I understand that and agree which is why I've gone from a portfolio that for decades was 100% equities to primarily fixed income that provides sufficient funds no matter what happens, and enough dry powder to purchase equities when valuations become reasonable. I read the market in order to understand how to position my portfolio. I have friends who are are distressed about the drop in value of software enterprise companies. I had shares of such companies and the Magnificent Seven but I started selling about 18 months ago. I missed the top, but also missed the drop. I'm not looking for a bear market, it will definitely come and from where I sit, the bear is coming out of its cave.
The market has experienced turmoil since Liberation Day 2025 with subsequent declines June 2025 and March 2026. My perspective is that declines have only just begun and will continue over a few years (not with a rapid, one-time drop), because the foundation for elevated returns has fractured. Inflation is back as reflected in food, housing, transportation and medical costs.
Historically high P/Es (by a significant factor).
Cap-ex expenditures for data centers that appear unsustainable by any financial metric.
AI companies that lose money with every compute: we are in the 'big hammer' phase with primitive value-add applications and questionable business models.
The historical software per seat licensing model doesn't work with AI agents and none of the companies have figured out consumption pricing.
AI companies who cross invest in themselves: similar to the high debt era of Drexel Burnham Lambert and Global Crossing, when broadband bandwidth offered infinite possibilities, until they didn't.Private credit valuations that in no way reflect the devaluation of public credit companies: in the past three months, public shares of Blue Owl Capital have declined by 44%.
Consumers who for the past twenty years obtained free Google searches are unlikely to pay for AI (behavior is hard to change, free is hard to compete with).
The capital flight to non-US indexes who offer quality companies with an average P/E of half that of American companies.
Sovereign nations buying gold instead of automatically buying US Treasuries.
Then there are the accounting gimmicks of the Magnificent Seven. Free cash flow, which is essentially cash from operations minus capital spending, is supposed to be a pure metric of a firm’s value creation. But there are ways to make it look better. Stock-based compensation is one. The companies take an expense, which would reduce net income, and put it in the investing section of the cash flow statement, below the calculation of free cash flow, where companies report stock buybacks. Accounting expert and Zion Research Group founder David Zion estimates Nvidia used $50 billion of its free cash flow to buy back shares issued to employees as stock-based compensation over the past three years. Said another way, non-employee owners of Nvidia stock were entitled to $100 billion in free cash flow, not $150 billion.The Magnificent Seven (minus Tesla) reported free cash flow of roughly $1.2 trillion over the past three years. $432 billion of that cash flow was driven by stock-based compensation. That’s one-third, which isn’t available to non-employee owners. Zion calculates that Meta currently has the most acute problem. Meta's compensation-related share buybacks consumed about 70% of free cash flow generated over the past 12 months.With about 33% of the total market capitalization of the S&P 500 consisting of the Magnificent Seven, a re-evaluation appears to be in order.
Professional investors on CNBC start talking about the broadening of the market and sector rotation instead of using the dreaded phase "bear market" which is too harsh for delicate investor ears.
Reversion to the mean is real. No one likes it when the historical mean is lower than the current mean.
Please don't say "this time is different."
I view policies such as re-balancing portfolios once a year as one step removed from simply buying and forgetting. Auto pilot investing. And that's fine. If you approach investing simply, you'll do well with index funds. The only policy I subscribe to, and it's new for me, but I'm sticking with it, is one I learned by reading about Herbert Wertheim who sells individual company shares if their valuations drop twenty percent. If that happens, I must of missed something about the company or the market has turned against a company. I've experienced valuation drops greater than twenty percent of individual companies and in the past, I was too preoccupied to cut my losses. Not any more. I can always buy the shares again, or invest in other assets. There is always somewhere financial assets worth investing in. In bear markets, such as the one we are in, there will be rallies and that's when you should sell. David Lancaster makes very valid remarks in his post by mentioning the long-term duration of bear markets that the US stock market has experienced. If you want to get reacquainted with how long bear markets can last, read Maggie Mahar's superb book "Bull! : A History of the Boom, 1982-1999: What drove the Breakneck Market--and What Every Investor Needs to Know About Financial Cycles."
I share your concerns about the overall high P/E valuation of the S&P 500 compared to US GDP with alarm bells ringing about the magnitude of investments in artificial intelligence by the Magnificent Seven (which remind me of Global Crossing etc. and that typically only the top two companies in an industry achieve above average profits). Given my existing investments in fixed income and my interest in generating capital gains, during the past two weeks I've invested in 1) Oakmark US Large Cap ETF OAKM which is a concentrated domestic value fund and 2) two large cap international index ETFs minus US, namely FNDF and IVLU.
I'm a fan of Jack Bogle, read several of his books and used to invest in Vanguard funds. When Vanguard stopped mailing quarterly paper reports, I pulled my money out.
I started investing in 1985 and have been 100% in equities for decades, guided by the ideas of Warren Buffett, Charlie Munger, Benjamin Graham and other value investors. The power of compounding is almost unbelievable, but you have to be uncommonly patient and frugal. About two years ago I slowly and opportunistically started selling equities. I am now 40% equities with the remainder of my portfolio in hand-picked Treasuries, preferred bank shares, energy pipeline/transmission partnerships like EPD and MPLX, closed end income funds and Nuveen municipal bond funds. I've experienced several market cycles and drops in individual stocks of 50% or more. I fully expect a correction and intend to then shift a sizeable amount of money into a S&P 500 index because the historical average annual return of the S&P 500 generates more return than I need. In fact, the current income generated by the 60% of fixed income is more than I spend, so there doesn't appear to be any rational reason to risk what I have, for stuff I don't need. Yes, I fully intend to invest opportunistically in the future, but will continue to be guided by Warren Buffett who said "I like to go for cinches. I like to shoot fish in a barrel. But I like to do it after the water has run out." I'll collect income while I wait and I'll continue to own fixed income assets going forward. This financial position of independence, of not having to worry about money has taken me decades to achieve, and I value it more than shiny bling.
For decades I researched purchasing long-term care insurance, but either I was too young and didn’t make long-term care a priority or the premiums were too high or when I became serious about getting a policy, almost all of the insurance companies had left the industry either through divestiture or bankruptcy because they had miscalculated the cost of long-term care and found themselves in an unprofitable business.
One of the remaining long-term care insurance companies, Mutual of Omaha, sent me a mailer through my university affiliation. I scheduled a ZOOM call and talked with a knowledgeable and professional salesman who quantified the cost of long-term care for my wife and I. His pitch was solid: invest a few thousand dollars a year by paying premiums and when you reach certain ages when you typically need long-term care, you’ll have $750K available for you and your wife.
Mutual of Omaha is a quality company and their offer made sense.
We scheduled a second follow-up call. I thought about our conversation and focused on the $750K my wife and I seem to need for long-term care.
I had Mutual of Omaha’s estimated number of years before my wife or I needed long-term care, as well as the dollar amount needed for care.
Using my HP-12C calculator and the forward internal rate of return function, I calculated how much money I would need to invest today in a S&P 500 Index Fund (which historically has compounded by 9% per annum), so that by the age my wife and I probably need long-term care, we would have $750K available to us. The dollar amount needed today for long-term care tomorrow was calculated, approximately $250K.
I opened up a separate account with Fidelity solely for funding our long-term care to deter any temptation to use the money for another purpose. That money today is compounding. If Mutual of Omaha is correct and if the S&P 500 index continues its historical average rate of return, we should be fine. I know that life doesn’t happen as we plan, but I no longer worry about funding our long-term care.
During our second call, I explained my self-funding approach to the Mutual of Omaha representative, who graciously said that I had thought about this subject a great deal. We ended the conversation on a cordial note. The benefit of this self-funding approach is that if we don’t need the $750K for long-term care, our heirs will inherit the money.
Hi Dick, After reading your post I'm not sure what you are worried about and why, given your income, you are looking at your portfolio every day and even hourly. You've set up a system, it seems to have worked for you for years, why should it fail you in the future? If it ain't broke... So you know, my financial set-up is somewhat similar to Jackie who commented earlier. I've spent decades saving and investing (two different skills) and I'm super frugal for reasons that I don't really understand, other than I value freedom from financial worry more than I value stuff. After decades of investing 100% in equities, I have enough money now to withstand whatever happens in the future, although if push comes to shove, I can live less affluently and be happy. For the past two years I've been patiently selling equities (now 55% of my portfolio) and buying fixed income investments such as preferred shares and investing in master limited partnerships of energy transfer companies, both of which currently compare well (if you are willing to put in the time and effort to buy right) to the historical annual return from the S&P 500 index. I no longer need to take on unnecessary risk to live my life. I'm not trying to score big: I have enough. Or as Warren Buffett said so well: "never risk what you have and need, for what we don't have and don't need.” Of course, I wouldn't object to more money, and that's probably true of you and the other commentators, but don't drive yourself nuts. Tom
Comments
I understand that and agree which is why I've gone from a portfolio that for decades was 100% equities to primarily fixed income that provides sufficient funds no matter what happens, and enough dry powder to purchase equities when valuations become reasonable. I read the market in order to understand how to position my portfolio. I have friends who are are distressed about the drop in value of software enterprise companies. I had shares of such companies and the Magnificent Seven but I started selling about 18 months ago. I missed the top, but also missed the drop. I'm not looking for a bear market, it will definitely come and from where I sit, the bear is coming out of its cave.
Post: The Anatomy of a Threshold Rebalance: April 2025
Link to comment from March 14, 2026
The market has experienced turmoil since Liberation Day 2025 with subsequent declines June 2025 and March 2026. My perspective is that declines have only just begun and will continue over a few years (not with a rapid, one-time drop), because the foundation for elevated returns has fractured. Inflation is back as reflected in food, housing, transportation and medical costs. Historically high P/Es (by a significant factor). Cap-ex expenditures for data centers that appear unsustainable by any financial metric. AI companies that lose money with every compute: we are in the 'big hammer' phase with primitive value-add applications and questionable business models. The historical software per seat licensing model doesn't work with AI agents and none of the companies have figured out consumption pricing. AI companies who cross invest in themselves: similar to the high debt era of Drexel Burnham Lambert and Global Crossing, when broadband bandwidth offered infinite possibilities, until they didn't.Private credit valuations that in no way reflect the devaluation of public credit companies: in the past three months, public shares of Blue Owl Capital have declined by 44%. Consumers who for the past twenty years obtained free Google searches are unlikely to pay for AI (behavior is hard to change, free is hard to compete with). The capital flight to non-US indexes who offer quality companies with an average P/E of half that of American companies. Sovereign nations buying gold instead of automatically buying US Treasuries. Then there are the accounting gimmicks of the Magnificent Seven. Free cash flow, which is essentially cash from operations minus capital spending, is supposed to be a pure metric of a firm’s value creation. But there are ways to make it look better. Stock-based compensation is one. The companies take an expense, which would reduce net income, and put it in the investing section of the cash flow statement, below the calculation of free cash flow, where companies report stock buybacks. Accounting expert and Zion Research Group founder David Zion estimates Nvidia used $50 billion of its free cash flow to buy back shares issued to employees as stock-based compensation over the past three years. Said another way, non-employee owners of Nvidia stock were entitled to $100 billion in free cash flow, not $150 billion. The Magnificent Seven (minus Tesla) reported free cash flow of roughly $1.2 trillion over the past three years. $432 billion of that cash flow was driven by stock-based compensation. That’s one-third, which isn’t available to non-employee owners. Zion calculates that Meta currently has the most acute problem. Meta's compensation-related share buybacks consumed about 70% of free cash flow generated over the past 12 months.With about 33% of the total market capitalization of the S&P 500 consisting of the Magnificent Seven, a re-evaluation appears to be in order. Professional investors on CNBC start talking about the broadening of the market and sector rotation instead of using the dreaded phase "bear market" which is too harsh for delicate investor ears. Reversion to the mean is real. No one likes it when the historical mean is lower than the current mean. Please don't say "this time is different."
Post: The Anatomy of a Threshold Rebalance: April 2025
Link to comment from March 14, 2026
I view policies such as re-balancing portfolios once a year as one step removed from simply buying and forgetting. Auto pilot investing. And that's fine. If you approach investing simply, you'll do well with index funds. The only policy I subscribe to, and it's new for me, but I'm sticking with it, is one I learned by reading about Herbert Wertheim who sells individual company shares if their valuations drop twenty percent. If that happens, I must of missed something about the company or the market has turned against a company. I've experienced valuation drops greater than twenty percent of individual companies and in the past, I was too preoccupied to cut my losses. Not any more. I can always buy the shares again, or invest in other assets. There is always somewhere financial assets worth investing in. In bear markets, such as the one we are in, there will be rallies and that's when you should sell. David Lancaster makes very valid remarks in his post by mentioning the long-term duration of bear markets that the US stock market has experienced. If you want to get reacquainted with how long bear markets can last, read Maggie Mahar's superb book "Bull! : A History of the Boom, 1982-1999: What drove the Breakneck Market--and What Every Investor Needs to Know About Financial Cycles."
Post: The Anatomy of a Threshold Rebalance: April 2025
Link to comment from March 14, 2026
I share your concerns about the overall high P/E valuation of the S&P 500 compared to US GDP with alarm bells ringing about the magnitude of investments in artificial intelligence by the Magnificent Seven (which remind me of Global Crossing etc. and that typically only the top two companies in an industry achieve above average profits). Given my existing investments in fixed income and my interest in generating capital gains, during the past two weeks I've invested in 1) Oakmark US Large Cap ETF OAKM which is a concentrated domestic value fund and 2) two large cap international index ETFs minus US, namely FNDF and IVLU.
Post: Sector Fund by Stealth
Link to comment from March 7, 2026
I'm a fan of Jack Bogle, read several of his books and used to invest in Vanguard funds. When Vanguard stopped mailing quarterly paper reports, I pulled my money out.
Post: Disappointed (and annoyed) with Vanguard.
Link to comment from October 26, 2025
I started investing in 1985 and have been 100% in equities for decades, guided by the ideas of Warren Buffett, Charlie Munger, Benjamin Graham and other value investors. The power of compounding is almost unbelievable, but you have to be uncommonly patient and frugal. About two years ago I slowly and opportunistically started selling equities. I am now 40% equities with the remainder of my portfolio in hand-picked Treasuries, preferred bank shares, energy pipeline/transmission partnerships like EPD and MPLX, closed end income funds and Nuveen municipal bond funds. I've experienced several market cycles and drops in individual stocks of 50% or more. I fully expect a correction and intend to then shift a sizeable amount of money into a S&P 500 index because the historical average annual return of the S&P 500 generates more return than I need. In fact, the current income generated by the 60% of fixed income is more than I spend, so there doesn't appear to be any rational reason to risk what I have, for stuff I don't need. Yes, I fully intend to invest opportunistically in the future, but will continue to be guided by Warren Buffett who said "I like to go for cinches. I like to shoot fish in a barrel. But I like to do it after the water has run out." I'll collect income while I wait and I'll continue to own fixed income assets going forward. This financial position of independence, of not having to worry about money has taken me decades to achieve, and I value it more than shiny bling.
Post: Not Staying the Course
Link to comment from September 20, 2025
For decades I researched purchasing long-term care insurance, but either I was too young and didn’t make long-term care a priority or the premiums were too high or when I became serious about getting a policy, almost all of the insurance companies had left the industry either through divestiture or bankruptcy because they had miscalculated the cost of long-term care and found themselves in an unprofitable business. One of the remaining long-term care insurance companies, Mutual of Omaha, sent me a mailer through my university affiliation. I scheduled a ZOOM call and talked with a knowledgeable and professional salesman who quantified the cost of long-term care for my wife and I. His pitch was solid: invest a few thousand dollars a year by paying premiums and when you reach certain ages when you typically need long-term care, you’ll have $750K available for you and your wife. Mutual of Omaha is a quality company and their offer made sense. We scheduled a second follow-up call. I thought about our conversation and focused on the $750K my wife and I seem to need for long-term care. I had Mutual of Omaha’s estimated number of years before my wife or I needed long-term care, as well as the dollar amount needed for care. Using my HP-12C calculator and the forward internal rate of return function, I calculated how much money I would need to invest today in a S&P 500 Index Fund (which historically has compounded by 9% per annum), so that by the age my wife and I probably need long-term care, we would have $750K available to us. The dollar amount needed today for long-term care tomorrow was calculated, approximately $250K. I opened up a separate account with Fidelity solely for funding our long-term care to deter any temptation to use the money for another purpose. That money today is compounding. If Mutual of Omaha is correct and if the S&P 500 index continues its historical average rate of return, we should be fine. I know that life doesn’t happen as we plan, but I no longer worry about funding our long-term care. During our second call, I explained my self-funding approach to the Mutual of Omaha representative, who graciously said that I had thought about this subject a great deal. We ended the conversation on a cordial note. The benefit of this self-funding approach is that if we don’t need the $750K for long-term care, our heirs will inherit the money.
Post: How Are You Planning to Pay for Potential Long Term Care Expenses?
Link to comment from February 8, 2025
Hi Dick, After reading your post I'm not sure what you are worried about and why, given your income, you are looking at your portfolio every day and even hourly. You've set up a system, it seems to have worked for you for years, why should it fail you in the future? If it ain't broke... So you know, my financial set-up is somewhat similar to Jackie who commented earlier. I've spent decades saving and investing (two different skills) and I'm super frugal for reasons that I don't really understand, other than I value freedom from financial worry more than I value stuff. After decades of investing 100% in equities, I have enough money now to withstand whatever happens in the future, although if push comes to shove, I can live less affluently and be happy. For the past two years I've been patiently selling equities (now 55% of my portfolio) and buying fixed income investments such as preferred shares and investing in master limited partnerships of energy transfer companies, both of which currently compare well (if you are willing to put in the time and effort to buy right) to the historical annual return from the S&P 500 index. I no longer need to take on unnecessary risk to live my life. I'm not trying to score big: I have enough. Or as Warren Buffett said so well: "never risk what you have and need, for what we don't have and don't need.” Of course, I wouldn't object to more money, and that's probably true of you and the other commentators, but don't drive yourself nuts. Tom
Post: Obsessed with a financial stress-less retirement
Link to comment from January 11, 2025