Not necessarily referring to ZH or Hiam here, but anybody who is talking about nibbling at equities for long-term hold has a dangerously high tolerance for risk. When the NASDAQ gets somewhere close to the trendline since the end of the 70's bear, I'll start to think about it. Non-tech has less far to fall, but fall it will.
What is the alternative? This is all going to right itself like some silly little episodic correction? I don't think so.
Remember that Buffett dude? -g Well, I was re-reading an old article based he wrote a few years ago, 1999 I think. Here are some excerpts:
On the 17 years from 1964 to 1981:
Now, to get some historical perspective, let's look back at the 34 years before this one--and here we are going to see an almost Biblical kind of symmetry, in the sense of lean years and fat years--to observe what happened in the stock market. Take, to begin with, the first 17 years of the period, from the end of 1964 through 1981. Here's what took place in that interval:
Dow Jones Industrial Average
Dec. 31, 1964: 874.12
Dec. 31, 1981: 875.00
Now I'm known as a long-term investor and a patient guy, but that is not my idea of a big move.
On the statistical rarity of the recent bull run:
The increase in equity values since 1981 beats anything you can find in history. This increase even surpasses what you would have realized if you'd bought stocks in 1932, at their Depression bottom--on its lowest day, July 8, 1932, the Dow closed at 41.22--and held them for 17 years.
On manic market participation:
These dramatic changes in the two fundamentals [rates and net corp profits] that matter most to investors explain much, though not all, of the more than tenfold rise in equity prices--the Dow went from 875 to 9,181--during this 17-year period. What was at work also, of course, was market psychology. Once a bull market gets under way, and once you reach the point where everybody has made money no matter what system he or she followed, a crowd is attracted into the game that is responding not to interest rates and profits but simply to the fact that it seems a mistake to be out of stocks. In effect, these people superimpose an I-can't-miss-the-party factor on top of the fundamental factors that drive the market. Like Pavlov's dog, these "investors" learn that when the bell rings--in this case, the one that opens the New York Stock Exchange at 9:30 a.m.--they get fed. Through this daily reinforcement, they become convinced that there is a God and that He wants them to get rich.
On insane market-caps:
FORTUNE 500
1998 profits: $334,335,000,000
Market value on March 15, 1999: $9,907,233,000,000
As we focus on those two numbers, we need to be aware that the profits figure has its quirks.
...
But leaving aside these qualifications, investors were saying on March 15 this year that they would pay a hefty $10 trillion for the $334 billion in profits. Bear in mind--this is a critical fact often ignored--that investors as a whole cannot get anything out of their businesses except what the businesses earn.
On the next 17 years ahead (from 1999):
Let me summarize what I've been saying about the stock market: I think it's very hard to come up with a persuasive case that equities will over the next 17 years perform anything like--anything like--they've performed in the past 17. If I had to pick the most probable return, from appreciation and dividends combined, that investors in aggregate--repeat, aggregate--would earn in a world of constant interest rates, 2% inflation, and those ever hurtful frictional costs, it would be 6%. If you strip out the inflation component from this nominal return (which you would need to do however inflation fluctuates), that's 4% in real terms. And if 4% is wrong, I believe that the percentage is just as likely to be less as more.
Yea, I know. He's old and stupid. He doesn't understand that this really is a new era. -vbg
The NASDAQ blowoff that he so stupidly missed will look like a narrow blip on the long-term charts. |
