I published this post originally on July 25, 2019 and by golly, my prediction perfectly came true. Then, I published in March 2020, How To Predict A Stock Market Bottom, and that came true too. I invested about $200,000 into the stock market and also decided to buy a forever home right after lockdowns. But what about now? Are there signs the bull market is near its end? Let’s discuss.
One of my objectives for writing Investing posts is to gauge the mood of the American investor through the comments section. If I’m particularly thirsty for feedback, I’ll use more hyperbole. The comments section is a window into the investor’s soul, regardless of my beliefs in the post.
I’m looking for glitches in the Matrix – inconsistencies or interesting points – that help me think more about my risk exposure. The more glitches I see, the more caution I take. Losing a lot of money hurts and I’m trying my best not to do so again now that I have a family to support.
I’ve found some interesting feedback from my latest post, Your Risk Tolerance Is An Illusion: Wait Until You Start Losing Big Bucks. The post goes through my firsthand experience of how poorly I took advantage of downturns, and to warn younger folks who have only started investing significant capital since 2010 to stay measured.
Signs The Bull Market Is Nearing Its End
One of the biggest signs the bull market is nearing its end are inconsistencies or illogical views in investing. Here are some samples.
Comment #1: Late 20s retail banker who makes ~$45,000 a year
“Out of curiosity, what did you invest in that made you take such losses? I invest in a portfolio of blue-chip dividend growth stocks and I never took a hit at all. Of course, all that matters to me are the dividends.“
Comment #2: Late 30s gal with some health concerns
“Whatever wealth gets destroyed in the next 5 years, maybe it wasn’t real in the first place and if we have to work harder in the future, maybe we did not have to work really hard in the past, no?“
Comment #3: A 20-something-year-old who grew up poor
“For me if I lost 75% so what? It truly is all relative. That is an extreme case and people around the world suffer way worse than my paper loses.“
Comment #4: A 50-something year old self-proclaimed 2% percenter who owns a business
“Somehow you are still playing it safe in the market. You had a starting balance of 500k in August 2017. You’ve deposited $842,500. That’s a negative return or close to 0. You put a tremendous amount in from 2017 until now missing the earlier post Bush era gains.“
Review Of The Commentary
Comment #1 is strange because blue-chip stocks got rocked during the Spring 2018 correction. If he was able to make money then, he should give up his retail banking job and work in active money management where he can make 10X more. He doesn’t mention shorting, so something is off.
Comment #2 is interesting logic. I understand the money going *poof* part, hence the post. But I can’t fully understand the working hard part. Does this mean we shouldn’t be working so hard now? The whole point of having money work hard for you is so that you don’t have to work as hard when you’re older. If she has health issues as a young woman today, it may be more difficult to muster up the energy to work harder as an older person.
Comment #3 is rabbit hole logic because it never ends. Even if you lost 99% of your wealth, someone else has lost 100% and had to start all over, so you should be fine. Even if you lost both your arms, someone else has lost both their arms and their legs. I think this type of optimism is great, it’s just misguided from someone who has never lost a lot of money in a downturn before.
Comment #4 I really don’t understand. Before August 2017, these funds were trapped in my SF rental house until I sold. This investment account is one of eight total investment accounts as mentioned in the post. The chart does show gains since August 2017 of 12%, which is in-line with the S&P 500. Not sure how Bushy got dragged into the discussion, but the feedback does remind me to try to write as simple as possible.
Below is the chart he was referring to where I haven’t made any gains since August 2017. The chart clearly shows that I’ve made $96,259.37 in principal appreciation and $8,461.73 in dividends and interest for a total gain of 12%. But the chart also shows how I lost more than I was comfortable losing in February and March of 2018, which was my point of overestimating my risk tolerance.
Biggest Sign The Bull Market May End: Rich Valuations
With the S&P 500 above 4,200, I’m not enthusiastic about investing new cash in the index. We’re already at my year-end target price and I’m uncertain whether to lift it further.
The S&P 500 is overvalued based on The Buffett Indicator, which is the ratio of total United States stock market valuation to GDP. The aggregate U.S. Market Value = $52 trillion. The annualized GDP estimate is roughly $22.6 trillion. Therefore, The Buffett Indicator is at 231%, which is 85% higher than the long-term trend line.
In addition, The current S&P500 10-year P/E Ratio is 37.2. This is 88% above the modern-era market average of 19.6, putting the current P/E 2.2 standard deviations above the modern-era average.
The Buffett Indicator and a high P/E ratio could be the clearest signs the bull market is about to come to an end.
The Bull Market In Housing Will Hold
At the end of the day, you’ve got to make your own investment choices. I’m here to provide some perspective as a 43-year-old dude who worked in the Equities department at a couple major investment banks since 1999. I saw a lot of joy and a lot of carnage during my time there. Heroes one day were gone the next.
And perhaps I’m jaded because I was simply too close to the action. Heck, I was the action. I was the one who knocks. Make sure you regularly review your asset allocation and financial objectives. There are some signs the bull market is coming to an end with valuations so high post-pandemic. However, with so much government pump priming, the bull market, at least in housing, is set to continue for a while.
Stretch out your time horizon long enough, and everything will probably be just fine. Too bad we can’t live forever. Please don’t overestimate your risk tolerance and think the good times will last forever. It took 13 years for the NASDAQ to get back to even once it began falling in 2000. It took the S&P 500 10 years, hence the term, “the lost decade.”
Easy Ways To Invest In Real Estate
I believe the bull market in real estate will continue for years due to positive demographic trends, low rates, and the permanent desire to own real assets. The pandemic has scared us into appreciating and enjoying our homes more! If all goes to hell, we will always have our homes.
In 2016, I started diversifying into heartland real estate to take advantage of lower valuations and higher cap rates. I did so by investing $810,000 with real estate crowdfunding platforms. Take a look at my two favorite real estate crowdfunding platforms. Both are free to sign up and explore.
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. For most people, investing in a diversified eREIT is the way to go.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends. If you have a lot more capital, you can build you own diversified real estate portfolio.
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