I held through 2008, held through COVID, still holding. It’s a long game.
I do keep about $10k in fun money in case I want to make a silly wager, but everything else is in index funds and a little bonds.
Agreed. The pain would happen over a longer period of time this time around.
My time horizon is shorter than most other folks here. But even at age 74 I hold about 70% of my investments in equities. However I now sell equities whenever I am required to make minimum payments from my tax sheltered accounts.
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This is exactly why I don’t think we’re going to see any big move down - but if for some reason it ever happens, the exits are going to be horribly clogged after an incredible amount of pain.
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If the VIX gets any higher (currently 15.71, +8% on the day), Janet Yellen is going to have to race to a microphone to jawbone it back down.
P&C insurers taking it on the chin today across the board
https://www.marketwatch.com/investing/index/sp500.40301040?countrycode=xx
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Coming at this really late, so my apologies…
On P/E ratios, I’m wondering how much of this might also be due to changes in how the stock market itself works. In the 1920s, it was complicated to get into the stock market for most people. Today, vastly more people are invested and have a greater share of their wealth invested. As a result, competition for ownership of individual stocks is higher today than in the past. Further, it’s easier for people from other countries to buy stocks on different exchanges, again increasing competition for share ownership.
Another issue I heard on the Rick Edelman podcast is that the number of companies on the stock market has been decreasing over time. Big companies are swallowing up small ones and many small ones are seeking private equity rather than listing on the market.
Perhaps the way to look at it is that P/E ratios are sort of like $/sq.ft ratios for houses. The stratospheric $/sq.ft ratios for places in Manhattan compared to Flint, Michigan aren’t because of excessive speculation on Manhattan property prices, but rather because so many people want to be in Manhattan vs. somewhere else. Similarly, more people wanted there money in the stock market than elsewhere today vs. in the past.
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I agree that this may be driving up public equity prices if we only look at the retail market. However the institutional side may be different?
Just as an example, and the US may be similar, the 8 big Maple Funds have been steadily decreasing their exposure to public equities in recent years. The one I deal with in BC is down to about 25% of total assets in public equities. Thus, although the supply of public equity offerings may be diminishing, the demand for them on the institutional side is also reducing? Since both supply AND demand are reducing that may be a mitigating factor? Given that the Maple Funds invest trillions of dollars in pension assets this may be significant? And, of course, the big US pension funds may also be skewing more towards private assets?
I do agree though that retail investor demand for public equities is still strong.
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Sorry, I’m a bit ignorant. What are the Maple Funds?
Eta: rereading this, is it basically government pension funds?
The “Maple 8” is an informal term for 8 of Canada’s largest public sector investment managers. They are OMERS, AIMCo, BCI, Caisse de dépôt et placement du Québec, CPP Investments, HOOPP, Ontario Teachers’ Pension Plan, and PSP Investments.
I have largely used acronyms above as they are lengthy to write out and can be googled. Except for CPP, they cover only public sector employees so are similar to CALPERS, etc., in the US.
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These trends tend to be global so I expect the public pension funds in other countries are also shifting more assets into private investments.
The Canadian governance model for public pension plans has been adopted in other countries, including here. However the 100% hands off approach by Canadian politicians hasn’t been accepted totally in the US: some, primarily Republican, state legislatures place restrictions on permitted investment practices to protect certain industries.
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You can’t say all that and not include the fact that maple 8 has underperformed their own target (as well as the overall us stock market, which may not be a fair comparison)
They could have done better without all this politically monkeying and just focused on returns. But no, ESG funds gotta eat too I guess lmao
The US stock market is indeed an unfair benchmark for the total fund performance.
The CPP Fund at least outperforms its peer group, including comparable large US funds.
I made the critical mistake of googling “maple 8 fund performance” and reading the google AI generated summary
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The Maple 8 are not above criticism but over the long run have shown steady results.
One comment some Canadian politicians have been making recently is that they should invest more in Canada. My response is “no, they have a fiduciary responsibility to get the best returns for their stakeholders and that requires large foreign investments”.
The biggest challenge recently for them has been commercial real estate, but everyone is struggling with that.
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Same in the UK. They want pension funds to invest their money in the UK.
Problem is returns in the UK are very poor because of the planning problems (which make building things very costly), so the pension money gets invested abroad for better returns.
An additional problem is that the politicians pensions are run via a standalone scheme (for MPs), so they have zero skin in the game. They want the pension funds and their members to take the investment risk while they just sit there not taking any risks (and will likely take any credit available).
Big fat “no thanks” on that one. Lets start by aligning things so that the politicians are also exposed (like in most companies that require directors to have shares in the company) when pension schemes invest in the UK.
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I’d be a bit hesitant to say Canadian politicians being 100% hands off. Alberta seems to want to use their public pensions as a slush fund for oil and gas and I’ve heard other politicians saying more of our pensions should be invested in Canada
Unlike certain US states, the Alberta government has at least not yet introduced any restrictive legislation or otherwise interfered with AIMCO’s investment activities. It is not a vote getter to do so imo.
Quebec politicians have, though, influenced some of the Caisses’s decisions. The CPP in contrast has been free of political interference but that arms-length arrangement was fundamental to its investment reform in the 1990’s. Can’t see that type of reform ever happening with the US OASDI funds.
Alberta is talking about withdrawing from CPP…
Talk is different from action. This issue will die when the politicians realize that the voters are not interested.
I think there’s something to this, but the correct answer is far more nuanced - like all answers to complex questions like this one. Which, I was going to type something out but then realized it’s still going to be incomplete and I don’t have time to get into a full discussion on it.
Short: I think current P/Es are appropriate for the situation the Fed has created over the last 15 years. I think current P/Es are not appropriate for the Fed that existed in the 1980s, where if you as an investor were going to suffer a loss the Fed said “that’s your problem, not ours” and let the market clear the losers out on occasion. We really haven’t seen that in years, and arguably didn’t really see that in 2008 either.
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