Oh my God, guys. This is great. Not the best ever, but it’s up there. Top five for sure.
I’ve gone on record saying that I think index returns will stink over the next five or ten years. Note that I said this before the big Trump-inspired stock market rally, proving that even though I am smarter than 14 mere mortals, it’s still really hard to predict short-term stock market trends.
Basically, the thought process goes like this. When looking at things like the CAPE ratio (that’s an average of price-to-earnings ratios for the whole stock market over the last 10 years) and current ratios like price-to-earnings and price-to-book value, the stock market is overvalued. It was expensive back in August and it’s even more expensive now.
That doesn’t mean I’ve sold everything and gone to cash. I have only sold one stock since I wrote that article. That stock was Directcash Payments, and I only got rid of it because it agreed to be acquired by a competitor at a big premium. I sold at a nice gain and then cycled that cash into a new investment in Artis REIT.
I also sold half of my Cloud Peak investment when it spiked the day after Trump was elected. Probably should have sold it all in hindsight, but oh well.
And that’s it. Those are the only moves I’ve made with my stock portfolio since writing that bearish article.
I just checked my stock market accounts and I’m about 90% invested. That’s about average for me; I like to have a little cash on hand to take advantage of buying opportunities.
I continue to hold even though I’m still bearish for a number of reasons. Damn near everything I own pays me a dividend now, yields much higher than anything Tangerine or EQ Bank can give me. I believe the stocks I own are undervalued. And I have no other investing opportunities, especially for retirement accounts.
Besides, we all know betting on crashes is dumb, right?
(Hat tip to friend of the blog Kapitalust for pointing this all out to me)
Let me introduce you to a former blogger called the Dividend Hustler. Mr. Hustler, like a lot of his peers, was a dividend-growth investor looking to retire early on dividends. He had about $850k invested in a portfolio producing about $30,000 per year in passive income. Not bad.
Then, one day back in September, the Hustle Man decided he was going to liquidate all of his holdings. Sell everything, just like that. The reason? Well, let’s just say it’s not exactly iron-clad.
I rarely sell and just got this crazy feeling and my gut instinct is telling me it’s gonna finally come soon. The presidential election in a month and a half will give us crazy buying opportunities along with all the macro events happening around the world. Christmas and New years gives us buying opportunities as well as people rebalance and take some gains and tax loss harvesting.
A “crazy feeling” and “gut instinct” is all this guy had going for him. He had no actual evidence. It was nothing better than shrugging and betting on red.
The amazing part is the comments that post garnered. Most are actually pretty supportive. Have a lookie-loo.
Mr Hustler did end up being right about one thing. The election did generate a lot of volatility. It was just in the opposite direction as he expected. That’s what happens when you invest based on hunches.
Never sell everything
It’s easy to laugh at the guy with the benefit of hindsight. And in his defense, he’s not the only guy who made such a mistake.
In preparation for a completely unpredictable Trump presidency, I sold all stocks in my kids' education accounts today. I urge u to do same.
— Kurt Eichenwald (@kurteichenwald) September 26, 2016
Poor Kurt’s kids. Looks like you jerks are going to community college. Just kidding. Daddy would never do that to you. They don’t even have safe spaces there!
Stock markets are really hard to predict on a day-to-day basis. They could soar or crash or go sideways. Often, we don’t even know why markets do what they do. Ever hear the business news talk about “profit taking” when stocks go down? That’s code for “yeah, even we have no idea.”
The good news for us is stock markets aren’t that hard to predict over decades. They go up. And investors get paid dividends even when they’re not going up.
Why bet against that trend? Cause that’s exactly what you’re doing when you sell everything.
Let’s wrap it up
Mr. Dividend Hustler was apparently so embarrassed by his sell everything move that he deleted his entire blog. Kapitalust only found out the goods after using internet archives. Hustler knows he messed up.
Don’t make the same mistake. It’s fine to not add any capital to the stock market at this point. Do what I’m doing and focus more on paying down your mortgage or invest it in other stuff. Preferred shares or bonds should hold up pretty well.
Timing the market is a suckers game. It’s that simple.