The Dow and S&P 500 both closed at record highs today. The Dow hit 15,680, while the S&P 500 hit 1,771. Both are on track to hit the next milestones of 16,000 and 1,800, respectively. Good news for us investors!
Well the DOW isn’t a good measure of long term company performance because there are very few components and they change based on which companies are doing the best recently. You’re right the DOW is currently right at all time highs.
The S&P 500 however is still 20% away from it’s all time high. It’s just a little pet peeve of mine but I don’t know why so few financial journalists report facts. I realize “all time highs” sounds a lot better than “20% away from all time highs in inflation adjusted terms” but sensationalism in the media rarely leads to correct analysis.
If you’re an investor in the S&P 500 then yes it’s great news. 
Stock returns have always demolished returns from bonds, real estate, and precious metals and I see no reason to think that will change in our lifetime. Especially re-invested dividends sticking to the dividend aristocrats.
I heavily invest in stock index funds that track the S&P 500 and a few other indices. I wish the media tracked inflation-adjusted data as well, but they don’t, so I go with the nominal figures that are reported.
Woohoo! The DOW hit 16,000 and the S&P 500 hit 1,800 today! The closing bell hasn’t rung yet, so we’ll have to see where the markets close, but the day is off to a good start.
Just remember to get out before the crash.
Never mind. You can’t time the market. Without inside info, you won’t know when the crash will come.
[quote]Just remember to get out before the crash.
Never mind. You can’t time the market. Without inside info, you won’t know when the crash will come.[/quote]
You don’t have to time the markets to protect a portfolio against a market crash. And now would be an appropriate time to start throwing on those hedges because every percent the markets go up is potentially another percent they could eventually give up.
[quote=“BrentGolf”][quote]Just remember to get out before the crash.
Never mind. You can’t time the market. Without inside info, you won’t know when the crash will come.[/quote]
You don’t have to time the markets to protect a portfolio against a market crash. And now would be an appropriate time to start throwing on those hedges because every percent the markets go up is potentially another percent they could eventually give up.[/quote]
Remember when the hedge funds went belly up?
Letting the market price things works well with tangible, useful assets; but financlal vehicles are all abstractions. The greater fool theory prevails.
Fiat currency is also an abstraction. The makes stocks an abstraction priced by measure of an abstraction. The Federal Reserve is laughing behind our backs.
Maybe not. Record highs sometimes right at the end of the cycle, no?
I don’t really know what you’re talking about. Hedging a portfolio against market crashes isn’t related in any way to a “hedge fund.” I was talking about locking in gains and protecting against future losses by using simple hedging techniques.
The greater fool theory does not apply because many financial assets are based on real fundamental measures, actual earnings, predictable returns on dividends or yields, and real goods and services being exchanged. Unquantifiable value is what the greater fool theory really applies to.
You are confusing currency that isn’t backed by tangible assets with an abstraction. Fiat currency is very real and the US dollar is backed by the full force of the United States Economy. Is the US Economy abstract?
I’m in it for the long game. If the market goes down tomorrow, it goes down. I’ll just keep investing. I know that over the long term, the major stock indices will go up.
Not as many as you may have led to believe.
[quote]
Fiat currency is very real and the US dollar is backed by the full force of the United States Economy. Is the US Economy abstract?[/quote]
The US economy is increasingly an illusion.
Yeah, the biggest economy in the world is “increasingly” an illusion. Good comment. 
A refreshingly correct statement. I have no idea why so many people are living under the illusion that the financial world as we know it is about to end. :loco:
Having said that, protecting a portfolio against a potential crash is a lot easier than most people realize. For example:
Let’s say you own the S&P 500 which is at 1800 right now. You don’t really want to sell it in anticipation of a crash because nobody’s crystal ball is very good. You also don’t want to give up on the dividends it pays, and you may also think there is potential upside left in the index.
You also don’t want to set a stop loss because it could very easily dip down at any given time which would stop you out, then it recovers and you’d be sitting in cash watching it go back up. 
You can buy some Dec 2014 1670 Put options in the same proportion to your long shares which represent 5% outlay of capital. If you own those puts, you can just let your S&P position go up down and sideways until Dec 2014 collecting your dividends. There is no mathematical possibility you can lose more than 5% from today’s price, yet you can participate in all the upside the index still has along with any dividends it will pay along the way.
Maybe you already know all this in which case just ignore me. Just offering some advice for those who may not understand how options can protect a portfolio from crashes while still allowing you to participate in all the upside. You can also “collar” your core position which is selling options on both the put and call sides bringing in more premium. Or you can buy low side protection, and sell mid range iron condors or calendars around your core position. The possibilities are endless with option trading. :discodance:
There are two types of these idiots. The first are your run-of-the-mill, lackwit gold bugs. You know, libertarian types that prattle endlessly about fiat currency and have sexual experiences with gold. The second type are conservatives who think Barack Obama is the herald of doom. Obama’s president, ergo, the world is ending.
Meanwhile, back on planet Earth, investors see things differently and the economy is surging forward.
Actually, I’m not a very sophisticated investor. I gleaned what I could from business school, and I read “A Random Walk Down Wall Street”, but I never really got my head around the details of trading. It seems like too much work. 
Well “trading” is definitely a full time job so most people with other jobs would be well advised to steer clear of it simply due to lack of time. However portfolio protection with out of the money put options is pretty easy to do and as I said it will mathematically cap your potential losses while allowing you to keep all your holdings in case stocks go up further from here. If you ever need a hand I’m always here to help as best I can.
Everytime I try to beat the market I feel like a fugitive from the law of averages.
There are two types of these idiots. The first are your run-of-the-mill, lackwit gold bugs. You know, libertarian types that prattle endlessly about fiat currency and have sexual experiences with gold. The second type are conservatives who think Barack Obama is the herald of doom. Obama’s president, ergo, the world is ending.
Meanwhile, back on planet Earth, investors see things differently and the economy is surging forward.[/quote]
You are also incorrect. You’ve linked a surging stock market with a surging economy. Obviously that’s not the case here.
The stock market in the US has been put on steroids by government welfare.
It’s pretty damn ironic if you think about it.
Actually, I think we’re beginning to see the effects of cheap energy. I’m seeing bids for investments that haven’t been done in the US for 45 years - like smelters…etc…
[quote]You are also incorrect. You’ve linked a surging stock market with a surging economy. Obviously that’s not the case here.
The stock market in the US has been put on steroids by government welfare.
It’s pretty damn ironic if you think about it.[/quote]
That’s certainly a common narrative you hear in the media, but the facts don’t really support it very well. The truth is there are many reasons why the stock market is as high as it is, and the FED is only one minor part of the bigger picture. It has been and continues to be a HUGE mistake for investors to assume markets are high because of QE. That is simply not the case.
You need only look at real data on company earnings, the relationship between stock prices and bond yields, dividend increases, stock repurchase programs, and a myriad of positive metrics that support a stock market at these levels regardless of what the FED is up to.
But it does seem easier for most people to simply regurgitate that the big bad FED has artificially propped up markets, and that’s fine. That opinion hurts nobody so it’s fine with me if people think that. Those that know the true reasons why stocks are going up will continue to make money and those that refuse to accept the facts about the economy will continue to be frustrated by their lack of participation in this crazy bull run we’ve seen.