Portfolio evaluation and correcting for the wealth effect

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7Wannabe5
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Joined: Fri Oct 18, 2013 9:03 am

Re: Portfolio evaluation and correcting for the wealth effect

Post by 7Wannabe5 »

Shouldn't the question of why earnings are low relative to price be considered as well as why price is high relative to earnings? Maybe frugality is catching on? :lol: Maybe passivity is becoming increasingly expensive?

I was reading an interview in Barron's (can't recall name) with somebody quite intelligent who made the point that there is a level beyond the wisdom in simply not believing "It's different this time." The economy and the market are complex evolving systems, so strategies have to change. At some point previous benchmarks must be abandoned. For instance, the very secure investment strategy outlined in YMOYL wouldn't work so well nowadays. There are underlying mechanics beyond statistics and indices even in regards to such factors as irrational exuberance of the mob. How is the Robinhood investor of 2020 like the Newsboy Investor of 1928? How might he be different? Etc.

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unemployable
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Re: Portfolio evaluation and correcting for the wealth effect

Post by unemployable »

7Wannabe5 wrote:
Sun Jan 10, 2021 8:04 am
The economy and the market are complex evolving systems, so strategies have to change. At some point previous benchmarks must be abandoned.
Probably most importantly, the Greenspan put didn't exist before 1987, although some previous crashes were accompanied by a fair amount of intervention by private parties, most notably 1907. (Monetary policy tightened after 1929.) How to correctly value this option and account for its potential "expiration" is a separate issue, but for now the strike price seems to be in the down 40-50% range.

In addition, share buybacks have become a more popular way to return profits to shareholders versus dividends. This should raise P/Es for a couple reasons: due to favorable tax treatment (zero for buybacks until you sell vs. 30%+ for dividends immediately if you're rich and live in a high-tax state), and due to a promised lower P/E after the buyback due to fewer outstanding shares.

ertyu
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Re: Portfolio evaluation and correcting for the wealth effect

Post by ertyu »

Quadalupe wrote:
Sun Jan 10, 2021 7:52 am

The value of a 60% S&P500 and 40%10Yr Treasury portfolio currently is 0.6*15.81/38.43 + 0.4 * 1.119/3.84 = 36%.
ouch

i hate this situation. on the one hand, now is a terrible, horrible, bad, no good time to put cash into the market. on the other hand, it keeps going up and up and the amount of real assets one can buy with any given level of cash is less and less. everyone is having fun except this apparent permabear here

2Birds1Stone
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Re: Portfolio evaluation and correcting for the wealth effect

Post by 2Birds1Stone »

ertyu wrote:
Mon Jan 11, 2021 2:05 pm
everyone is having fun except this apparent permabear here
non solum

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