Santa Claus rally -when will this end?

[RetireJapan]

Might be time to take some of the wonderful profit off the table, lock in the gains, and wait for a more reasonably priced market to reinvest.

This is what I am struggling with. Even the gains from the last twelve months would give us 6-10 years of living expenses. And yet I am still mentally in accumulation mode (and we're going to continue working).

So I really don't know what to do. This is a new situation for me, one I have never been in before.

[goodandbadjapan]

Let me ask you this if I offered you 1million USD value in bitcoin or Turkish lira what would you take?

Doesn't matter as I would immediately change either to JPY

But I think there is more case to be made for the lira as a natinal currency than for crpyto to have an intrinsic worth. Now if it were conditional on me holding it for a set period of time I might go for crypto (more likely in the short- to medium-term) but that would mainly be a bet, like going all in with a pair of aces at a poker table full of strangers

Cash in 2-3 years living expenses? Live off them and if in the meantime there is a crash you don't need to sell. If there isn't, you are still growing the stash so can do the same again when the cash runs out. But, I suppose a crash could come the week before the cash runs out, so there are no guarantees!

[RetireJapan]

Cash in 2-3 years living expenses? Live off them and if in the meantime there is a crash you don't need to sell. If there isn't, you are still growing the stash so can do the same again when the cash runs out. But, I suppose a crash could come the week before the cash runs out, so there are no guarantees!

That's my plan when we actually retire, but we're going to continue working and continue maxing out our NISA/iDeCo/etc. for at least a few more years.

So the timing is a bit weird. I'd much rather the last couple of years had been a huge crash, to be honest, so that we could buy things cheap. Hence the dilemma.

I think we're going to accumulate cash going forward, and maybe think about selling some things.

All in all, probably a good problem to have though

[mighty58]

All in all, probably a good problem to have though

Indeed.
Now, generally speaking, if you don't have short-term liquidity needs, and you're not entering the decumulation phase of your life, the primary reason to sell right now would be as a market-timing move. Unless I misunderstood what you've written thus far, you (a) don't really need the cash right now; (b) you are not retiring immediately (defined as living off of decumulated assets); (c) you are seeking to sell to lock-in your 3-5years(?) cash buffer for retirement; but (d) you will most likely not even need this cash until several years later. Given all that, you don't really need a cash buffer right now, so I'm assuming that cash would then just sit around as cash (or cash equivalent) until needed. That's mightily inefficient.

But, if you understand all this, and still want to lock-in the cash buffer right now in order to remove the worry of a big and long-lasting correction affecting your plans... go for it! Because peace of mind is something you can indeed buy.
But if you're selling for market-timing reasons, which you hint at, that's when my anti-market-timing spidey-senses come alive... which leads me to address this:

Might be time to take some of the wonderful profit off the table, lock in the gains, and wait for a more reasonably priced market to reinvest.

"...wait for a more reasonably priced market to reinvest" eh? Can you define "reasonably priced", and exactly how long one should wait for it? It's all easy to say such things when talking in hypotheticals, or in hindsight while looking at historical chart movements, but it's another thing to try and call it in real time. So if you can't answer those questions, and if you don't need the cash right now, it's better to just stay invested. People who tried to follow this sort of advice over the last 3-5 years have been losing out big time.

[Tkydon]

Might be time to take some of the wonderful profit off the table, lock in the gains, and wait for a more reasonably priced market to reinvest.

"...wait for a more reasonably priced market to reinvest" eh? Can you define "reasonably priced", and exactly how long one should wait for it? It's all easy to say such things when talking in hypotheticals, or in hindsight while looking at historical chart movements, but it's another thing to try and call it in real time. So if you can't answer those questions, and if you don't need the cash right now, it's better to just stay invested. People who tried to follow this sort of advice over the last 3-5 years have been losing out big time.

... but the last time the market was like this - New Year 2000 - the market crashed and it took 13 years for the S&P-500 to come back, (16 years if you take into account inflation) touching 50% of its Jan 2000 level twice in that 13 year period... I rode it all the way up and all the way back down again.

You cannot view the world through the lens of the last 3-5 years... To ignore the mistakes of the past is to repeat them.

No-one knows how high it will go, but trees do not grow to the sky. If an investor wants to take some profit off the table, the investor needs to have someone who is still willing to pay the high price to buy from him/her... So the seller needs to leave a bit of upside for the buyer...

My personal view: I think we are primed for a huge correction in both the Equities and Bond Markets around the world.
I am not "talking in hypotheticals". I will take some profit off the table within my tax advantaged accounts (so no Capital Gains Taxes) and hold the proceeds in Cash equivalents so that I am ready to buy back in to the markets when the prices are more to my liking,
"reasonably priced": When interest rates and yields are higher, P/Es are more reasonable by historical standards, the Shiller P/E ratio is lower, and the Yen is stronger (Yes, I think the Yen may get weaker first, but then will get stronger...)
"exactly how long one should wait?": I am willing to wait for a couple of years if necessary. I will continue to Dollar Cost Average in my monthly contributions, but I will have some locked and loaded dry powder...

I will write a longer answer why I think we are primed for a huge correction later, with references to Ben Graham's book.

Your view of the future is no more sure than mine. You can take a punt that your 3-5 year chart will continue going up and to the right and let your chips ride, and I can take a punt that my 25 year chart will repeat itself, and preserve some of my profits to date by taking some of my chips off the table. There have to be opposing views or there wouldn't be a market. One of us will probably be right, but I will be pleased either way. I make my best profits in correction markets, and I need to have the cash on hand to do so...
It's no good selling when the prices have gone down to buy back in at the same or higher levels...


Back in the spring of 1720, Sir Isaac Newton owned shares in the South Sea Company, the hottest stock in England. Sensing that the market was getting out of hand, the great physicist muttered that he “could calculate the motions of the heavenly bodies, but not the madness of the people.” Newton dumped his South Sea shares, pocketing a 100% profit totaling £7,000. But just months later, swept up in the wild enthusiasm of the market, Newton jumped back in at a much higher price—and lost £20,000 (or more than $3 million in today’s money). For the rest of his life, he forbade anyone to speak the words “South Sea” in his presence.

Benjamin Graham, The Intelligent Investor - Revised Edition (Harper & Row), p. 13.
John Carswell, The South Sea Bubble (Cresset Press, London, 1960), pp. 131, 199.

[mighty58]

Your view of the future is no more sure than mine. You can take a punt that your 3-5 year chart will continue going up and to the right and let your chips ride, and I can take a punt that my 25 year chart will repeat itself, and preserve some of my profits to date by taking some of my chips off the table. There have to be opposing views or there wouldn't be a market. One of us will probably be right, but I will be pleased either way. I make my best profits in correction markets, and I need to have the cash on hand to do so...
It's no good selling when the prices have gone down to buy back in at the same or higher levels...

Where I think maybe where we differ is in the investment horizon. I view my investments as lifelong... once I'm invested, I'm only coming out bit by bit when I start decumulating. I am certainly not taking a punt on 3-5 year performance. I have no idea what will happen in the next 3-5 years. No, I am taking a punt on my 30-50 year chart, which I can expect, with a much higher degree of confidence, will indeed go up and to the right.

I agree with you that we are in for a correction. What I don't know, however, is when it will happen, how low it will go, and how long it will last. These are unknowable, but all three factors are required to be predicted with a fair degree of accuracy in order for your strategy to work. Should you sell high and buy low? Of course, no arguing with that. If you get it all right, kudos.

[concerned]

*but trees do not grow to the sky*
Yep or that you can keep borrowing...
https://usdebtclock.org/

I had a look at the technical indicators and sold out, as everything seemed to be a bubble, and that was back in 2017...
The one thing I did not account for was the madness of crowds, and government wanting to keep this rally going with their borrowing and easy money...
The other thing I now wonder about is that with so many invested in passive funds now, people just buying with no view of the underlying values of the stocks in the underlying index and willing to buy the dip will this cushion any market correction? or at least for a while anyway...

[TBS]

... but the last time the market was like this - New Year 2000 - the market crashed and it took 13 years for the S&P-500 to come back,

Including dividend reinvestments (S&P500 Total Returns Index) this figure drops to 7 years though.

[RetireJapan]

This thread is incredible. I am actually having trouble processing everything, but it is so useful.

I can see the merit of sitting tight, and also the merit of making some changes in response to my change in circumstances.

Sitting tight is the 'common sense' thing to do. No idea what the market is going to do/it's looked overvalued for years now/maybe there is a new normal with big tech and government support for the stock market.

But at the same time we now have more money than we need. I have no intention of selling everything, but going to cash with ~1/4 of our portfolio would give us a number of years of spending/provide dry powder.

-> if the market contines going up, we still get 3/4 of the potential gains
-> if there is a substantial correction, we get to reinvest that 1/4 at lower prices

The drawbacks of this is stress (our current plan doesn't require me to make any judgement calls, monitor the market, or have to worry about whether I am doing the right thing).

Still haven't made a decision, so please keep the (respectful) discussion coming

[Tkydon]

... but the last time the market was like this - New Year 2000 - the market crashed and it took 13 years for the S&P-500 to come back,

Including dividend reinvestments (S&P500 Total Returns Index) this figure drops to 7 years though.

Converted into Japanese Yen and adjusted for Inflation at 2% P.A., the S&P500TR briefly came in to profit between Dec 2006 and Aug 2007, and then finally broke into profit again in Aug 2013.