The Greatest Bubble of All-Time?

Investors often worry about a Japan type Stockmarket scenario happening in their own country. Doesn't mean it could never happen but it needs to be kept in perspective. It was a monumental bubble! Level headed investors in such an " extreme" situation would have plenty of time and warning to take preemptive action provided greed doesn't get the better of you.

 

That was a good read from Ben Carlson. Nothing is for certain. Even buy and hold forever ... History repeats itself, we have short term memories.

How Tulip Mania Worked

The Japanese bubble took a while to build up, and taking a long time to recover.

 

I read that too. Excellent writing by Ben Carlson. A wealth of common-sense indeed.

 

Is there an CAPE valuation equivalent for the ASX?

 

• Buy and hold doesn’t work. The truth is buy and hold doesn’t always work over every single period. There almost have to be periods where buy and hold doesn’t work, otherwise everyone would do it. If something worked all the time, eventually it wouldn’t work because too many people would join in. This extreme example shows that buy and hold worked mighty well in one time frame but terribly in another. Still, in the overall period it looks like it still “worked.” It really matters how you define your time frame. Both sides could claim victory on this one.

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so if buy and hold doesn't work for all ( reliably ) how can we the late-comers improve our outcomes .

buy and hold not working , implies the share price has dropped lower than your buying price ... if so, is buying some extra at a cheaper price wise for you ???

• Valuations matter. Valuations don’t work as a timing tool. If you tried to use them in Japan you probably would have gotten out of the market a decade before the peak. It’s easy to say this in hindsight, but there were few scenarios where the late-1980s real estate and stock market valuations could have been validated going forward.

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but what about just extracting your investment cash at those high valuations letting the profits run longer , reduce as per valuations tool and sell or reduce at the actual peak ?

sometimes a 'somewhere in the middle' is a superior compromise

 

Buy and hold and not exiting the market can ensure (or as close as possible) long term results given the right vehicle.

Meet the world's worst investor/timer
What if You Only Invested at Market Peaks?

 

i am glad i am not THAT Bob ( i already have a tendency to self-harm )

the trap there is 'right vehicle ' ( some vehicles have a tree fall on them , or get taken over at a discount crystallizing the losses )

one would also ponder on why 'Bob' didn't try to buy a few units at the bottom(s) also .

say you used STW ( i don't hold ) that would not be a disaster if you DRP ( or at least my VAS tells me that )
the ASX has NOT reached record peaks , but it does so the dangers of large buys

 

I suppose there's a lot to be said for averaging into the market but going at it heavier in times of gloom and lightening up in times of boom. And yes the "right vehicle" can dramatically reduce the risk of a disaster.

 

i went 'super diversification ' but also extract the investment cash at sensible opportunities .

i simply can't afford to be totally wrong , reduction risk where i can , and diversify ( even across a sector ) when i can't

 

Yes, I can understand your reasons for doing so. From memory you stated you are in your early 60's and timeframe till retirement is short.

I suppose we've been lucky in some ways having had the advantage of being a higher income household and starting investing earlier. Our focus is always on the dividends not the capital. Although generally for the dividend to grow capital also needs to grow. The dividends generally aren't anywhere near as volatile though.

Even in a Japan type scenario we would still get by quite fine. Time (the more the better) in the market is your friend. That is someone who has been accumulating steadily for 10, 20, 30 years or more is at less risk of a catastrophe compared to an aging investor closer to retirement who dumps their entire life savings into the market just prior to a crash.

Ours has been a steady approach over the years with our major holdings being mostly the conservative older LICs. No one knows the future but investing in conservative LICs with a track record going back decades (60, 70, 80 years) has served us well. We enjoy a wonderfully comfortable, relatively early retirement and sleep very peacefully at night when it comes to our investments. And best of all there's nothing to do if we choose, our older LICs being essentially set and forget! Bliss on a stick.

 

my situation has it's advantages , you just have to see what needs to be done , and your assets/handicaps

say i was 50 i might have $20k ACTUAL cash in the market waiting for a crash .... earning stuff all interest and a half-ass market education

the inherited shares ( and failures ) show no business is immune from being removed from your income stream , but some surprising shares resist and even flourish .

buying close to the right time is good , but you can turn ordinary into good as well , sometimes

 

it can work both ways , you can average into different markets some that lie outside our field of observation and it takes 10 weeks to get back where you started..

 

i came into this world with a list of impediments but a disproportionate amount of luck ( or maybe instinct )

the same technique does not work every where , and even if it does work .. would you like 10% of your portfolio to be , say ,MOY at full cash risk ( NWH is another )

my largest holding is WOW ( roughly 10% on the combined holdings ) but has very little cash invested in it ... about $100 .

my 3rd largest holding MQG ( at no cash risk )

my 4th largest holding APE ( at no cash risk )

the rescued cash ( mostly ) goes back into the market but into a different investment

when others are crying am calculating my choices , do i hold , abandon , or buy into the slide , on in rare case 'flip ' sell them holding but buy back cheaper in a few days ( normally in a SPP/CR setting )