Most people will do worse if they try to beat the index but some people will do 20% a year for as long as they keep buying good businesses at good prices.

pinky1417 6y ago

There’s value in the optionality of cash! I know there’s good reason to dollar-cost average (for someone who squirrels money away primarily into index funds) since it’s difficult or impossible to time the market... and the market tends to go up over long periods. But I don’t think it’s unreasonable for an indexer to carry more cash now. I’m not as extreme as you are (I just stop adding to my indexes rather than liquidating them), but the worst case is that I lose wealth to inflation. Best case is that, if market prices decline well past fair value, I can deploy capital. And, since I’m not solely an indexer, if I happen to see a particular undervalued asset while the market remains high, I can purchase it.

fallingfrog 6y ago
I wish there was some way I could just put money into a weighted bucket of every international currency in case one or a few of them inflate to nothing. That’s the only thing that worries me.
- pinky1417 6y ago
  In my humble opinion, that might overcomplicate things without providing much in the way of risk reduction. Owning a basket of currencies might make sense in a world where, globally, only some central banks had loose money policies. But, at least right now, central banks are all printing money. If you’re a US investor like me, you might have inflation concerns, but if inflation occurs globally, I might do worse owning a basket of currencies than owning USD. What would I do if I were concerned about inflation but wanted cash? I suppose this doesn’t help anyone who’s solely into indexing, and I know this locks up cash, but I’d look for unlikely-to-fail dividend-paying companies that are relatively protected against inflation and that are trading at relatively fair values. Essentially, you’d be saying “I don’t care if I can’t sell this stock for 10 years so long as the 4%+ current dividend yield ratchets up at or above inflation.”

jsight 6y ago

I'm curious what metrics you use to determine that the market is currently overvalued as a whole?

benibela 6y ago
There is this: http://www.currentmarketvaluation.com/ http://www.currentmarketvaluation.com/
- jsight 6y ago
  I feel like any model that is based on earnings during the covid era is going to have a few issues. When earnings fall simultaneously, combined with large stimulus, things will get pretty interesting. I'm not saying it isn't overvalued, just that there needs to be more detai here than just "the P/E is historically high".

mshumi 6y ago

Have you considered the possibility of a crash up in asset prices (currency devaluation, negative interest rates). Cash wouldn't be so good in that scenario. I feel similarly about current market valuations and mostly hold cash-equivalents, however I've also bought a significant amount of otm call leaps on agriculture/metals funds to hedge a crash up scenario.