Global Macro Trading Journal
- Thread starter Daal
- Start date
Randomly says it all. I would certainly never advocate that (nor would I advocate buying the averages).
Dow was 50% higher from the mid 70s bottom to what is considered the start of the bull market in 1982 (keeping in mind the big drop in the averages in early 1982). Check some other ones.
Warren Buffett reprint from 1974 ...
http://www.forbes.com/2008/04/30/warren-buffett-profile-invest-oped-cx_hs_0430buffett.html
http://www.forbes.com/2008/04/30/warren-buffett-profile-invest-oped-cx_hs_0430buffett.html
great call GoC
(posted for historical reference: GC 1737 and PL 1801)
also great call by anyone else who noticed this trade idea:
http://www.elitetrader.com/vb/showthread.php?s=&threadid=225070&highlight=platinum
http://www.elitetrader.com/vb/showthread.php?s=&threadid=225209&highlight=platinum
Hussman has a nice graph in his recent commentary (http://www.hussmanfunds.com/wmc/wmc110808.htm) comparing 10y projected total returns (nominal) with actual returns. Note the projection for the 1974 bottom (~7-9% annualized, before inflation) vs. the projection at the outset of the great early 80s bull market (~15-18% annualized).
The current projection for the next 10y reads something like 5%. With the recent drop in equities let's hike that to say a nominal 6-7% annualized. Plug in your personal expected inflation over the next 10 years and you arrive at real projected total returns that are probably well below the 1950-2010 average of 7%.
Tradable intermediate term bottom? Certainly, why not. Long-term buy & hold opportunity promising above-average returns? Not by historical standards.
The current projection for the next 10y reads something like 5%. With the recent drop in equities let's hike that to say a nominal 6-7% annualized. Plug in your personal expected inflation over the next 10 years and you arrive at real projected total returns that are probably well below the 1950-2010 average of 7%.
Tradable intermediate term bottom? Certainly, why not. Long-term buy & hold opportunity promising above-average returns? Not by historical standards.
That's relevant if you are planning on owning the index long-term. Not so relevant if you are picking stocks. Almost totally irrelevant if you partially or fully hedge via individual shorts or the index. As an example, there are solid stocks yielding 5-10% at the moment. With that kind of yield, how likely is it they will under perform Treasuries or cash at 2.2-0% yield?
If you hedge, your performance is mostly your stock picking, very little to do with market direction. If you partially or tactically hedge, market direction matters, but not nearly as much as for a long-only portfolio. Market direction is only king if you are long indices, and what trader or hedge fund guy just buys and holds SPY?
There are far more possibilities and opportunities in the market than just going 100% long the index, sitting back and praying.
Two flaws in this reasoning. Firstly, what are the alternatives to this 6-7% nominal return? Treasuries at 2.3%. Cash at 0%. TIPS at 0% real yield. How are they are going to beat 6-7% nominal, or even come close to it?
Second, it assumes one has to own the index, which is full of shitty businesses at (by definition) average valuations. Instead, you can stock pick and own high quality blue chip businesses at very little premium to the overall market. And these stocks appear to have significantly superior return prospects, as identified by the likes of otherwise bearish commentators like Jeremy Grantham.
Hussman has basically earned no money in his growth fund for the last 5 years. Why should I listen to him?
Responding to butterbean's hussman post ...
Depends what you buy. I'm not sure what this obsession with the averages is. Like I said, the Dow could be 11K in 10 years for all I care. The right companies bought at the right prices will do just fine, no matter what a bunch of stocks picked by the editors of a news organization do.
Buffett, Lynch, Grant, and a host of others who blow Hussman away, probably couldn't even tell you what the averages are and probably don't care. Buy the right businesses at the right prices and let DJ and this Hussman character worry about whatever it is they worry about.
Depends what you buy. I'm not sure what this obsession with the averages is. Like I said, the Dow could be 11K in 10 years for all I care. The right companies bought at the right prices will do just fine, no matter what a bunch of stocks picked by the editors of a news organization do.
Buffett, Lynch, Grant, and a host of others who blow Hussman away, probably couldn't even tell you what the averages are and probably don't care. Buy the right businesses at the right prices and let DJ and this Hussman character worry about whatever it is they worry about.
A shitty business selling at a cheap price, with shareholder-unfriendly management, and not growing owner-earnings/free cash flow can stay cheap. Luckily no one compels us to buy such poorly managed crap companies, and we can instead focus on companies with decent top and bottom-line growth, shareholder-friendly management with decent ownership positions, good business characteristics, sound financials, and so on.
I don't understand that argument. I was pointing out there's reason to believe 10 year future returns are likely to be below historical average. And you counter that by saying there is no alternative asset class so you feel forced to buy right now? You ignore the possibility that there may be points in time over the next couple of years that may offer dramatically better buying opportunities for equities.
On a side note: Consider BAA corporate bonds in your above comparison. They yield 5-7% right now and may smoothen the ride while waiting for a time when equities actually do offer above average projected total returns.