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We interrupt our regular programming to bring you the first edition of Rich’s Ramblings!
It’s simply this: I might have thoughts, ideas, inklings that I want to share quickly, but I haven’t had the time to completely process them into full on professional blog posts. (Which is funny, because when did blogs become so professional?? They used to be for amateur novelists and family photos.) So, I’ll stick these 8 pound 6 ounce newborn baby ideas into Rich’s Ramblings.
That’s a Ricky Bobby reference.
What about Penny? Maybe she’ll have Penny’s Ponderings or some such. Or Penny For Her Thoughts. Up to her.
Last part of this preamble: I need to be able to write a ramble in one hour or less. Otherwise, it’s a post. Ok, go.
First a random thought and then on to my main topic.
RANDOM THOUGHT: WHY ARE SO MANY ENGINEERS TRYING TO RETIRE EARLY?
It seems like half of all early retirement bloggers are engineers. Why? Is it because engineers are smart and like to design systems (including early retirement systems)? Or is it because engineering jobs are soul-crushing and need to be escaped? I really want to know before my kids get old enough to consider engineering. Thank you for any advice!
MAIN RAMBLE: I THINK STOCKS ARE IN A BIG FAT BUBBLE
This first ramble will, I’m sure, draw all sorts of ridicule and hate mail. It’s ok. I’m 41 years old with twin boys. I simply can’t be offended or humiliated. I’ve held a dirty diaper in one hand and a crying boy in the other at 30,000 feet with dozens of onlookers. And that’s a mild story.
Many personal finance bloggers have been asking themselves if stocks are in a bubble. It usually starts with “Stocks are definitely a bit frothy right here, I’m nervous,” and it usually ends with something like, “I’m sticking to my plan, stocks are for the long run, yadda yadda yadda, I’m really tired today.”
But let’s analyze what we’re saying about stocks before we convince ourselves to stick with them. We — and by this I mean me and a bunch of market observers at this point — are saying it’s pretty obvious that stocks are either fully priced or overpriced. At the very least, we can say that stocks, on the whole, are not underpriced (which is the best time to buy them). If you think stocks are underpriced … agree to disagree. San Diego means Saint Diego.
Personally, I think we are in a bubble created by low interest rates, QE, and momentum. I also think many people agree with me but do not want to act on it. I’m not going to wow you with complicated math arguments. You can read those elsewhere (like here — Hussman Funds Weekly Market Comment). I’m just going to show you this chart, and if you think what’s happening right now is totally normal, that’s ok.
If you think the first 2 bubbles were obvious but this one is not, that’s ok. Saint Diego.
I’M OUT OF THE STOCK MARKET RIGHT NOW. COMPLETELY.
Yes, I know I can’t time the market. I can’t beat the market. I might miss out on gains. And so on. I agree and I don’t mind. My goals have nothing to do with timing or beating the market. My goals are to support my family and retire comfortably, full stop. I don’t care how I achieve it relative to the stock market.
I’m out of the market right now simply because I can’t turn off my critical thinking machine and buy (or hold) at these prices (see chart above). I will either buy at lower prices or I will buy at higher prices when I’m comfortable with the risk. I’m not going to watch my hard earned money take a nosedive when my brain is telling me these prices are not sustainable.
Investing is not a competition. It’s a process of taking financial risk in order to achieve financial reward. There’s a perception out there, I think, that investors need to be in stocks. But no. No one needs to be in stocks or gold or real estate or anything else. If a person can meet his or her goals with a savings account or a mattress, bully for them. If you need the market to keep going up, you might be taking too much risk. Everyone should only take as much risk as they can tolerate.
Stock market risk is high right now. If prices continue to increase without a proportional increase in earnings, risk will move higher. That’s the basic math of it. I’ll write a more fulsome post when I’ve had time consider how and when to take market risk again. For now, I’m out. And sleeping comfortably every night with my teddy bear. Until the kids wake up.
Reader, I know I could be wrong about this for a long time. I’m not saying stocks will crash tomorrow. If you are heavily invested in stocks and you have a plan to forever stay heavily invested in stocks and you can dollar cost average into all the dips, please stick to that plan. I’m not offering investment advice. I’m just rambling!
Final thought: I have a friend who was a very successful hedge fund trader. The only author he ever recommended to me was Nassim Taleb, who wrote Fooled By Randomness and The Black Swan. I highly recommend these books to anyone interested in markets and the concept of risk.
With Teddy Bear Cuddles,