Fundos de Investimento ( Mutual Funds - SICAV )

[5coroas 1402]

há 1 hora, vila disse:

Por curiosidade: que percentagem do vosso portefolio têm sempre em stand buy para aproveitar oportunidades de entrada? Deixam em cash DO ou aplicam?

Neste momento 20% em cash.

[Pequeno_Aprendiz 47]

há 13 horas, Patanisca disse:

https://www.investopedia.com/articles/bonds/09/bond-market-interest-rates.asp#:~:text=Inflation erodes the purchasing power,to compensate for inflation risk.

Como é que o sector financeiro faz dinheiro?...

Isso! Com dívida!

+Inflation -> +Bond Yields -> +Reference Rates (meh) ->+Expensive Credit -> Bankers buy Yatches

A subida da inflação faz com que quem vende coisas, as consiga aumentar de preço para responder a supply chains mais caras (matérias primas mais caras p.e.), e com isso manter as rendibilidades dos seus negócios. Quem promete um dia vir a vender coisas, vai sofrer, porque se alimenta de dívida, que com a inflação a subir, fica mais cara. Por isso é que nos últimos meses se tem assistido a uma rotação de Growth (os que prometem vender um dia coisas) para Value (os que sempre venderam coisas e se elas custam mais a fazer, aumentam os preços e vendem à mesma).

Eu não sei se estou a dizer algum disparate, sou uma Patanisca, e não tenho cursos da área financeira, portanto agradeço que alguém me corrija caso a ideia que tenho da coisa não esteja correta.

Não sou da área financeira, não tenho cursos nessa área e nem sequer chego a ser Patanisca. No entanto, concordo a 100% com a leitura, apesar de não corroborar a generalização. Essencialmente a subida das taxas de juro vai influenciar as empresas mais alavancadas e principalmente as que planeavam alavancar ( daí os earnings per share das growth serem revistas em baixa...). Basicamente para a mesma margem de EBIT de uma determinada empresa, com juros mais caros, o net income diminui.

Agora há empresas growth que não tem muita dívida, já estão a gerar cash flow’s positivos e a inflação até poderá aumentar as suas margens, assim como há empresas value altamente endividadas e quando chegar a hora de emitir novas obrigações vão ter que pagar mais caro... 

No fim de contas, cabe ao gestor do fundo justificar a comissão que nos cobra e fazer uma escolha acertada tendo em conta a análise micro e macroeconómica.

[5coroas 1402]

há 1 hora, Vidolz disse:

Tenho 40% em cash, todos os dias me questiono se não deva meter o resto já e arranjar mais cashflow até ao próximo crash...

A Gamestop está outra vez a ficar barata.

[Bedrock 137]

há 2 horas, superman disse:

Obrigado! Tenho alguns destes

Continuas a achar que os fundos de transição energética ainda têm pernas para andar, depois das valorizações loucas que têm tido? Em particular o BNP Paribas Funds Energy TransitionN Capitalisation?

Tinha ficado com a sensação de que tinhas saído do sector há uns tempos...

Eu não tenho o BNP porque só estou a investir com USD, tenho um outro FI de transição energética que resgatei quase na totalidade há cerca de 1 mês quando comecei a ver que a clean energy estava a ter um rebound em favor do crude oil energy. 

Esse FI do BNP depois das quedas nas últimas semanas, deve ser para manter no médio prazo pois é o presente e o futuro da energia. No entanto, nesta altura indefinida, eu só lhe atribui um peso de 5% na carteira de 10 FIs propostos.

O crude oil teve estas valorizações recentes com o fundamento da reabertura e expansão da economia no pós vacinas Covid, e como as energias renováveis ainda estão longe de suprimir a demanda da economia em velocidade de cruzeiro, a velha energia fóssil altamente poluente valorizou. 

 

Editado 16 de Março de 2021 por Bedrock

[Vidolz 295]

há 42 minutos, 5coroas disse:

A Gamestop está outra vez a ficar barata.

Não sei se volto a entrar nessa montanha russa  

[Bedrock 137]

há 1 hora, Vidolz disse:

Não sei se volto a entrar nessa montanha russa  

Acho bem e até digo mais: nas montanhas russas que entrem os camaradas oligarcas russos putinsófilos. 

Editado 16 de Março de 2021 por Bedrock

[Bedrock 137]

@Vidolz, como estás carregado em cash à espera de quedas acentuadas para entrares e aproveitares oportunidades, mas depois, quando entras, costumas entrar já um pouco atrasado, eu acho que nesta altura do campeonato devias transformar o teu cash de EUR em USD, na perspetiva da valorização do USD face ao EUR, e assim podias extrair rentabilidade da tua liquidez e como costumas investir em stocks dos EUA já podias investir diretamente em USD e não por via indireta de EUR.

[Bedrock 137]

How to Predict Stock Returns (using a simple model)

 

Jack Bogle, the founder of Vanguard, created a simple explanation for predicting future stock returns. The so-called “Occam’s razor” (law of parsimony) approach is an attempt to explain projected returns as simple as possible.

Mr. Bogle’s model is pretty simple:

Expected returns (nominal, annualized over the next 10 years) = Starting Dividend Yield + Earnings Growth rate + Percentage change (annualized) in the P/E multiple.

Source paper link

Not bad! A simple three factor model to predict stock returns.

Building a Model to Predict Stock Returns

Let’s walk through one example of how we can use Bogle’s model to predict stock returns—with the obvious caveat that this is only one model and is not guaranteed.

1. Starting dividend yield

This is the simplest part!

As of 3/10/2021, the dividend yield on the S&P 500 is ~ 1.50%.

2. Estimating the Earnings Growth Rates

The simplest way to estimate earnings growth rates is by using historical averages.

Here, one can either use geometric or arithmetic averages. One can also vary the look-back period.

Below are the numbers over numerous periods through 2019. ⁴

As we see, on average, over the long-run, firms grow their earnings. This makes sense as CEOs are incentivized in their compensation packages to maximize shareholder value. ⁵

So, using the simple method of using averages, reasonable growth rates for earnings would be within the 4% – 12% range, using the past 30 years and examining both the average and geometric means.

Another approach, which is more complicated, involves a more detailed model to generate earnings growth rates. This involves projecting (1) future revenue growth for the market and (2) future profit margins. We examine these topics in detail in this post here (section 3 of the article).

The first item, future revenue growth, can be reasonably approximated by a combination of GDP and inflation (depending on the real/nominal GDP values). The second item needed is profit margins. Examining our old post, one of the biggest issues (looking back) was that our simulation assumed margins would mean-revert, on average. But margins actually increased! While difficult to say with certainty, there is a reasonable theory that profit margins may be permanently higher due to economic moats driven by technology—thus future margins may be higher than the long-term historical average. Thus, one can use a more complicated model to generate future earnings growth rates for the economy.

Here, we will stick with the simple model, and use 7% for the earnings Growth rate. ⁶

3. Estimating the P/E multiple move

As Bogle and Nolan (2015) so nicely outline—over very, very long time periods—the majority of the returns to the stock market are generated by items (1) and (2)—dividend yield and earnings growth—which they call “Investment Return”. The last part, the change in P/E, they call “speculative return” as this is more prone to the whims of the market:

• If people are more risk-averse, multiples will be lower
• If people are less risk-averse, multiples will be higher

Of course, that is my oversimplification of the idea, and there are many other factors involved (inflation, interest rates, tax law, etc.).

In their paper, they highlight the prior returns to the market in Exhibit 1:

Over the long-run, dividends and earnings growth drive the returns, so by their model, these are the real important factors for predicting stock returns for very long time horizons.

However, not everyone has a 50-year+ time horizon, and 10-year periods can be prone to large changes in the P/E multiple!

Thus, we need to generate some model to figure out how multiples expand/contract over time.

Campbell and Shiller (1988 and 1998 papers) examined the idea of price-to-earnings (P/E) multiples being related to future stock returns. Their CAPE Ratio (Cyclically Adjusted Price to Earnings ratio) was used to examine future stock returns. The CAPE ratio is a nice method to normalize earnings and account for inflation.

In their papers (1988 and 1998), they found a high relationship between CAPE and future returns—higher CAPEs indicated lower returns in the future, and lower CAPEs indicated higher returns in the future.

In fact, their 1998 paper even highlighted that the P/E multiple, and specifically the CAPE multiple, was very high at the time (near the end of the Internet Bubble), and their model predicted that returns in the future will be low/negative.

And they were correct!

As shown above, the returns in the 2000s were negative for equity investors.

So why don’t we just use the CAPE model?

Well, I started with Bogle’s approach as I like the simplicity.

The other reason, as outlined in the 2019 JPM article, “Improving U.S. Stock Return Forecasts: A “Fair-Value” CAPE Approach” by Davis et al., is that the CAPE model has not worked too well out of sample.

Exhibit 2 of the paper examines the performance of the CAPE model. As can be seen below, in my edited screenshot, the model worked very well for a long period of time.

Unfortunately, out of sample, the CAPE model consistently predicted lower returns than what was realized in the market.

But why did this occur?

Well, the CAPE model requires a reversion to the mean. By this, I mean the model will predict that the current CAPE ratio will revert to the mean or the historical average.

Thus, if the CAPE is below the mean, the model will predict an expansion of the earnings multiple, which is “positive” to the predicted stock returns (it adds to the predicted returns). If, on the other hand, the CAPE is above the mean (which it currently is), the model will predict a contraction of the earnings multiple, which is “negative” to the predicted stock returns (it subtracts from the predicted returns).

Thus, this CAPE or P/E reversion effect can either increase or decrease predicted stock returns. ⁷

But what if the mean has permanently changed? If so, the model would be “misspecified” as we’d assume reversion to the incorrect mean.

Davis et al. examine this question in their paper, as shown in Exhibit 3:

From this image, we see that there does appear to be a significant upward shift in the CAPE ratio over the past 30+ years, relative to the prior ~ 60+ years. Their solution is to edit the model to better predict the “mean reversion” or “the P/E change” part of Bogle’s formula. Details in this reference. ⁸

Without diving too much into the model (and whether it is good/bad), the big idea is the following—these variables are predictive of the earnings yield, or the market multiple. In doing so, as opposed to only using the past CAPE ratio’s mean, they attempt to predict the future CAPE ratio—which in turn predicts the last part of Bogle’s formula—the change in the P/E multiple.

Not surprisingly, they find that this model works better than the simple CAPE model.

However, let us stick with the simple Bogle model for now (and even my simplification of the model), and try to predict the last variable we need—the change in the P/E multiple.

As of 3/10/2021, the S&P 500 is trading at ~3,900. Using the 2019 earnings value of ~ $142 as the baseline the current P/E multiple is 3900/142 ~ 27.5.

Important note–I am using the 2019 earnings as the 2021 earnings are generally expected to be near the 2019 earnings values. There are valid arguments for/against this approach as opposed to using the 2020 ending earnings of ~ $100. Obviously, if one believes that the covid impact is permanent and long-lasting, then you’d want to use the 2020 earnings number of $100. If, on the other hand, you believe that the impact is temporary, using the 2019 number as a baseline makes more sense.

Over the past 30 years, using annual data as of 12/31 each year, the S&P500 was trading at an average multiple of ~ 24 (the mean) and a median multiple of 21.

So, in our calculation—I am going to use a reversion to a P/E of 22.5 (average of the median and the mean).

Thus, the change in P/E, annualized over 10 years, is (22.5/27.5)^(1/10)-1 = -1.98%.

For simplicity, let’s say negative 2%.

Thus, if the P/E multiple contracts (as in my calculation) to a value of 22.5, the last part of Bogle’s equation would imply that changes in the P/E multiple will add a negative 2% annually to the market return annually over the next 10 years.

Putting it all Together to Predict Stock Returns

Thus, we have used one model, Jack Bogle’s model, and generated the three parts of the (nominal) predicted returns.

The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index.

What one notices is that the predicted stock return is lower than in the past (many cite 10%+ annually).

Of course, this is only one model and is not guaranteed.

Below is a range of outcomes using the simple model by varying (1) the next decade’s growth rate of earnings and (2) the ending P/E of the market, with the assumption that (1) the starting dividend yield is 1.5% and the starting P/E is 27.5:

However, this is a simple model to use when attempting to figure out future returns. In the appendix below, I list links to other models/predictions.

Two items to note:

1. Some models predict real returns and others predict nominal returns. Please be aware of the differences from firm to firm. In the model above, my prediction was nominal (before inflation).
2. The largest variation in the predicted returns across the various models comes from “part 3” of the Bogle model—some firms expect a full reversion to the mean, while others may completely ignore this aspect

Hopefully, my prediction of 6.5% is way too conservative!

---

One note—this article highlights an image showing the long-term return is mainly driven by what Bogle calls the “Investment Return” while the “Speculative return” is close to 0. To see this, let’s be very bearish on long-term P/E multiples, and say that in 50 years, the P/E is going to 15.

Well—this means that from a starting P/E multiple of 27.5, its annualized impact on the total return (predicted) is (15/27.5)^(1/50)-1 = -1.2%. Thus—while this would have a negative impact, over the long-term, (1) dividends and (2) earnings growth should (hopefully!) subsume this number.

---

Appendix

1. Campbell and Shiller’s paper – CAPE model in detail and how it was studied academically.
2. Fight the Fed model – The main takeaway to remember: While the Fed Model can be good at describing how the market P/E is currently set, it is no better at predicting future stock returns than a model based on long-term P/E ratios.
3. Vanguard expected returns (2021 version)
4. AQR expected returns (2021 version) – Different models (in “real” terms, not nominal).
5. Morningstar summary of 2021 expected returns
6. Damodaran equity risk premium models – to get a predicted return, you add the equity risk premium (ERP) to the 10-yer T-bond yield at the time.
7. Alpha Architect how to build expected return models.
8. Research Affiliates expected returns module – note you can toggle between real and nominal returns, as well as change the “expected returns model”.
9. A one-factor model by Cliff Asness to predict stock returns.

Notes:

1. More on that below. ↩
2. Of note, Shiller has data on his site as well, I just viewed this website as easier for anyone to “check” my calculations and view the data. ↩
3. That is nominal returns, not real returns which account for inflation. ↩
4. Using annual values, as opposed to monthly values. ↩
5. In general the incentives are higher now than they were in the past, as the majority of the academic literature highlighting that CEOs with “pay packages aligned to shareholder value” started in the early 1990s—thus, more recent growth rates are probably applicable for the future if we assume incentives matter. ↩
6. Giving a higher weight to the past 10 years. ↩
7. Note, there are many ways to predict reversion to the mean in models, I am overly simplifying this topic here. ↩
8. They use a 5-variable model to predict the inverse of the CAPE in the future—i.e. they build a model to predict the future CAPE (to which the model then revert towards!).

    

   The variables are the following:

   1. CAPE real earnings yield, or 1/CAPE
   2. Real 10-year bond yields or nominal Treasury yield less an estimated 10-year expected inflation rate.
   3. Year-over-year CPI inflation rate
   4. Realized S&P 500 price volatility, over trailing 12 months
   5. Realized volatility of changes in our real bond yield series, over trailing 12 months

https://alphaarchitect.com/2021/03/16/predicting-stock-returns-using-a-simple-model/

[Bedrock 137]

Credit Suisse Global Investment Returns Yearbook 2021 Summary Edition

https://www.credit-suisse.com/about-us/en/reports-research/csri.html 

 

[psferreira 9]

Resgatei este fundo PTYESYLM0009, com menos valias, para englobar no saldo +- valias, na seguinte data:

- data de pedido 28-12-2020

- data de transação 29-12-2020

- data de liquidação 04-01-2021

Afinal para efeitos fiscais entra em que ano? acho que não me aparece na declaração que o Best me enviou.

 

Editado 16 de Março de 2021 por psferreira

[Bedrock 137]

Masters of Equities Universe Are Unfazed by Spike in Bond Yields

The recent rise in interest rates triggered a bout of volatility, but it’s not making the pros in the stock market run for the hills just yet.

Some of the world’s biggest fund managers say equities can persevere and continue rallying through the rise in government bond yields. They are focusing instead on prospects for a powerful economic and profit recovery.

In an informal Bloomberg News survey of more than 50 market players, most respondents including State Street Global Advisors and JPMorgan Asset Management said they’re monitoring the pace of the ascent in yields -- and the reasons for it -- rather than awaiting a particular level that will mark a breaking point for stocks. As long as central banks stick to accommodative policies, the equity bull run can power ahead, these investors say.

“Absent a shift in central banks’ thinking, we don’t think yields will rise to a level where it broadly hurts equities,” said Hugh Gimber, a London-based global market strategist at JPMorgan Asset Management. “Provided the Fed sticks to guidance, and remains comfortable, willing to look through any temporary spike in inflation, I don’t see an environment where yields are rising in a way that’s problematic for equities broadly.”

The surge in government bond yields over the past month helped fuel an exit from the frothier parts of the market such as technology and defensive shares, leading to a dip of as much 11% in the Nasdaq 100. But the vaccination push in major economies and bets on a recovery in economic growth as well as consumer spending are filling equity bulls with confidence that they can keep reaping returns despite higher interest rates.

At the same time, the pick-up in yields and the more than 70% rally in stocks from pandemic lows are pushing fund managers to become more selective. The likes of Manulife Investment Management and HSBC Asset Management say that, while this isn’t the time to exit equities, the selloff in bonds will accelerate the rotation out of the more expensive growth parts of the market and into cheaper and laggard equities that can benefit from the economic recovery.

“If rates were rising from a normal range, tech stocks would’ve been fine, but not true when the valuations are what they have been,” said Dave King, a Boston-based portfolio manager at Columbia Threadneedle Investments. “Potential reopening, coinciding with the rise in yields as well as other factors, were positive for the stocks that people didn’t like too much last year, whether it’s banks or energy.”

The energy sector is the best performer in the MSCI World this year, rising about 30%, while financials are next with a 14% gain. More defensive and rates-dependent sectors, such as consumer staples and utilities, are both in the red.

Cult stocks that have been investors’ favorites throughout the pandemic have also had a harsh few weeks. Tesla Inc. was down as much as 36% from its January peak before recouping some of its losses last week. Even market stalwart Apple Inc., the biggest U.S. stock, crashed as much as 19% from its record high.

This environment could also mark a shift from U.S. stocks to other international equities, such as Europe and emerging markets, that have higher exposure to value sectors. Having lagged the S&P 500 during last year’s rally from the March lows, the Stoxx Europe 600 is outpacing the American benchmark so far in 2021.

“The risk of an equity market correction driven by higher yields is highest in the U.S.,” said Joost van Leenders, an Amsterdam-based senior investment strategist at Kempen Capital Management. “The U.S. economy has recovered faster than the European economy, and another major fiscal stimulus bill has just been approved. Inflationary pressure in Europe looks minimal. From a style perspective, growth is more at risk than value. This also means Europe may benefit relative to the U.S.”

Investors who are watching out for a particular Treasury yield level that can significantly hurt global equities pointed to a range between 2% and 3% for 10-year bonds.

“It’s important to remember that historically, rising yields have been consistent with rising markets, because both are driven by growth, and we think that will remain the case this time,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. At the same time, he added that “yields above 2.25-2.5%, if not accompanied by an improvement in the long-term earnings growth outlook and lower risk premia, would start to make current equity valuations look more challenged.”

The pause in the bond market selloff in the middle of the week last week showed how quickly stocks and growth sectors can come rushing back. The Nasdaq 100 on Tuesday surged 4% for its biggest jump since November, signaling that appetite for tech names remains strong.

“If the rise in bond yields is too quick or too high, it’s a negative for equity valuations. However, if controlled and modest over time, equities can absorb the adjustment reasonably well,” said Nathan Thooft, Boston-based global head of asset allocation at Manulife Investment Management. “Especially if the reason for higher rates is better growth rather than just higher inflation.”

https://www.advisorperspectives.com/articles/2021/03/15/masters-of-equities-universe-are-unfazed-by-spike-in-bond-yields

 

[Bedrock 137]

há 1 hora, psferreira disse:

Resgatei este fundo PTYESYLM0009, com menos valias, para englobar no saldo +- valias, na seguinte data:

- data de pedido 28-12-2020

- data de transação 29-12-2020

- data de liquidação 04-01-2021

Afinal para efeitos fiscais entra em que ano? acho que não me aparece na declaração que o Best me enviou.

 

O que conta é a data de liquidação para efeitos fiscais e para tudo o resto pois é só nessa data que o valor resgatado cai na nossa conta à ordem.

Se fosse um FI estrangeiro em USD, também o câmbio seria da data de liquidação para efeitos fiscais.

Eu quando resgato no final do ano para efeitos fiscais, resgato antes do Natal para que a data de liquidação seja desse ano. Há que contar com um delay de 5 dias úteis, entre o resgate e a liquidação, para não termos surpresas de alguns FIs que demoram mais tempo a liquidar.

Editado 16 de Março de 2021 por Bedrock

[Virtua 1302]

há 6 horas, superman disse:

Pelo que vi não existem no best (banco). Mas qual era a tua intenção nessa comparação? Validar o comportamento do smart invest?

Tenho feito várias vezes esta comparação. Um dos dois (Smart Invest ou Vanguard lifestrategy) vai ser onde vou começar a investir e estou indeciso/pouco histórico pelo que tenho acompanhado relativamente de perto o comportamento de ambos (e normalmente, como é costume, quando faço para mim partilho aqui no fórum).

Por acaso pensei que os Vanguard fossem dar uma porrada descomunal aos Smart (devido ao diferencial de custos e excesso de exposição à Europa por parte dos Smart). Estou surpreendido.

[Bedrock 137]

https://www.visualcapitalist.com/mapped-the-drainage-basins-of-the-worlds-longest-rivers/

[Francisco Martins 549]

25 minutes ago, Virtua said:

Tenho feito várias vezes esta comparação. Um dos dois (Smart Invest ou Vanguard lifestrategy) vai ser onde vou começar a investir e estou indeciso/pouco histórico pelo que tenho acompanhado relativamente de perto o comportamento de ambos (e normalmente, como é costume, quando faço para mim partilho aqui no fórum).

Por acaso pensei que os Vanguard fossem dar uma porrada descomunal aos Smart (devido ao diferencial de custos e excesso de exposição à Europa por parte dos Smart). Estou surpreendido.

Não vi os outros, mas se estivermos a falar do Smart Dinâmico versus o V. Lifestrategy 60/40 a comparação é difícil porque o Smart tem 70% acções (+10% que este Lifestrategy) e não faz hedge à componente de obrigações que não é emitida em €. Em termos de aposta em regiões diferentes, desde o inicio do ano a Europa foi contrabalançada pelos Emergentes e acabou por ficar tudo +/- igual neste momento para o All World que na prática é a composição que o Lifestrategy reflecte. Para o diferencial de custos, sendo um factor de cariz composto, a diferença vai-se acumular de forma mais despercebida ao longo dos tempos.

[Virtua 1302]

há 2 minutos, Francisco_ disse:

se estivermos a falar do Smart Dinâmico versus o V. Lifestrategy 60/40 a comparação é difícil porque o Smart tem 70% acções

Da forma quantitativa que vejo as coisas dificilmente não se pode comparar algo. Medir risco pela % de acções diz-me pouco porque há muito tipo de acções (EM, big cap, small cap). Estou a comparar meramente de forma quantitativa, por isso preciso de histórico, para ver como ambos se comportam numa queda forte por exemplo!

Citação

Para o diferencial de custos, sendo um factor de cariz composto, a diferença vai-se acumular de forma mais despercebida ao longo dos tempos.

Por isso tb tenho seguido. Vamos a ver.

[Bedrock 137]

#Technically Speaking: Another Way To Look At Long-Term Bubble Cycles

 

Yes. We are in a stock market bubble. But what if conventional methods of examining market cycles miss a crucial point? While we often talk about parts of cycles (bull or bear), exploring the full-market cycle may provide another way to look at long-term bubble cycles.

The Speculative Cycle

Charles Kindleberger suggested that speculative manias typically commence with a “displacement,” which excites speculative interest. The displacement may come from either an entirely new investment object (IPO) or increased profitability of established investments.

The speculation gets reinforced by a “positive feedback” loop from rising prices. Such ultimately induces “inexperienced investors” to enter the market. As the positive feedback loop continues and the “euphoria” increases, retail investors then begin to “leverage” their risk in the market as “rationality” weakens.

During the mania, speculation becomes more diffused and spreads to different asset classes. New companies get floated to take advantage of the euphoria, and investors leverage their gains using derivatives, stock loans, and leveraged instruments.

As the mania leads to complacency, fraud and manipulation enter the marketplace. Eventually, the market crashes and speculators get wiped out. The Government and Regulators react by passing new laws and legislations to ensure the previous events never happen again.

Wash, Rinse, and Repeat.

 

The Full Market Cycle

“‘Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits-a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.’ – John Maynard Keynes

Keynes’s idea of “animal spirits,” which were awakened by consecutive rounds of monetary stimulus on a global scale, has enticed investors to believe that all risks of a market cycle completion have gotten removed.

The exuberance from the financial media and many pundits reminded me of this chart on the full-market cycle.

I have often discussed the importance of full-market cycles.

However, what you should note is that when it comes to investing, what has separated long-term “investing success” stories is when those individuals started their journey. 

• Warren Buffett started in 1942 and acquired Berkshire Hathaway in 1964.
• Paul Tudor Jones launched his hedge fund in 1980
• Peter Lynch managed the Fidelity Magellan Fund starting in 1977
• Jack Bogle launched Vanguard in 1975

The list goes on, but you get the idea. Much of these investing greats’ success came from catching the beginning of a bull cycle with low valuations and high forward returns.

The Full Cycle

As shown above, most of the investing returns came in just 4 of the 8-major market cycles since 1871. Every other period yielded a return that lost out to inflation during that time frame.

However, if we adjust our view to look at each full-cycle period as two parts, bull and bear, the dynamics change. Such suggests the cycle that began in 1980 has not yet finished.

Notice in the chart above the CAPE (cyclically adjusted P/E ratio) reverted well below the long-term in both prior full-market cycles. While valuations did, very briefly, dip below the long-term trend in 2008-2009, they have not reverted to levels either low or long enough to form the fundamental and psychological underpinnings seen at the beginning of the last two full-market cycles.   

The 80’s Secular Bull Is Still Intact

From that basis and historical time frames, I have created the following thought experiment of examining the psychological cycle overlaid on each of the three full-cycle periods in the market.

The first full-market cycle lasted 63-years from 1871 through 1934. This period ended with the crash of 1929 and the beginning of the “Great Depression.” 

The second full-market cycle lasted 45-years from 1935-1980. This cycle ended with the demise of the “Nifty-Fifty” stocks and the “Black Bear Market” of 1974. While that crash was not as economically devastating as 1929, it significantly impaired investor psychology.

Notably, during both previous full-market cycles, the vast majority of gains made during the first half of the process got lost during the second half.

If history is any guide, is this what investors should be expecting in the future?

Halfway Through

The current cycle is only 40-years in the making, which is younger than both previous full market cycles. Given markets are trading at the 2nd highest valuation levels in history, corporate and consumers heavily leveraged, with economic growth rates running near historical lows, it is worth considering forward returns over the next decade.

The idea the “bull market,” which begin in 1980, is still intact is not a new one. As shown below, a chart from 1980 suggests the same.

The long-term bullish trend line remains, and the cycle-oscillator is only half-way through a long-term cycle. Furthermore, on a Fibonacci-retracement basis, a 61.8% retracement would currently intersect with the long-term bullish trend-line around 1600, suggesting the next downturn could indeed be a nasty one. But again, this is only based on the assumption the long-term full market cycle has not yet finished.

I am NOT suggesting this is the case. Such is just a thought-experiment about the potential outcome from the collision of weak economics, high levels of debt, valuations, and “irrational exuberance.”

Yes, this time could entirely be different.

It just never has been before.

Something To Consider

I am not making a “bearish prognostication,” I am only presenting a view to ponder.

Historically, all market crashes have been the result of things unrelated to valuation levels. Issues such as liquidity, government actions, monetary policy mistakes, recessions, or inflationary spikes are the culprits that trigger the “reversion in sentiment.”

Notably, the “bubbles” and “busts” are never the same.  

I previously quoted Bob Bronson on this point:

“It can be most reasonably assumed that markets are efficient enough that every bubble is significantly different than the previous one. A new bubble will always be different from the previous one(s). Such is since investors will only bid prices to extreme overvaluation levels if they are sure it is not repeating what led to the previous bubbles. Comparing the current extreme overvaluation to the dotcom is intellectually silly.

I would argue that when comparisons to previous bubbles become most popular, it’s a reliable timing marker of the top in a current bubble. As an analogy, no matter how thoroughly a fatal car crash is studied, there will still be other fatal car crashes. Such is true even if we avoid all previous accident-causing mistakes.”

Comparing the current market to any previous period in the market is rather pointless. The current market is not like 1995, 1999, or 2007? Valuations, economics, drivers, etc., are all different from one cycle to the next.

Most importantly, however, the financial markets always adapt to the cause of the previous “fatal crash.”

Unfortunately, that adaptation won’t prevent the next one.

Yes, this time is different.

“Like all bubbles, it ends when the money runs out.” – Andy Kessler

Understanding The Risk

Over the next several weeks, or even months, the markets can extend the current deviations from the long-term mean even further. But that is the nature of every bull market peak and bubble throughout history as the seeming impervious advance lures the last of the stock market “holdouts” back into the markets.

As Vitaliy Katsenelson once wrote:

“Our goal is to win a war, and to do that we may need to lose a few battles in the interim. Yes, we want to make money, but it is even more important not to lose it.”

I wholeheartedly agree with that statement, which is why we remain invested but hedged within our portfolios currently.

Unfortunately, most investors have very little understanding of markets’ dynamics and how prices are “ultimately bound by the laws of physics.” While prices can certainly seem to defy the law of gravity in the short-term, the subsequent reversion from extremes has repeatedly led to catastrophic losses for investors who disregard the risk.

Just remember, in the market, there is no such thing as “bulls” or “bears.” 

There are only those who “succeed” in reaching their investing goals and those that “fail.”

 

No Bull Or Bear

Sure, this time could be different. However, as Ben Graham said in 1959:

“‘The more it changes, the more it’s the same thing.’ I have always thought this motto applied to the stock market better than anywhere else. Now the really important part of the proverb is the phrase, ‘the more it changes.’

The economic world has changed radically and will change even more. Most people think now that the essential nature of the stock market has been undergoing a corresponding change. But if my cliché is sound,  then the stock market will continue to be essentially what it always was in the past, a place where a big bull market is inevitably followed by a big bear market.

In other words, a place where today’s free lunches are paid for doubly tomorrow. In the light of recent experience, I think the present level of the stock market is an extremely dangerous one.”

He is right. Of course, things are no different now than they were then.

Pay attention to the market. The action this year is very reminiscent of previous market topping processes. Tops are hard to identify during the process as “change happens slowly.” The mainstream media, economists, and Wall Street will dismiss pickup in volatility as only a corrective process. But when the topping process completes, it will seem as if the change occurred “all at once.”

The same media that told you “not to worry” will now tell you “no one could have seen it coming.”

But such has been the same ending of every bear market in history.

Just make sure you aren’t part of the story when it occurs.

https://realinvestmentadvice.com/another-way-to-look-at-long-term-bubble-cycles/

 

[Bedrock 137]

há 10 horas, vila disse:

Por curiosidade: que percentagem do vosso portefolio têm sempre em stand buy para aproveitar oportunidades de entrada? Deixam em cash DO ou aplicam?

Citação

... stand buy ...

Vais comprar um stand de automóveis? Olha o @D@vid parece que está a precisar de trocar de automóvel ... 

Oh vila não te chateies comigo porque a piada não é maldosa, antes ser um stand buy do que um stand sell off.

Editado 16 de Março de 2021 por Bedrock

[Bedrock 137]

2020 ETF.com Awards Finalists

https://www.etf.com/sections/features-and-news/2020-etfcom-award-finalists

[superkinas 181]

A 12/03/2021 às 22:11, Virtua disse:

seria util comparar tb os lifestatage com fundos similares BSF Managed Index Portfolios e até com o acatis um dos melhores globais.

 

[-------- 2582]

há 20 horas, Vidolz disse:

Tenho 40% em cash, todos os dias me questiono se não deva meter o resto já e arranjar mais cashflow até ao próximo crash...

Escreve isto em vários post it e espalha pela casa toda 😁

 

[-------- 2582]

E esta bombinha a meter a um canto o AR PPR e o NB PPR?

Optimize Cap Ref PPR/OICVM Agr

[pge 119]

há 1 minuto, D@vid disse:

E esta bombinha a meter a um canto o AR PPR e o NB PPR?

Optimize Cap Ref PPR/OICVM Agr

Isso quase não tem obrigações

[-------- 2582]

há 57 minutos, pge disse:

Isso quase não tem obrigações

Por isso é que é um Misto Flexível 😁, o ano passado chegou a estar a cair 24% 🤣 mas ainda acabou à tona de água.

[pge 119]

há 2 minutos, D@vid disse:

Por isso é que é um Misto Flexível 😁, o ano passado chegou a estar a cair 24% 🤣 mas ainda acabou à tona de água.

Ando a seguir esses ppr pq a minha alocação a obrigações será feita através deles. Pra já tenho zero de obrigações 

Sabes qual foi a alocação máxima de obrigações. Pela carteira parece ser apenas 15%. Mas se for uma coisa momentânea devido a desvalorização das obrigações é outra história.