Estimating Future Stock Returns, December 2020 Update

But will that be the path? Who can tell? And even with that path, I had gains in 2000 and 2001, and bruising losses in 2002, before rocketing out of it in 2003.

It will be different this time. It is always different. That said, valuations are very high. If you are wealthy and can pay on credit default swaps, no is the time to do it. If you are at the low end of the 1% like me, it is time to own more bonds and safer equities.

Yes, there are other possibilities. You could:

  • Short SPY
  • Buy puts on SPY
  • Buy puts on HYG and JNK
  • Short QQQ
  • Buy puts on QQQ

You get the idea. If I were to do any of the above I would buy puts on HYG and JNK. I’m not doing that at present. This is the poor man’s way of paying on credit default swaps.

Yes, this is one of those rare times where you will lose is your own broad market indexes like the S&P 500. note that the above is prices only, and does not include dividends. I think anyone invested in the S&P 500 will earn a tiny amount over the next ten years, and less than the ten-year Treasury Note or the CPI.

I can make this “advice” which is not an investment advice in the technical sense simple: sell growth stocks and move to value. Sell stocks generally, and move to bonds.

Now I am not doing that. I am sticking with my cheap stocks with strong balance sheets, in industries that have lagged. And I have roughly 30% of my portfolio in investment-grade bonds.

This is a good position to be in amid a mania. Maybe you should imitate me, lest you find that accidentally you became a financial maniac.

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Disclaimer: David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on ...

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