The Market 2021

BigRedRage

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Robinhood is still going really strong so I imagine it should be no issue.
 

Finito

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Anybody else surprised Robinhood is moving forward with their IPO? They must have enough interest but with the recent huge fines and all the negative attention from the Reddit user stuff I'm actually surprised they don't wait longer for people to forget. I guess part of the Reddit issue they said was lack of money so maybe they see the IPO as a way to solve that?

how anyone still uses Robinhood is beyond me. I would never trust that snake.

70 million dollar fine and the feds seizing cell phones and what not. No thanks
 

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I thought this was an interesting chart that illustrates the current market valuation compared to historical numbers. You can see we have surpassed dot com valuations but are still well below highs from the great recession. Interestingly, it looks like P/E spiked after the initial market dropped during the 2008 financial crisis as earnings collapsed faster than prices.

S&P 500 P/E Ratio
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For those who aren't aware P/E ratio is a stock's price divided by the earnings per share or the company's market cap divided by its total earnings. A stock with a P/E of 20 means you are paying $20 for every $1 in earnings. Typically investors are willing to pay a higher P/E for a faster growing company hoping that their earnings will increase rapidly and justify the higher valuation.

There are no perfect valuation models especially overly simplistic ratios, but P/E is a quick and highly available one that you can look at to get a very high level idea about a company's valuation.

A lot of value investors like to target companies with a P/E below $20. The S&P 500 is currently over 45!
 
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BigRedRage

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I thought this was an interesting chart that illustrates the current market valuation compared to historical numbers. You can see we have surpassed dot com valuations but are still well below highs from the great recession. Interestingly, it looks like P/E spiked after the initial market dropped during the 2008 financial crisis as earnings collapsed faster than prices.

S&P 500 P/E Ratio
You must be registered for see images attach


For those who aren't aware P/E ratio is a stock's price divided by the earnings per share or the company's market cap divided by its total earnings. A stock with a P/E of 20 means you are paying $20 for every $1 in earnings. Typically investors are willing to pay a higher P/E for a faster growing company hoping that their earnings will increase rapidly and justify the higher valuation.

Their are no perfect valuation models especially overly simplistic ratios, but P/E is a quick and highly available one that you can look at to get a very high level idea about a company's valuation.

A lot of value investors like to target companies with a P/E below $20. The S&P 500 is currently over 45!
I read about p/e a lot while skimming but didn't fully grasp it. Great post!
 

Zeno

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Honest question for some of the more seasoned investors. What do you consider a "diversified" portfolio? Is it just a mix of Equity and Fixed Income, is it a mix of multiple sectors (tech, financials, consumer staples etc) or is it a mix of different growth & income? If it is multiple sectors how many different sectors do you like to be spread out amongst?

I am mostly loaded with ETF's in my taxable brokerage account and depend on them for diversification myself but I do like thematic ETFs too. Is there such a thing as being too diverse?
 

Yuma

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Honest question for some of the more seasoned investors. What do you consider a "diversified" portfolio? Is it just a mix of Equity and Fixed Income, is it a mix of multiple sectors (tech, financials, consumer staples etc) or is it a mix of different growth & income? If it is multiple sectors how many different sectors do you like to be spread out amongst?

I am mostly loaded with ETF's in my taxable brokerage account and depend on them for diversification myself but I do like thematic ETFs too. Is there such a thing as being too diverse?
It depends on the ETFs you have. I do see a lot of stock only articles where they say 8-10 stocks in a portfolio are good, since stocks will send you tons of stuff to read to keep up on the companies. I think ETFs are good, and look for the lowest cost ones. So far in my brokerage the ETFs tend to be cheaper than the mutual funds, if you can find all the fees in both of them. You are probably well diversified with your ETFs.
 

elindholm

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Honest question for some of the more seasoned investors. What do you consider a "diversified" portfolio? Is it just a mix of Equity and Fixed Income, is it a mix of multiple sectors (tech, financials, consumer staples etc) or is it a mix of different growth & income? If it is multiple sectors how many different sectors do you like to be spread out amongst?
It depends on what your goals are. If you are content to ride along with the broad market, you can stick with generic mutual funds or ETFs. Especially among mutual funds, there's a lot of overlap in what they hold, within a category: one "balanced growth" fund is going to be pretty similar to another. So you can be set with a few differently-slanted funds that have low expenses. I'm a fan of FSKAX, Fidelity's "Total Market" fund, which charges almost nothing.

If you hold individual stocks, then presumably you're trying to outperform the overall market -- you're hoping to find what investors call "alpha." So then it's a game of how confident you are in your guesses and how much risk you're willing to take on.

I personally am trying to outperform the market a little, and I'm taking on moderate risk. About half of our portfolio is in 40 individual stocks, some of which are themselves quite conservative (Kimberly-Clark, AT&T, Pfizer) but many of which are pretty speculative. The other half is mutual funds, which have a defensive tilt, including 25% in bonds.

You can look at a stock's "beta" to get a sense of how volatile it is. That's a measure of how much it goes up and down compared to the market as a whole; 1.00 is average. KMB, T, and PFE are all 0.75 or less, which basically means they are boring. But you can find some stocks, even big names, that are 1.5 or higher -- Tesla (which we don't own) is at 2.

As for sectors, I look at the S&P 500 as a weighting benchmark and then modify our weightings according to, well, pretty much gut feeling. So for example the S&P is around 14% in healthcare, but I feel like most of that sector is overpriced, so our portfolio is only 9% healthcare. On the other hand, the S&P is less than 3% energy, but I believe that alternative energy still has a lot of growth potential, so we're almost 6% in that sector. (The energy sector in the S&P is mainly fossil fuels, but I'm trying to be ESG-conscious in our portfolio.) I steer away from consumer discretionary because I have a general distrust of that sector, although we hold some, including "quasi-staples" like Goodyear and Hanes (people aren't going to stop needing tires or underwear, and Hanes even pays a solid dividend). I was about to sell Wyndham in the mid $70s, because I felt like it had come as far as it could, but then it cratered, so I'm stuck with it for a while.

One way of thinking about diversification is that, almost always, something somewhere is going up. And often things go up in surges, like a bunch of money will suddenly flow into materials (which is the hot sector right now) for some reason. So if you have a piece of that action, you can be in the right place at the right time.

I force myself to be conservative with the mutual funds because otherwise it's too tempting to keep riding the hot hand everywhere. All good things must come to an end, and you want to be set up so that the next time the market drops 20% -- and make no mistake, it will -- you lose only something like 12-15%.
 
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Zeno

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Good stuff from both Yuma and Elindholm.

My portfolio mostly consists of ETFs--I have a S&P 500 ETF, a small/mid cap ETF, as well as Muni & Corporate bond ETFs--I am thinking of doing an emerging market or global blend ETF eventually. I do have some individual stocks mixed in--I have a plan in place for dividend stocks and they are a long term hold for me. I only chose stocks that have at least 10 consecutive years of dividend increases the consistency was more important to me than immediate yield--they are all going to DRIP until I am 62 then I will start using the dividends as income. I tried to set it up so that I will get monthly dividend payments in retirement, they are all quarterly payouts so I did my research to find ones that pay out the first-second--third month of each quarter. I have some other stocks I buy based on some things I read here and there but my investments there are fairly minimal by comparison.

This is all strictly in my taxable brokerage acct that I am doing unguided--I only put in there what I can after I max out my 401K & Roth. I have a financial advisor for my Roth and my 401K is really limited in fund choices so I don't have to think as much there.
 

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I don't hold any individual stocks in my retirement accounts aside from 5-10% of my employer's stock in my 401K. I only use low cost ETFs or mutual funds with proven track records. I don't mess around with the added business risk of individual stocks in my retirement accounts.

In my taxable accounts I usually have one or two broad market etfs as a foundation and then supplement with sector/industry specific etfs and high conviction individual stocks.

I think you can diversify with as little as 10-12 stocks but most people, me included don't do the required research and reading needed to only rely on so few eggs.

If it's an account that is a small percentage of your investable assets then concentrated positions in that account get diluted when the entirety of your assets are considered. But if you have a large percentage of your investable assets in a handful of companies you are likely taking on too much risk and could benefit from further diversification.

Other things to consider with diversification is US vs international (developed and emerging). Also large cap vs small and mid cap. Growth vs value come into play as well. Throwing everything into an S&P 500 fund is likely good enough 90% of the time and will do better than most strategies an average investor will attempt to implement, but there are times that international outperforms, like after the dot com crash.

Edit: and I didn't even touch on bonds as I am nearly 100% equities, but asset allocation between stocks and bonds usually increases in importance as you get older. With bonds you have to consider term, credit quality, interest rate risk, corporate vs treasuries vs mortgage backed, and also US vs international.
 
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Zeno

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Thanks for all the answers, I tend to overthink things when it comes to the market and money matters. There is a TON of information out there and I read a lot of it but the idea of what is "diversification" is all over the place. I think I am on the right track but only time will tell. I am not a gambler by nature, I tend to play it safe and it probably costs me some potential huge returns but if I can just get steady returns I will be happy.
 

elindholm

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I am not a gambler by nature, I tend to play it safe and it probably costs me some potential huge returns but if I can just get steady returns I will be happy.
This is a good approach. It's easy to get tempted by the success of someone who threw all of their money into the right stock at the right time, but you don't hear about all of the failed cases that balance out that one success. So-called "technical analysis" plays to people's greed, but you have to realize that the market is mainly driven by the super-big money investors, who have gotten where they are by not being emotional about it.
 

Folster

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This is a good approach. It's easy to get tempted by the success of someone who threw all of their money into the right stock at the right time, but you don't hear about all of the failed cases that balance out that one success. So-called "technical analysis" plays to people's greed, but you have to realize that the market is mainly driven by the super-big money investors, who have gotten where they are by not being emotional about it.
One of my favorite descriptions of the market is that in the short term it's a voting machine but in the long term it's a weighing machine.

Eventually companies will have to justify their price with revenues and profit. Everyone is drawn in by potential and projections future success. This is a universal truth.

Suns fans know this all too well. The potential of Bender, Chriss, Jackson, an Ayton was extremely alluring. Only Ayton has panned out while the others were strikeouts that set back our franchise.

Meanwhile, Booker, Bridges, and Johnson were thought to have high floors but low ceilings when they were drafted. Booker was a home run, while Bridges and Johnson are solid doubles.
 

Yuma

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Thanks for all the answers, I tend to overthink things when it comes to the market and money matters. There is a TON of information out there and I read a lot of it but the idea of what is "diversification" is all over the place. I think I am on the right track but only time will tell. I am not a gambler by nature, I tend to play it safe and it probably costs me some potential huge returns but if I can just get steady returns I will be happy.
Keeping it simple can work for you. Look for ETFs with low costs but solid histories. Put your money in and don't worry about switching it around a lot. You do not "lose" any money unless you sell your shares. IF the market goes down, it will go back up. You just have to have patience. The only market timing I do, is if you see interest rates going up, or the economy tanking, you could switch money into fixed income funds with decent returns until the economy or market starts riding high again. I only do that if i have profits I can cash in. If I have loses already, I just hold my shares and wait for them to be profitable. Especially if my funds are in a 401(k) or IRA and I am not worried about tax implications. I find keeping it simple works. Warren Buffet, and I am paraphrasing, says stick to what you know. If a trade or strategy is too difficult to understand or doesn't make logical sense to you, you should not do it. Saving is 99% of the battle. You can do this!
 

Bada0Bing

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My goal was 55, to do that I have to retire before my birthday in Nov. My current goal now is 56 if things go well the next year I could do it. I could do it now but too much risk unless we move to a much cheaper country.

The single biggest variable is of course healthcare.

If I could talk to myself a few years ago I would say "don't sell Shopify, don't sell Match" and that alone would have me well ahead would be up 1254% on Match if I still had it. Shopify pretty close to the same thing and I owned more of it. over 23K profit in MTCH if I still owned it, like 30K profit in Shopify. Don't even want to compute how much I actually made, I made money but nothing like 54K combined.
One of the luckiest things I ever did was buy 155 shares of Shopify at $34/share back in 2014. I don't remember why I did it, but I'm glad I did. lol
 

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