Investing strategies and secular bear markets

[Biscuit]

This is an interesting chart that gives some insights to your question
http://www.aheadofthecurve-thebook.com/04-01.html

Interesting curve. They say: "Note that bear markets (shown here in the vertical yellow shaded bars) almost always begin when the rate of growth in real GDP is at or still close to its peak" Do you think that is what the chart shows? It seems to me that there are a lot of "peaks" and that any vertical line drawn at random would likely be at or close to a peak?

[Hoop]

Interesting curve. They say: "Note that bear markets (shown here in the vertical yellow shaded bars) almost always begin when the rate of growth in real GDP is at or still close to its peak" Do you think that is what the chart shows? It seems to me that there are a lot of "peaks" and that any vertical line drawn at random would likely be at or close to a peak?

Thats because your mindset isn't tuned in..no offense to you Satan and KW...I struggled to grasp the whole secular thing when Winner first PMed me with the links many years ago...There's a lot to take on board and some of the reading can be hard going..but once you start getting that knowledge the stuff which is written in the articles and charts become easier to understand and the charts jump out at you...That's probably the problem Winner and I have when we try to explain it to others on ST.....As we have learn't the methodology we see secular related things as clear and simple and inadvertently expect others to see likewise..

Lets do baby steps (I did this method of Lesson 1 of many Lessons)...Take Winners posted chart for example. Apply this one small piece of secular knowledge to your brain The primary driver of the sharemarket secular cycles are the trends in the P/E ratio. .... a primary driver of the stock market is inflation..The link here is that Inflation affects the value of PE Ratio..e,g a PE Ratio of 20 on the S&P500 could be considered fairly valued with 1 to 2 % rate of inflation but a PE of 20 would be considered extremely overvalued if inflation was say at 10% or there was deflation at say 3% ..There are other underlying drivers which switch on and off but lets keep it simple here..and you have to believe me when I say that Economic growth (business cycle) is not a primary driver. Contrary to main stream media belief, research has shown that Economic (business) cycles and the sharemarket has a surprisingly poorish correlation overall, sometimes good sometimes not good..Having this knowledge your question about those peaks on Winners posted chart become clearer and answer themselves..

One piece of consistency gained from knowledge is the fact that the sharemarket nearly always bottoms out and is in stage 1 of a bull market cycle before the recession ends..this fact reinforces your knowledge that the Country's economy does not drive its Sharemarket...not convinced then look at that chart again and ID those bottom points...can you now start seeing that chart from a different viewpoint??..if so you mindset is already adjusting to this new knowledge...and.....with this one piece of knowledge you can confidently question the wisdom and accuracy of many those so-called "Market Analysts" who by this time in the latter stage of a painful recession would be exhibiting pessimistic near future views..

Gaining pieces of secular knowledge is fun, you gain insight to market behaviour..long term predictability becomes easier to master and you gain confidence...after a while you get totally fascinated by the whole Secular thing and the many possible futures.

Hope this post helps

PS ...try reading the thread ..lots of secular info on it

[Hoop]

In Jan 13 Australia had a low CAPE - wonder what it is now?

Highlighted and 15.8 is considered unattractive by Star Capital Research (their table post below)

Note Greece's PE of 2.8 is considered unattractive!!!....why??? same theory applies... inflation is the driver and affects PE Ratio...with core inflation at -3.93% (deflation) the PE ratio figure has shrunk accordingly...Now you can understand why the FED will do whatever it takes to prevent persistent deflation...

[winner69]

Another couple of good posts Hoop

Secular implies long term. History shows long term returns when PEs are high are generally pretty low (if not negative) and conversely long term returns are above average when the starting point is a low PE. The markets do cycle between high (>20) PEs and low (<10) PEs

My investment strategy outlined in the first post of this thread many years ago still holds. I essentially still follow that strategy.

On a day to day basis it is similar to KW's strategy in that it is not a long term buy and hold strategy but a strategy where one holds up trending stocks and where one is not embarrassed to sell when the uptrend ends.

The amount I have set aside for equities is all in equities at the moment. But I know that one day the market will be a lot lower than it is today. So keep monitoring those charts like KW does and when sell signals happen I act on them (well mostly). Worked in the past and usually out before the big market correction/crash happens.

Preservation of capital is the game and avoiding the corrections/crashes is key, you then come back and play again.

[Lizard]

Winners investment strategy is:

• Because long term market returns will probably be very low become a stock picker and pick long term growth prospects based on fundamentals.
• As market sentiment is stronger than fundamentals and hope only hold stocks that are trending upwards. During times over real market weakness tighten up trailing stops (essentially the Phaedrus long term trading strategy)
• To maximise returns while retaining some degree of diversification perferable number of stocks is 5, but no more than 10 at any one.
• Don't worry about portfolio weights - because all stock picks will be trending up
• Because I understand NZ and Autralia markets and economies restrict stock picks to these markets
• Do not be embarassed to be 100% cashed up if necessary

Have you stuck with the "5-10" stocks or been tempted to diversify further?

[winner69]

Have you stuck with the "5-10" stocks or been tempted to diversify further?

Yes

Generally less than 5 core holdings and play around with a few specs with petty cash for a bit of fun

[BlackPeter]

Great discussion - and very thoughtful input from a number of posters (but particularly Hoop) - Thank You!

Not sure, whether I can add a lot to this in-depth historic market analysis, though one sentence sprang to mind (not sure, who used it): "This time everything will be different". I believe it was used ironical ... but it might be worthwhile to just stop and ponder on it.

Have we ever before had such low interest rates - and such strong interest from powerful parties (like nearly all governments of the world) to keep the interests low for a long time?

The US are still the strongest economical player (unless you count the Euro zone as one country, than they are already larger than the US economy) ... but in 2013 the US GDP represented only 23% of the world economy ... and I am sure it will have been (as percentage) less in 2014 and still less in 2015. The Chinese are already snapping their heels ... and will takeover the race within the next decade or so. A US economic crash (this time due to their inability to repay their debts?) will hurt less, than it still hurt 8 years ago.

So what I am saying is - maybe things are really different this time? I don't expect the bear / bull cycle to end, but a CAPE of 30 (representing a 3.3% annual long term interest rate) might still look quite good if you compare it e.g. with a roughly 1.1% return on long term US debts ... i.e. I could well imagine shares becoming still much "dearer" before the bears start doing their job. I could as well imagine that some of the emerging markets (with still much lower PE's) will takeover the economic lead ... and keep the bull running.

My strategy is to stay in shares with lower (long term) PE's (unless the growth really justifies a higher PE), to diversify and to avoid too much exposure to US stocks. I try to be vigilant, but am not too scared about the prospect of the next market crash being imminent (though bubbles obviously can lurk anytime).

[winner69]

Here is my long term chart of the PE for the ASX All Ords (historical earnings)

If there is no major disaster and the PE rises from the current 15 one could say that this would tentatively confirm an uptrend since 2009 and we are in a secular bull market at present. (otherwise a continuation of the secular bear that started about 2000 and would see PE go sub 10 sometime so take you pick)

Even the ASX has secular cycles - note rising trend in PE from early 1980s to 2000 followed by falling PEs through to 2009 and then rising PEs since (hence the start of a possible secular bull)

Interesting?

[winner69]

Here is a view of the S&P500 with some notes about the PE ratio (forward earnings KW) when the market turned up and down

http://www.businessinsider.com.au/jp...s-chart-2015-1

By JP Morgan so must be true

[skid]

Here is a view of the S&P500 with some notes about the PE ratio (forward earnings KW) when the market turned up and down

http://www.businessinsider.com.au/jp...s-chart-2015-1

By JP Morgan so must be true

http://online.barrons.com/articles/s...ket-1421461711