Hussman shows a risk of 50-66% [US stock]market losses

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Mister Imperceptible
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Re: Hussman shows a risk of 50-66% [US stock]market losses

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I enjoy the sounds of ringing bells.

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by LetsRetireYoung »

theanimal wrote:
Wed Oct 27, 2021 8:19 pm
I don't want to speak for Jacob but not everyone operates under the same premise. Most operate with the intention of maximizing gains as much as possible. But others will operate with the intention to minimize losses. IIRC, Jacob has more years worth of money than he expects he can spend within his lifetime. More money doesn't really change anything.
That assumes inflation-free world. Like a physics textbook where, for the sake of each exercise, there's zero friction, so the "F = m x a" formula you solve for will fit perfectly, without those pesky real-world complications. In this here world in which we live, there is inflation. Keeping your money in cash means that every single year, your hoard will buy you fewer Big Macs. Compounding interest works in reverse, too. Get 3-5% inflation every single year, and decades from now, your $100 bill will barely match a child's weekly allowance.

Even keeping your money in inflation-protected bonds would be a better move than all cash, all the time.

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by theanimal »

We aren't talking all time, but a period of 3 years.

I should further note, that buying big macs is inconsequential if you have the ability to grow and make your own. Money is a very small part of the stool that is ERE.

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by LetsRetireYoung »

theanimal wrote:
Wed Oct 27, 2021 9:47 pm
We aren't talking all time, but a period of 3 years.

I should further note, that buying big macs is inconsequential if you have the ability to grow and make your own. Money is a very small part of the stool that is ERE.
We'll have to agree to disagree, then. :) If you sincerely believe that money is a very small part of the ERE, then please feel free to send me all (or most, or the plurality of) your money. :lol: I will appreciate it much, much more.

Keeping your money in cash for even 3 years also has a pretty bad overall effect. Let's assume the annual inflation is only 3%. That means after 1 year in cash, not growing at all, the purchasing power of your money will be 97%. In 2 years, it'll be 94.09%. In 3 years, it'll be 91.27%. Simply by keeping your resources in plain cash, you'd lose 8.73%. :shock:

I used Big Macs as just one example (economists love the so-called Big Mac index haha) but everything goes up in price. You wouldn't be able to find even 3 different asset types (food, tools, cars, etc) whose prices remained stable or actually dropped over time. Sooo, once again: I sincerely hoped nobody here followed that advice and went all in on cash 3 years ago. That would be actively counterproductive: even plain old bonds would be better.

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by Dave »

@LetsRetireYoung

ERE absolutely goes far, far beyond money, but that doesn't imply that one is happy to send it all away, either, hah. It's just one tool in a kit. As those other tools become more powerful, the money tool loses its importance and the need to optimize it diminishes.

Further, there is some hindsight bias at play here. You're looking back after 3 up up up years in the markets and saying "well inflation is bad so don't hold cash - you would have done better with anything else". Sure, you can say that now. But it's not always proven true in all periods - there are definitely 3 year periods, often in periods with equities starting at elevated valuations, where you would be better off holding cash.

That's not even to mention the option value of cash in the event of a downturn. The actual prior three year period shows that: if you sat on cash until the early 2020 equity crash and then invested heavily, you would have outperformed those fully invested the whole time.

Point is, yes, long-term holding cash has risks, but holding securities at elevated prices does too, and holding cash gives option value that can be tremendously valuable. The context of holding the cash matters a lot - if we were talking about March 2020 I think that makes your case stronger, but in the context of a long running bull market at seemingly elevated valuations, I'm not sure it's so clear cut.

Again, not speaking to what @jacob said or did, but just general commentary that holding cash for select periods of time isn't quite as bad as you make it out to be, and some people are playing more defensive strategies that prioritize guarding against black swans rather than maximizing performance.

We aren't all playing the same game.

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by theanimal »

What Dave said.

@LRY- I'd recommend reading the wiki and the book. You'll discover that FI is more of a byproduct of an ERE life than the actual goal. There are some here who are not even attempting to achieve FI in the traditional sense. If you keep in mind that ERE stands for Emergent Renaissance Ecology, rather than Early Retirement Extreme it may make more sense.

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by steveo73 »

This thread is pretty funny. Never ever drink the kool aid without looking at the facts for yourself. There are always going to be bears and they are going to be right sometimes. When they are right they may look smart and they may even tell you about it. Over time though the bears are consistently wrong. One thing I've learnt is to ignore those guys.

@LetsRetireYoung - one thing I did years ago was figure out the best way to invest. I did this on a couple of really simple principles:-

1. I'm not smarter or better than anyone else when it comes to picking markets.
2. I don't trust anyone who thinks they are smarter or better than anyone else when it comes to picking markets.
3. Picking markets (individual stocks or customized portfolios) is for people who have viewpoints counter to points 1 & 2 above. These people will consistently under perform.
4. Inflation is the no 1 killer of retirement.
5. I have to worry a little bit about SORR (sequence of returns risk).

I've used a simple approach of heavy investment into stock indexes and a little bit of cash/bonds on the side. It works and I'm confident it will work into the future. The only way it won't work is if everything goes to shit and if that happens nothing is going to work. You can use some other forms of investments but I have no confidence in gold or bitcoin or individualized stock picks. That isn't my game.

Financial independence requires saving money and investing wisely. That's it. There isn't any special secret sauce or anything like that.

To me ERE is Jacobs take on how to live his life but dude live your life on your terms. Take what is useful and throw the rest in the bin. I'd add it's mostly just mental gymnastics anyway. I retired with a 5% WR but I'd bet money on it that my 5% WR is a lot safer than a lot of people's 3% WR. The reason being is that when it comes to structuring your finances and calculating your WR it's fuzzy math. Trying to compare WR's between people doesn't really work.

In Agile project management there is a way to work out your teams velocity. The team assigns points to work tasks. The thing is the same work task may be 10 points in team a and 2 points in team b. Team A may complete that work quicker and to a better quality than team B.

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by LetsRetireYoung »

Dave wrote:
Thu Oct 28, 2021 11:02 am
Further, there is some hindsight bias at play here. You're looking back after 3 up up up years in the markets and saying "well inflation is bad so don't hold cash - you would have done better with anything else". Sure, you can say that now. But it's not always proven true in all periods - there are definitely 3 year periods, often in periods with equities starting at elevated valuations, where you would be better off holding cash.
I'm not being a hindsight wizard here :P - it's not about timing the market, it's about time in the market. Historically, typically, on average, stocks go from bottom left to top right ;) - the perma-bears who kept predicting the crash ever since the rock bottom in March 2009 - all those guys ended up losing a lot of potential gains.

Even if the market does crash during any given 5-year period, it will almost certainly rebound. (If it doesn't, then the entire civilization kind of collapsed -> party, woo!) I don't have a crystal ball. Neither do you. Neither does Jacob. Neither does that dude that made that hilarious prediction whom Jacob quoted 3 years ago. What we do know is that on average, statistically, the civilization -and its stock market - improves. Ipso facto, it's better to keep your money in index funds (or at the very least bonds) instead of cash. Literally the only time cash is the best vehicle is if you're convinced there will be deflation, and that will never be allowed to happen. That's my whole point: staying 100% in cash is one of the stupidest things one can do.

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by LetsRetireYoung »

steveo73 wrote:
Thu Oct 28, 2021 5:36 pm
@LetsRetireYoung - one thing I did years ago was figure out the best way to invest. I did this on a couple of really simple principles:-

1. I'm not smarter or better than anyone else when it comes to picking markets.
2. I don't trust anyone who thinks they are smarter or better than anyone else when it comes to picking markets.
3. Picking markets (individual stocks or customized portfolios) is for people who have viewpoints counter to points 1 & 2 above. These people will consistently under perform.
4. Inflation is the no 1 killer of retirement.
5. I have to worry a little bit about SORR (sequence of returns risk).

I've used a simple approach of heavy investment into stock indexes and a little bit of cash/bonds on the side. It works and I'm confident it will work into the future. The only way it won't work is if everything goes to shit and if that happens nothing is going to work. You can use some other forms of investments but I have no confidence in gold or bitcoin or individualized stock picks. That isn't my game.

Financial independence requires saving money and investing wisely. That's it. There isn't any special secret sauce or anything like that.
That is sage advice, yes, and I agree - most people should stick with index funds. (I even blogged about that. ;) ) I'm happy that you and I both agree that 1) making "the sky is falling!!!11!!!one!!!" predictions is stupid, and 2) that it's best to invest your money in index funds rather than keep it in cash.

Great minds really do think alike! :) Just a reminder, my initial response was to Jacob quoting some random Finance dude who swore that the markets would drop by 55%. That did not happen. :P

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by ducknald_don »

LetsRetireYoung wrote:
Thu Oct 28, 2021 6:58 pm
I'm not being a hindsight wizard here :P - it's not about timing the market, it's about time in the market. Historically, typically, on average, stocks go from bottom left to top right ;)
Japan would like a word with you.

https://imgur.com/a/hV9zW1q

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by steveo73 »

ducknald_don wrote:
Fri Oct 29, 2021 4:15 am
Japan would like a word with you.

https://imgur.com/a/hV9zW1q
This post reminds me of anti-vaxers pulling out the number of deaths or adverse reactions from vaccination. It's cherry picking data. It's a terrible terrible way to invest.

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by ducknald_don »

I don't know, looking at a country that had a massive stock market boom followed by an excess of debt looks quite appropriate at the moment. You only need one counter example to disprove a theory.

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by white belt »

This has been discussed a number of times before:
jacob wrote:
Thu Jun 24, 2021 12:07 pm
Especially for the uni-dimensional FIRE strategy, which is essentially switching out one's job horse for a finance horse, it's hard for me to accept the common unwillingness to at least have an informed opinion on which horse one has put in charge of pulling one's wagon. It's a bit different for ERE insofar there are multiple horses in the race.

Primarily, though, it's about
1) making informed investment decisions as opposed to uninformed/dogmatic decisions. Frankly a lot of the FIRE world lives in an index-bubble both literally and figuratively in the sense that this is the only strategy they have ever considered or experienced. They are doing the political equivalent of informing their entire world view based on the investment-tribe they've chosen between 2010 and 2020 in which the only source of experiential elderly wisdom having only ever seen interest rates decline. I understand this [indexing] is better than random speculating or doing nothing ... but a little knowledge is a dangerous thing for the system as a whole.

2) avoiding catastrophic failure and not about "beating the market" or not bothering to try in the first place. That's the other false presumption that one should either be beating the market or be in index funds to get the average return. No, one's goal should be to avoid portfolio failure. It doesn't matter if you beat the market by 5% if the market just dropped 80%. And if the market just dropped 80% taking you along with it, arguing that "this is not a problem because then we all got bigger problems" is highly ironic because that's exactly it. It won't be "we all"; it will be those who trusted their financial future based on a few slogans aided and comforted by tribal reassurances. We've seen how this goes down in other domains...

IIRC, this was a driving point in my interview with madfientist.

All-in stock index investing has its place and might be the answer for some (~half of my portfolio is stock indexes). However, issues arise when assumptions are treated as facts:
Mark Twain wrote: What gets us into trouble is not what we don't know. It's what we know for sure that just ain't so.

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by jacob »

Here's the MadFientist interview again: https://www.youtube.com/watch?v=Xs6SsQontV0
Apologies for the sound quality. I did eventually buy a fancy mike.

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by Seppia »

ducknald_don wrote:
Fri Oct 29, 2021 8:17 am
I don't know, looking at a country that had a massive stock market boom followed by an excess of debt looks quite appropriate at the moment. You only need one counter example to disprove a theory.
Japan had a CAPE of just below 100* at the peak of the bubble, and the Tokyo Imperial Palace grounds were supposedly worth more than all the land in the state of California**.

So relevant, but not that relevant.

NOTE: I am not an index jihadist. As of today, less than 40% of my stocks are in indexes and I skew boring, profitable, low debt companies in fields of low price elasticity.

*S&P today stands at and absurd 39. It would need to raise another 150% at constant earnings to hit 100.
**California is really big

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by LetsRetireYoung »

white belt wrote:
Fri Oct 29, 2021 9:02 am
All-in stock index investing has its place and might be the answer for some (~half of my portfolio is stock indexes). However, issues arise when assumptions are treated as facts:
Once again :) - I am not saying all stocks all the time. I am saying that the advice along the lines of "the sky will fall, the world will end, the stock market will fall by 65%, go all in on cash!" is the worst kind of fear-mongering one can produce. Literally the only 2 things worse than this advice that I can think of are:
1. Buy this crypto coin and hope it doesn't crash!
or
2. The world will end in a week (source: trust me, bro), so let's sell all our possessions for pennies on the dollar.

I said what I said. I did not say what I did not say. ¯\_(ツ)_/¯ If you think that posting scary articles that predict 65% crashes (which, once again, failed to materialize) and advocating going all in on cash (presumably forever?) is responsible and wise, then I don't think you and I will find any common ground.

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by LetsRetireYoung »

ducknald_don wrote:
Fri Oct 29, 2021 4:15 am
Japan would like a word with you.

https://imgur.com/a/hV9zW1q
Seppia has already covered most of what I would've written in reply. :) I just want to point out that:
a) the random, virtually unknown dude whom Jacob name-dropped in that first post in 2018 did not advocate any alternative investment strategies - I didn't read his entire manifesto, but I didn't spot any alternatives like "hey, maybe bonds?" or "real estate, maybe?" - and Jacob's post also did not provide any alternatives, either. It's literally a big scary headline with 0% solutions, 100% fear-mongering. Seeing as 3 years later, all we had was a 20% dip after the worst pandemic since 1918, that article (and that post) did not age well...
b) my elderly mother is terrified of all sorts of travel, because when she googles stuff like "plane crash deaths" or "killed in Costa Rica" she inevitably finds some article somewhere about someone who died in those circumstances. She uses that to justify her paralyzing fear of traveling, even while she occasionally daydreams about how nice it would be to fly to Australia, etc. All the people who go "but Japan! But 1998! But 2008! but 1929!!!!" - and have been saying that since the rock bottom (March of 2009) - are essentially the investing world's version of my mother. Have you seen "Suicide Squad-2"? It's a dumb but pretty funny movie, and one character sees his mother literally everywhere. (Which helps him fight his enemies haha) That's what it's like when I read these fear-mongering comments: otherwise rational people who give in to fear and act like my mother. :lol:

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Re: Hussman shows a risk of 50-66% [US stock]market losses

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LetsRetireYoung wrote:
Fri Oct 29, 2021 1:07 pm
Once again :) - I am not saying all stocks all the time. I am saying that the advice along the lines of "the sky will fall, the world will end, the stock market will fall by 65%, go all in on cash!" is the worst kind of fear-mongering one can produce.
Ah, okay so if this is your primary point we don't disagree. I agree that going very heavy in cash for long periods of time, especially in periods where prices have fallen dramatically and thus already (largely) reflect concerns, is about as bad as it gets in terms of investing.

I was just pointing out there is quite a bit of nuance as to how much cash one can/should hold given various liquidity needs, age, psychological temperament, life goals, market valuations, etc. In other words, 100% long S&P 500 100% of the time is not the only way to go for all people at all times because Bogle and Buffett said "baskets of stonks always go up".

Peter Lynch has a very apt expression that is probably the core point you're trying to get across:

"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves."

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Re: Hussman shows a risk of 50-66% [US stock]market losses

Post by LetsRetireYoung »

Dave wrote:
Fri Oct 29, 2021 2:20 pm
Ah, okay so if this is your primary point we don't disagree. I agree that going very heavy in cash for long periods of time, especially in periods where prices have fallen dramatically and thus already (largely) reflect concerns, is about as bad as it gets in terms of investing.
Precisely - we overlap 100% on that viewpoint. Hooray for consensus! :)

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Re: Hussman shows a risk of 50-66% [US stock]market losses

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LetsRetireYoung wrote:
Fri Oct 29, 2021 1:15 pm
the random, virtually unknown dude whom Jacob name-dropped in that first post in 2018
you may be confusing yourself with someone who knows everyone

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