Advice?

To all Gurus on this list.
Do you think US stock markets are hovering around the bottom? Or do you think the worst is yet to come? In such uncertain environment, what is a good investment strategy?
Would buying something equivalent to complete stock market index at regular intervals to ensure dollar cost averaging be a wise move? Any other strategies? Please share.
Thanking you in advance.
------------------------------------------------------------------------------------------------- Simplicity is the key to success -- An unknown philosopher Interesting portfolio using covered calls options strategies -------------------------------------------------------------------------------------------------
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The problem here is that all these questions are the type of question where you cannot know the answer at the time you need to know the answer in order to take advantage of the knowledge. The best overall strategy that seems to work for the most people is buy and hold, then rebalance as needed to meet your goals. Any shift in that now would be more or less trying to time the market, which never seems to work over the long haul.
If you do have a long time horizon, being at the absolute bottom really doesn't matter that much. Maybe we are within 5% or 10%, or maybe it is 25%. What does matter is getting in, and not missing what might be the next big bull market.
The other item that matters is your own personal economy. You need to be in a position where you can weather a storm, such as multiple job loss, without losing your house. That means being low on debt, not having luxury cars that have a monthly payment, and having some cash reserves. It doesn't matter what the economy as a whole is doing if you are losing your home or are so deep in debt that you cannot see past your eye balls.
-john-
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John A. Weeks III           612-720-2854             snipped-for-privacy@johnweeks.com
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No one knows if US stock markets are hovering around the bottom. If someone says otherwise, they are not to be believed. The question is very difficult.
A much easier question to answer is whether it is priced cheaply. My own answer is that it is priced cheaply, cheaper than bonds. At this price, if you have time and money, the likelihood of losing money over, say, 10 years would be minimal.
I do not believe in dollar cost averaging, which is a complete fallacy. (investing money "as they come from paycheck" is not dollar cost averaging).
http://en.wikipedia.org/wiki/Dollar_cost_averaging#Criticism_from_economists_and_finance_experts
Personally, I and my spouse had our 401K money in cash prior to this debacle. So we have not lost much money in our pension funds through October.
Now, with the stocks so cheap, we put all our 401k money into stocks. We also have a UTMA account for out older son, which I also converted into stocks around the end of October.
If the dividend yield on the stockmarket exceeds Treasury bond yields, with the appreciation potential (retained earnings and buybacks) being the icing on the cake, it is very hard to justify not being in stocks.
Put in other words, your risk of losing money on investments is higher in proportion of how much you pay. The risk of losing money with stocks priced at 8 times P/E is a lot less than if you paid twice that amount.
i
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Compared to what? Dumping a lump sum in the market based on a guess? Timing is the fallacy.

Investing money in stocks regularly from each paycheck is known in many circles as one form of DCA.
I know you and I disagree on this. Just noting it for the thread.
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If you assume that the market returns are greater than returns from bonds, on average, then yes, putting all available money into the market would be superior to investing it in pieces.

The wikipedia article discusses this question to some extent.

Yes. I do believe in "market pricing", as opposed to market timing, which is that it is better to buy when stocks are cheap and, specifically, not to buy when stocks are too expensive. This amounts to changing one's mind once every 10 to 15 years.
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We cannot say if stocks ar cheap. Many people compare today's prices with last year's prices, but why use last year's prices to compare today's prices? This is the gambler's fallacy. When you flip a coin and get 5 heads many people think that a tail is more likely ot come. But this is false because each flip is an independent event. If we assume that stocks are traded in an efficient market, then all information is incorporated into the price and the price resembles a random walk. Just because it is heading down, it doesn't mean it is more likely to go up. Rather, it may fall even further down.
I am starting to wonder whether the stock market will ever go up. I think that today we have very complex structure securities that enable investors to adjust leverage using options, swaps, etc. This means that even if there is a slight upward movement in the market, the knowledgeable investor can take advantage of this knowledge and profit. If it is true that stock markets go up in the long run, then someone will leverage infinitely and take advantage of this profit opportunity, which gets rid of the opportunity.
If you don't know what to do, just keep your money in cash.
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By the historical measure of P/E they are very cheap. For 1871 to the present, the S&P 500's average is about 15. Today it is about 11.
You are using numerology to explain stock movements. A person should rely instead only on his/her understanding of what economies do in the long run instead. Do populatons grow? Does technology increase so that the ostensible quality of life rises? If a person thinks the answer to these questions is yes and wants to invest for the long run, stocks may be a good choice.
If a person is not interested in the long run, then he/she should not buy stocks.
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On Dec 27, 7:07 am, snipped-for-privacy@gmail.com wrote:

Isn't PE numerology too? ;-)
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Augustine wrote:

Does the system that assigns values to goods and services have any rational meaning?
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On Dec 27, 1:23 pm, snipped-for-privacy@gmail.com wrote:

Rational? Yes, but Economics is not an exact science, in spite of all the math that it involves. Rather, Economics is usually found in the Human Sciences college departments.
So, to state that a PE of 15 is "normal" is truly numerology. For the scenario might change drastically... or not.
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I did not say it was "normal." Do not twist my words to make your point.

By your reasoning every value assigned to a good or service is based in numerology. You can live in the reductio ad absurdum world. Hedonists, gamblers et al. live for this.
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snipped-for-privacy@gmail.com wrote:

"Past performance is not a guarantee of future returns."
Isn't that exactly what you are doing here though? Just because past P/E average is about 15 doesn't guarantee that it will ever move above 11.
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I don't think anyone is "guarnateeing" and future returns. It's just that compared to historical average, stocks are inexpensive at this time. The probability that it will go up in the long term from this present level is higher than it will go down.
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Again, just because it was higher in the past, how does that mean that it will likely be higher in the future? Where's the cause and effect?
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Based on future earnings and discounted cash flow.
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More detail please? Maybe a web page that explains how P/E relates to future earnings and discounted cash flow?
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P/E relates to _how much you pay_ for future earnings and cash flow. It is not predictive of future earnings or cash flow. Only of how much you are paying for it.
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Let me direct you to one of my favorite readings: Hussman Investments at hussmanfunds.com.
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Assigning probabilities, even vague ones like this, is where I start to differ. I would have qualified this statement with something like, doh, "If past performance guarantees future returns... "
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wrote:

The S&P500 has a history going back to 1957, not 1871 http://www.standard.com/annuities/eforms/13038.pdf And the p/e at the close of Nov 2008 was 19.44, not 11. http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_500/2,3,2,2,0,0,0,0,0,0,11,0,0,0,0,0.html
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