Are we heading towards a crash?

grindingla

New member
  • Anything connected to electric vehicles or clean energy has gone ballistic in the past few months. S&P Kensho Electric Fund has grown 5 fold and the most obvious tesla 8 fold becoming the 5th largest company in the US.
  • Increase inflow of new investors: Active investor accounts rose by a record 10.4 million in 2020, according to the data from the country's two main depositories. Retail ownership in more than 1,500 companies listed on the National Stock Exchange of India jumped to 9 percent in the third quarter of 2020, the highest since March 2018.
  • Stocks in fashionable areas such as electric cars and solar power have soared, something similar to adding .com in the end during the dot com bubble.
  • Buffet Indicator: The Buffett Indicator is the ratio of total the United States stock market valuation to GDP. As of June 3, 2021, that is currently 84% (or about 2.7 standard deviations) above the historical average, suggesting that the market is Strongly Overvalued. These are historical, all-time highs. However, with interest rates at historic lows, there is reason to suspect that "this time is different" may hold true.
  • “This order of asset price inflation in the context of the estimated 8 percent contraction in GDP in 2020-21 poses the risk of a bubble,” the RBI said.
  • Earnings per share (EPS) for 90% of the S&P 500 companies increased by 46% year on year (YOY), rather than the expected 20%. 68% outperformed the consensus by one standard deviation.
Contrary:
  • Learning from the 1929 crash, the government knows to never spike interest rates when the economy is on the rough. Quite the contrary, the Fed now actively lowers interest rates during recessions in order to promote business lending and growth!
There can be few more points that prove it might not be a bubble on comparing it with the historical market crash.

Should we start selling in anticipation of a crash?
  1. Stock prices are statistically proven to be RANDOM.
  2. It’s IMPOSSIBLE to time the market (I am not smart enough to do so, I call it impossible).
  3. Being optimistic OR pessimistic about the market hurt us equally. Inaction is the best action.
  4. Stocks will always go up faster than the descent in the future, even history shows that.
Open for thoughts.
 
@grindingla If in the short-term, price movements can't be predicted, why or how could one sell in anticipation of a crash? This is the same mistake Ray Dalio made in the early 80's, where he forecasted doom and gloom while the S&P took off for one of the greatest bull runs in history.

Generally speaking, when a perspective stumps you and provides no solutions, it means the usefulness of that perspective has reached an end.

Since this perspective of boom and bust is causing confusion with no logical answer, you must adopt another perspective... one which has historically proven to be the far better choice:

Which companies out of all these are wonderful businesses? The rest will take care of itself.
 
@gabby_123
Generally speaking, when a perspective stumps you and provides no solutions, it means the usefulness of that perspective has reached an end.

Since this perspective of boom and bust is causing confusion with no logical answer, you must adopt another perspective... one which has historically proven to be the far better choice:

Which companies out of all these are wonderful businesses? The rest will take care of itself.

Well said.
 
@grindingla Interesting take. Not an expert, but I don't find the .com boom comparision to electric vehicles+solar hype valid. Internet in its infancy had almost infinite potential, it disruption could influence across industries. Electric cars on the other hand have a known max potential. Similarly for solar energy. I feel everyone knows this, and definitely electric car is forming bubble, but because of the said reason, when it bursts it can't crash the market.
 
@grindingla If you have been maintaining your asset allocation and have a steady income, then it won't affect much.

For me, equity portion has gone up and I had to stop putting more money into equity to get back to original allocation target.

So, asset allocation makes you balance out automatically when equities move up quickly.
 
@prettyicke 1) Individual themes sometimes do form their own bubbles, like weed stocks a few years back, EV may be similar in that regard. Especially as established car manufacturers with their own EVs will benefit if startup EV hype is proved overrated.

2) Buffett indicator may not be a relevant thing any more. Let us think about Apple or Amazon, most of their revenue, and consequently equity value, comes from outside US.

But where I’m a bit confused is, usually low interest rates are there as an emergency safety valve to restart consumption after an economic crisis. This time, the markets are flying while interest rate is almost zero. If the markets correct and there is an economic downturn, how far can they reduce interest rates below zero? At some point, surely hodling cash under your mattress would appear more attractive. Not saying this would come to pass, just that if it does, we can be in plenty of trouble for quite a while.

It’s easy repeating that timing vs time in the market aphorism, and it sure does sound great in a bull market, but I guess exercising caution isn’t a bad idea. I mean I am a relative newbie myself, in the sense that my investing life started long after the 2008 crash, but it’s becoming slightly unnerving to hear “hold it and eventually it will go up at 12% CAGR irrespective of where your starting/ending position is”. After all, If everybody knew it will go up 12% CAGR for sure for two decades and the market is efficient, then that’s basically 7% up on the G-Secs without any risk.
 
@lament
“hold it and eventually it will go up at 12% CAGR irrespective of where your starting/ending position is”

That is a myth the AMCs want everyone to believe. If you invest at the wrong time, say, at the peak of a boom or bubble, it could sometimes take decades to even break even.
 
@masterwolf1 It is equity + debt for the liquid Corpus.

Currently equity is at 65%. and I am reducing to 60% by putting new investment into arbitrage and debt funds.

Lowest equity I have ever held is 55%.
Highest equity I have gone to is 70%.
 
@prettyicke That doesn't count as investments. Gold ornaments have a little resale value, and the house you live in is not an asset as it can't generate an income. Anything else like fixed interest schemes?
 
@ll44 Yes. I don't consider gold as investment.
I dont have anything other than mutual funds except less than 5% in some shares.

Shares I use for trading and this is mad money for me. I don't count it as part of corpus and can do what I wish with this.
 
@ll44 But if one were to try to assess it’s value (assuming it’s 22 karat) just from a net worth accounting perspective. What would you put it as percentage of their (weight*CMP) ? 85%? 80%? Lower? Would love to hear thoughts.
 
@grindingla I'm not worried about a crash. It's inflation that is worrisome, killing us silently. Oil at 100+, edible oil 200+, LPG at 900 and veggies too going thru the roof. Even regular medicines for BP, Sugar, cholesterol, etc. are expensive after 12-18% GST.

It may not bother much to the crowds in social media, but 90-95% Indians are getting poorer everyday. Eventually govt will print money to woo the voters before 2024 election and this will add fuel to the fire.
 

Similar threads

Back
Top