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Shiller and his followers have been too bearish for a long, long time. He puts way too much faith in the CAPE, in my opinion. It's just a number, and appears to be a flawed number at that. Bad bear markets are typically the result of recession and/or credit problems. CAPE does not tell us if either of those problems are brewing.
One of the worst markets in the past century was '73-'74, and CAPE was not terribly high then. In contrast, the market has been fine in many periods when the CAPE was higher than in 1973.
I mean...if you look at good companies, the ones that survive the recession tend to come out way ahead. The way to avoid ANY pain is to only invest money you won't need. At the end of the day the only days that matter are the day you buy and the day you sell, and hopefully you're buying things that pay you while you wait (aka dividends). If dividends are a part of your earnings you need to live on, then maybe go more cautious....but what to replace it with?
The trick is to not have to sell during a recession. The better trick is being able to buy more. Remember, the horrid stock crash of 1929...at the high right before it touched 381.17. And I'll be the first to say it's not an apples to apples comparison, but we've come a long way since then.
We might lose some on a correction here, and it might be big, but it will be back. The only way it's going down is if N. Korea dots the horizon with mushroom clouds....and then it wouldn't matter anyway.
I mean...if you look at good companies, the ones that survive the recession tend to come out way ahead.
But if you know this, so do millions of other investors, and they've acted on it already, driving the price of those good companies up to reflect the survival advantage. So their action reduces your upside and increases your downside. You can't win with any targeted strategy like this unless you have either superior market knowlege (very superior, since you're competing with pro investors) or you have insider information. Either can be very useful!
But if you know this, so do millions of other investors, and they've acted on it already, driving the price of those good companies up to reflect the survival advantage. So their action reduces your upside and increases your downside. You can't win with any targeted strategy like this unless you have either superior market knowlege (very superior, since you're competing with pro investors) or you have insider information. Either can be very useful!
50-60 percent in low expense mutual funds that follow the S&P 500 or mid cap if you feel frisky. 30 percent in 10 year treasury bonds or inflation protected. ... about 10 percent in cash. You won't make a killing but in the long run you will do fine. Picking the "right" companies is akin to going to the track.
You don't have to personalize it. I was just posting an article. I wasn't even espousing it. I thought it was interesting though. Perhaps you should have a little more tact when you respond to people. And I'm getting "quick reputation" responses, so there are others who agree with me.
But if you know this, so do millions of other investors, and they've acted on it already, driving the price of those good companies up to reflect the survival advantage. So their action reduces your upside and increases your downside. You can't win with any targeted strategy like this unless you have either superior market knowlege (very superior, since you're competing with pro investors) or you have insider information. Either can be very useful!
You can use superior intestinal fortitude. Lots of people will just sell in fear when things are dropping. Others will have no choice but to sell if they are leveraged. Prices are not always set by rational thinkers.
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