Down goes the Dow

to be clearer...companies may continue to do well....but the prices of shares might not keep up because of all the macro stuff. I'm trying to distinguish between cash flows and balance sheets at a company...and the price of its stock. They aren't the same thing.

Maybe this argues for value/dividend strategies. That shares of companies that pay dividends will continue to do well but more speculative stuff like tech won't. because the price of their shares isn't grounded in cash flow and dividends.

Nope. I have said time and time again that I am very diversified. I lean aggressive meaning that I do not go out of my way to invest conservatively. I haven't owned any bonds in at least 15 years...that doesn't mean I invest aggressively, just more aggressively than being completely neutral or conservative, AND, my investing has changed over the 33 years I've been doing it. Every year is a tiny bit different. I will put money in a given fund or funds just to bring that sector up to a percentage I want. No rhyme or reason. Often I am just looking for more round numbers. Again, I did not get a big bunch of money 33 years ago and plop it into the market in a certain way and not change since. I have change philosophies a little bit, continued to put in money twice a month every month since 1989, changing what my portfolio looks like twice a month. Sometimes, I have put in a ton of money when the market was really down which can and has really skewed my results.

You people really have your panties in a bunch over this, and some of you just really don't know what you're talking about.

Ooohhhhh !!!! Aaaaaahahahahahaha!!! 😂😂😂😂😂👍👍👍👍👍💩💩💩💩💩

If it was easy to look back years in the thread, you would see how I went after Flag for being an autocrat. His way or the highway. i was arguing for real diversification, not just within the equities markets. I still maintain that position.

Speaking of which, my stuff has been holding up well. I am going to try to model it all as a hollow pressurized sphere with a wall thickness. Not sure yet how to characterize the external environment. Good thing I don’t know anything about math😂😂😂.

Hey idiot, remember Fast Eddie? I still love axioms and proofs.

I should say, to try to maintain a consistent spherical shell. Lots to think about.

Some of the regulars in this thread have admitted not being particularly strong in math, and no shame in that. At least a few regulars in this thread have very advanced math backgrounds at or beyond post-grad levels. Flagpole is not one of them.

mas, we were telling a young ‘un about fast Eddie a few weeks ago. Dude was small and wiry, with massive forearms, from squash I think. My domestic boss remembers that he would write on the chalk board with one hand and follow closely behind with the eraser in the other hand so you had to be fully engaged all the time or else get hopelessly lost. You’ve thrown me another crumb, now I know at least what part of the academic program you didn’t belong to. Maybe in another ten years I’ll have connected the dots… I saw the yearbook yesterday when I was digging for my service records to put in a claim for hearing loss. I left it in the tub so your secret identity remains protected for now…

So not only have you beat the general market 32 out of 33 years - with all it's innumerable ups and downs, and it's not like we even believe you on that - you've also done so while almost certainly incurring short term capital gains tax penalties, wash sales, management fees, missed dividends, and God knows what else.

Would you like us to tell you once again how stupid you sound or do you think you can finally figure it out on your own?

Oh, the irony!

Tell me you don't understand diversification without telling me you don't understand diversification.

A better metric than beating the market each year would be by how much on average. I have worked out a strategy that allows me to be mostly on-par with the market most years but far exceed it about once every 5-8 years. This brings my average rate of return up to about 17% over the last 6 years. I feel pretty good about that.

Also, seems like a keep seeing more and more headlines about the coming recession... What does that mean for the market? I do think we are headed for a recession sometime in the next 18 months... Inflation, interest rates, ridiculous housing market, Russia being exiled from the global economy, school loan payments kicking in sometime, credit card debt at all time high... Just seems like the stage is set for hard times.

Just playing devil's advocate a bit isn't what Flagpole's saying potentially believable in that he's never said how much he has been ahead of the Dow, just that he has beaten it.

I may be wrong but it sounds like FP's strategy is to, essentially, DCA in regularly (let's just say $100 a month) into various funds which will roughly match the overall market which makes sense. BUT, then he is investing more, on top of that, whenever there is a significant downturn (say 10% correction or whatever). So his regularly investing is gonna match it and then he doubles down on a big dip. Historically, the market bounces back from these big dips but if you've gone in heavy each time then your average cost basis would be lowered slightly and thus you may come out a % or two ahead overall.

Eg, if the market goes 100, 110, 115, 120, 80, 110 over 6 months so you're 10% up (assuming you buy $100 a month). What FP is suggesting (I think) is that you buy $100 every month but when that dip down to 80 happened he would have doubled down (bought $200) and so the ride back up to 110 would have produced slightly greater returns.

It still sounds very far-fetch as I'm not sure how you'd know the bottom but, mathematically at least, it kind of makes sense. In practical terms though it seems a challenge!

There's some subtle but important nuance, which is the difference between something that's *possible* versus something that's likely, or even just barely credible.

Could FP have beaten the DOW 32 years out of 33? Sure, he could have. Did he? Well, if we express the probability in terms of degree of belief, and we reference MY degree of belief, then the probability of that having happened is exactly zero. Since there is no objective measure of probability, you can decide for yourself whether my estimate is off base.

Scenarios with roughly equal probability of having occurred:

- FP was standing on a hill, and 30 seconds after he walked away, the hill was struck by lightning, giving him a tall tale about a very close call

- FP was driving across Ohio on his way to receive a Grammy for a recent piano performance when a meteorite smashed through the roof of his car, punching a hole in the passenger seat. His brilliant wife was asleep in the back seat, so everyone survived, accumulating another great story of breathtaking, unbelievable exploits

- FP admitted he was wrong about something substantive

I don't know and no one knows whether we'll have a recession in the next year or two but do note that it takes something very powerful to knock this economy into recession. It doesn't just slip into a recession - it takes a mighty blow.

Like COVID, or the financial crisis, or the dot com blowup. The US used to have recessions because of the business cycle...that doesn't really happen anymore. Probably because of globalism, technology's efficiencies and the vastly richer nature of American society compared to the past.

Igy would argue that the Fed's actions will be titanic enough of a force to jam the economy into reverse gear. Maybe. But that hasn't happened since 1980. That's a long, long time ago.

It is clear that Fed easy money policies and Government stimulus was the force behind record asset prices. You take that away and what do you get?

record corporate margins, record corporate profits, very rich corporate balance sheets and jobs for everyone with fast-rising wages.

Everyone of those has been underwritten by what I noted. Little of what we have seen that last ten years represents organic growth. It is extreme interventionist monetary policy. One is free to argue that has no consequences, but I don’t believe it. We pay for it with inflation and the inevitable collapse of asset prices.

You missed a spot.

Getting just hammered for 3rd day in a row.

I'm entering a periodic bearish freakout.

this is a good thread on it, pasted below. It's basically arguing that the Fed has to kill off the rich people's money because they are spending too much of it, against low supply of goods and services. Causing inflation. That something has changed - in the past globalism would ensure that somewhere, somehow, the invisible hand would create more supply when demand surges like this. but maybe at THIS moment the invisible hand is broken, because of the confluence of the wild demand spike and the retreat of globalism and the war. That now, with supply lines coming home, things will just be more expensive for us all for a while. We have to make low-margin widgets now, and we can't do it as cheaply as Asia can.

The point is, I usually don't care about the Fed's impact on stocks...but now maybe we need to worry about the Fed, because they are the only way to kill off inflation...by killing demand. There is no new supply coming to the rescue.

Which means recession or slow growth.

Which would clearly not be good for the stock market at these high valuations.

Bonds have already posted perhaps their worst 3 months ever. Bonds don't kid around like stocks. Bonds are saying interest rates are going higher, and the inverted yield curve is saying that demand will in fact be much lower in the future. I

n other words, the bond curve has decided that the Fed is about to kill the economy's growth. The stock market hasn't made that decision yet.

But on the flip side, the actual stock market performance from the 2022 bottom is remarkably bullish, if the past repeats. And certainly stocks do have some predictive ability. They aren't predicting recession.

Right now I'm thinking of lightening up in equities, with the market quite high. The US is still up 7% over the last 12m and down just 7% from its ATH. Not selling low.

But I use LRC to vent worries. Every time I've been worried in the past like this and acted on my worries, it has been a mistake. But maybe this time is different. That's a joke.

Good tweet storm here. I forgot if Bianco is a permabear...I think he might be. Not sure.