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#1
I'm not really sure whether the market is a good proxy for the economy or not. I remember folks used to say that it is a leading indicator. If that is true, then the economy is going to do great. This bull has real legs. And to me, it does not even feel frothy. Seems like everyone is still pessimistic and worried. As a contrary indicator, that seems to point to still higher prices.

Anyone else want to hazard a prediction?
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#2
Good points, Tom.

The stock market seems to be a good enough leading indicator of where the economy is heading but I'm not sure it's a good gauge of magnitude. You can have a wildly up market and the economy takes a slow curve up like it appears to have done over the last few years. Other times the market doesn't appear to respond as well as the general economy. I think part of it depends on where you start and end the "guage". The Great Recession, and the public and government responses, really was a major event which may have distorted a lot of measurements.

As for sentiment, I don't know what statistics are best for measuring it. It seems polls are notoriously inflated when you ask people about themselves rather than measuring their real-life responses. Everybody seems to be a better saver and investor and a bargain hunter when shopping and then you see the aggregate numbers come out from the government or some research company and the opposite seems to be the case.

Last fall I mentioned to an RIA I was talking with that I thought we were beginning a "secular" bull market. We just kept climbing this wall of worry with lots of negativity and there was no breather along the way. Seems we're still doing that now. Of course, we really won't be able to judge that well until it's over which could be many years from now. Frothy? No, I'm not feeling it either although I do think the bargains we saw over the last few years are long gone for a while and have to settle for fairly to slighly overvalued (at present) stocks or trade around the momentum which I'm not wont to do.

I thought for a long time (the 00's) that what we went through in the late 80's and 90's was a once-in-a-generation event but now I'm beginning to wonder. I also don't know if that is good or bad.

That being said, my plan is to continue doing as I've been doing for the last 5 years -- concentrate on finding fairly valued companies that I believe can thrive for the long term and hold them. Re-balance as necessary and watch. The test will be the next big down draft and how I'll handle it. I think I'll be OK but you never know until you are there.

I wish I had the stomach to trade around those high-yield issues such as BDCs, CEFs and MLPs like Alex does but don't have the expertise, time or inclination to do that now. Maybe closer to retirement I'll have more experience watching them and taking a flyer or two. I'm just getting comfortable with REITs now. My retirement budget so far is OK with what I'm holding so speculating without confidence in my judgement may not turn out well. There's always something to learn.
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How do they get the deer to cross at that yellow road sign?

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#3
Let's add a new twist. On Seeking Alpha, Richjoy responded to this article thusly:

DSO has expressed his opinion ("...Aging bull market"). He would have investors turn more defensive. IMO, it is true this recovery is aging ONLY when compared to the average recovery (expansions average 59 months, and contractions 11 months).

However, most of the world experienced a financial crisis that lead to a severe recession. Financial crises go deeper and last longer compared to normal recessions. More importantly, it also takes much longer to recover from a financial crisis than from a routine recession.

So let's look for clues in the business cycle: It consists of 4 phases...early, mid, late, and recession. DSO believes we are in the late phase. I (and many others) believe we are in the mid phase. In fact, our slow-growth economy supports our being in an extended mid phase of the business cycle, before entering the late phase.

The typical characteristics of mid and late stage recoveries are as follows:

Mid phase -- Typically the longest phase of the business cycle...Growth peaks, credit growth is strong, Fed policy is neutral, inventories and sales grow (reaching equilibrium with one another).

Late phase -- Typically suggests an overheated economy ready to slip into recession, and hindered by above-trend inflation...growth moderates, earnings come under pressure, Fed policy is made restrictive by tightening credit, inventories grow and sales growth falters.


Sorta agrees with we're seeing. Regardless, still tending to my knitting and letting the market cycle worriers trade as they see fit.
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How do they get the deer to cross at that yellow road sign?

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#4
NAV is in all time territory. Am accumulating cash to protect the gains. Currently NAV exceeds amount to satisfy anticipated needs. IMO, there is no valid reason for me to stay fully exposed to this fickle, unpredictable market.
Alex
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#5
(03-01-2014, 09:07 PM)hendi_alex Wrote: NAV is in all time territory. Am accumulating cash to protect the gains. Currently NAV exceeds amount to satisfy anticipated needs. IMO, there is no valid reason for me to stay fully exposed to this fickle, unpredictable market.

I am receiving predictable, higher than inflation dividend increases. I see no need to reduce exposure to this market, which I do not view as fundamentally fickle or unpredictable. In ant event, I invest in individual companies, not in a market index.

Alex's views do have some merit, though, depending on what one's goals and strategy are. I am speaking to my goal of a reliable and increasing income steam.
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#6
How many investors express that same kind of sentiment, yet panic to join the buy high sell low club when looking at the devastating reality of 30%-50% or worse losses in a harshly down market? Your position represents a sound rational stance. The problem develops when a brutal market takes things to the emotional level, and the rational side loses control.
Alex
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#7
(03-01-2014, 09:50 PM)hendi_alex Wrote: How many investors express that same kind of sentiment, yet panic to join the buy high sell low club when looking at the devastating reality of 30%-50% or worse losses in a harshly down market? Your position represents a sound rational stance. The problem develops when a brutal market takes things to the emotional level, and the rational side loses control.

I do not know how many

How many times in the last 50 years have there been drops in your range.
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#8
Alex, I worry about that with myself also.

I think boards like this can help counteract some of that. We can worry and complain here and support each other to hold the course instead of jumping off the bridge all alone.
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How do they get the deer to cross at that yellow road sign?

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#9
Retail investors have a reputation for getting taken to the cleaners during strong down drafts. So the question that I ask [is your temperament such that you could lose 50% of your net worth and still feel good about the dividend flow?]. If the answer is yes, then you are probably a good candidate to always be 100% invested in equities at all times. If on the other hand, you might tend to get frightened, panic and run at the worst possible time, then you should probably increase the cash weighting when the market starts to feel toppy or when the expansion gets a little long in the tooth.
Alex
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#10
(03-02-2014, 07:53 PM)hendi_alex Wrote: Retail investors have a reputation for getting taken to the cleaners during strong down drafts. So the question that I ask [is your temperament such that you could lose 50% of your net worth and still feel good about the dividend flow?]. If the answer is yes, then you are probably a good candidate to always be 100% invested in equities at all times. If on the other hand, you might tend to get frightened, panic and run at the worst possible time, then you should probably increase the cash weighting when the market starts to feel toppy or when the expansion gets a little long in the tooth.

Once again, how many times in the last 50 years has there been that kind of downdraft?

A more likely scenario would be a 10-20% downdraft for the indices and less for blue chip dividend growth companies. My honest opinion is that posing extremely unlikely scenarios is injecting a probability into the discussion that is not significantly different than a zero probability.
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