Advice?

But the condo did sell, right? So somebody owns it. And that somebody will need a refrigerator or new carpet or . . .

Do I believe stocks have a chance in the next year? I have no idea. I'm not invested in stocks so that I can watch them go up next year. I'm invested in stocks so that I'll have something when I turn 70, a few years hence. I don't care what happens in the next year - or even 5 years. Don't get me wrong, I wish I had the same nest egg I did a year ago, but I don't. But I had enough a year ago that I'm not wiped out and I will have something when I turn 70 a few years hence. And the way I got to that point was being invested largely in a diverse portfolio which included a significant allocation to equities.

When you're young it's hard to conceive of a lifetime long enough to weather this sort of storm. It's like when your 15, 30 seems really old. When you turn 30 you find out your body still works and your mind is still pretty nimble. But even at 30, it's hard to picture yourself with your own teeth at

1. 35 years is a long time - plenty of time for the economy to go through several cycles. You're young. You have time on your side. Stocks are on sale. Go buy some and don't worry if there is a better sale next month.

Elizabeth Richardson

some...

In general, I agree with your posts to this thread, Elle. However, the first link seems relevant to Anoop's point when it says,

"If you are under the age of 50 and you don?t need to spend your money for five years or more, stocks can be a very compelling place to invest your hard-saved money. While there?s definitely no guarantee that history will repeat itself, stocks have historically had the highest investment return of all of these categories over the long-run."

This doesn't seem real loose. I agree with you that 5 years may be too short to call "long term", but I also agree with Anoop that the media often defines "long term" carelessly.

-Will

william dot trice at ngc dot com

It's too late, the Russell 3000 bottomed Nov. 20, 2008 after peaking in Oct., 2007.

-- Ron

If 5 years isn't enough to move your stock allocation north of 0%, would

10 years be enough either? The last Ibbotson data I have access to say that from 1926 through the end of 2007, US stocks (per the S&P 500) outperformed Treasury bills 77% of the time over a 5-year period. There were something over 900 rolling 5-year periods during those years, though they weren't independent periods. And that ignores complications like taxes and investment costs, this is just index data.

Moving out to 10 years, by the same measure stocks have beaten T-bills

86% of the time. Sure, that's an improvement but is that really so much better that it makes 10 years a cut-off for going from 0% stocks to something higher? At what point did it happen...80%, 85%?

Interestingly, there's been little difference between the rolling 3-year and rolling 5-year "win rate" for stocks. Most losses in the stock market have been relatively short-term...just a year or two in duration. Though of course there were some big losses that lasted much longer than that - and that's what the typical investor is concerned about.

-Tad

No, I'm asking what evidence there is that P/E or stock prices are going to go up, but the only answer seems to be "well, they used to be higher," but there is no reason at all to suppose that the fact that they used to be higher means they must rise again.

Your slippery slope fallacy trying to make my reasonable question sound unreasonable doesn't work.

You are missing something.

There is no evidence that P/E will go up. (though it probably will).

But what you are missing is that you do not need P/E to rise, to make money in stocks.

You can make a lot of money, in stocks, with P/E staying exactly where it is, by owning stocks, reinvesting dividends, and see the value of your investment rise due to buybacks and capital investments by the companies that you would own.

I would be delighted to get a 10% per year return on the stocks that I bought in October 2008. 10% means that I will have 2.6 times the money I invested now, in 10 years.

And that is assuming that P/E will not rise. If P/E rises, I will have more money.

I am not advocating buying stocks at any price, only at cheap price. I sat on a bunch of cash for many years. The prices are cheap now.

Do you have evidence they will NOT go up? No. No one has evidence either way. However, we can be absolutely certain that P/E will not remain stagnant. It never has and it never will. A stock market involves people and people do things both rational and irrational. This causes change.

Elizabeth Richardson

To be fair to Elle, the S&P started its index in 1923, expanding it to

500 companies in 1957. The S&P site has P/E data going back to the 1930s. I think Elle is using Shiller's data to get back to 1871.

-Will

william dot trice at ngc dot com

I hope you are wrong. Recent prices have been the stuff of which dreams are made.

-HW "Skip" Weldon Columbia, SC

1871 I am referencing, as many do in discussions such as this, the work of academic Robert Shiller. He extrapolated the value of the S&P 500 back to 1871. See 11.http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indi... Please look at the date on my post and then look up SPY, among other S&P index funds, to see that the P/E as of the date of my post was about 11 and today remains so.

"Daniel T." wrote

I have no problem with this point re P/Es and in fact think it is relevant.

I do object when you assert that I was making the opposite point. If you want to say the opposite point was somewhat implied in my post, okay, but I think this is pushing it given the context (a discussion of what is cheap) and AFAIC my qualification from the get-go.

Answering questions that impose a premise that was not presented just causes people to go adrift and have misunderstandings. I am not asserting that a S&P 500 P/E lower than 15 means everyone should go buy an S&P 500 index fund. Maybe they should; maybe they should not. However I am of the opinion, and it is only an opinion, that the historical P/E average of about 15 has meaning beyond numerology. I think that a P/E of around 15 has, for modern stocks of the last 150 years or so, meant a good deal insofar as a person's lifetime is concerned. It suggests that a company will earn back the value of its stock after about 15 years. This is not such a "long time." I would argue that historically, a thoughtful person weighed this time period against his or her life and reasoned the company (not so much the stock, although the stock is the company yada) was a good bet. (I hate the notion of betting on stocks. One bets on companies.)

So I think there may be a rational basis for a P/E of around 15 as opposed to 4 or 100. This is all a very fuzzy science, as we all know, yet I think rough observations are helpful. I otherwise have yet to find a decent discussion of why historically P/Es average about 15. Would you say this historical average of 15 is totally arbitrary? If so, fine; your opinion is heard. Neither yours nor mine can be disproved. AFAIC it still remains a fact that stocks may reasonably be said to be cheap compared to historical P/Es.

some...

With the statement in the article that, "This is why we say stocks rock if you have at least five years on your side," I retract my contention that anoop was being loose with this article.

I stand by my contention that he is being loose when he claims conventional wisdom has been "if you didn't need the money for 5 years, you should be invested in stocks." This is not conventional wisdom IMO. I continue to feel no reputable advisor or web site that advocated or advocates five years as the minimum time horizon a person needed prior to investing in stocks.

I agree with you that 5 years may be too

I do not have any objection to this re-writing of Anoop's earlier statement. In particular, sites that have an interest in the public investing in stocks (or promoting frenzies so as to aattract more readers and so better advertising deals) will argue for getting into stocks. But these are not reputable sites in my view. I guess if one is a non-critical reader, they certainly may seem otherwise, though. Perhaps this exchange will promote more thoughtful reading.

I meant "bottomed". LOL.

-- Ron

I never claimed that they wouldn't.

So there is no reason to believe that stocks will go up. You said you invest in "equities" because you have reason to believe that they will go up. What are equities, and how do you know they will go up? (Or did I completely misunderstand you?)

I can almost guarantee P/E is going to go up and real soon now. Fourth quarter earnings are going to be awful. -- Doug

I think it is too late as well. But that is not an opinion I have high confidence in.

But my point was that "wait and buy at the bottom" is not all that easy. There is an old Wall Street saying that "Nobody rings a bell" at market bottoms or tops. Meaning you generally don't know that it is a bottom or top until you are well past it.

-- Doug

I'm not saying that the historical average of 15 is totally or even partially arbitrary. I am asking what your basis is to think that it is not. From the above, it sounds like you think there is something about human nature that prefers a P/E of 15 in preference to other values. (Much like discounting a $50 product 10% (to $45,) has a larger impact on sales than discounting a $60 product 10% (to $54.) There is something about the $50 price point that affects people. Does that sound like a decent understanding of your position?

Above you explained what a P/E of 15 means, although you state that a stock with a P/E of 15 "suggests that a company will earn back the value of its stock after about 15 years." This implies that the P/E says something about expected *future* earnings which AFAIK it doesn't.

You don't have to hit the exact bottom to benefit.

Equities are stocks, but I use the term to reference a group of stocks rather than an individual issues, and usually mutual funds. Stocks will go up and they will go down. They will not stay the same. Do I have evidence that they will not stay the same? No. Neither do I have evidence they will go up or go down. There is no such thing as evidence for a future event. I believe the market will rise because I've watched the stock market move in both directions for more than 50 years and it is never static. Logic says it will go up again, but I'm making no predictions as to how soon. I believe it will happen sooner than bears believe it will happen.

I'm not sure what your point is here. Are you asking for a guarantee of a future event, either negative or positive? Not even weather forecasts are

100% accurate, and those folks have quite a bit of evidence to back up their predictions.

Elizabeth Richardson