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Stock-market legend who predicted 3 financial bubbles says this is Real McCoy (marketwatch.com)
37 points by danboarder on June 18, 2020 | hide | past | favorite | 8 comments


> The great bubbles can go on a long time

What he said may be true, but that doesn't mean it's useful. By this logic, you can just say that stocks are overvalued any time after they've recovered from a prior bubble pop or they go over a certain P/E ration, and you'll eventually be right given a long enough timeframe for a correction, but you might miss out on decades of growth in between.


No, that's not what he said.

What he said is that people can be blind for a long time. That it is not correct to assume that if there is a big bubble people will notice it immediately.

It is useful when it prevents you from assuming there are no huge bubbles around because if there was one somebody would notice it already.


I think a big problem is everyone is in, “Central banks are on the case and will save us” mode. It’s still an unprecedented route to take. There’s a lofty exuberance to the Hertz rally, in particular, that seems completely detached from the current reality.


What's the false positive rate, false negative rate? Does he also correctly predict when there will not be a bubble?


His research team publishes global equity index forecasts, monthly I believe.

They also have a collection of mutual funds, whose track records you can check very easily. I recommend bench-marking against Ken French's factors [1].

[1] https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data...


How do those compare to just the spy500, I thought sector allocation didn't perform better long term.


Start with the 3 factors (market, size, value).

Almost all the variance is in the market factor, which is just a cap-weighted average return for all US-listed stocks.

The size factor should capture a lot of the difference between SPX (which excludes small companies) and the broad market.

Also: SPX = S&P 500 index SPY = ETF tracking S&P 500 index


His fund family actually publishes equity index forecasts in its research library [1].

That means you can evaluate the efficacy of his research team's forecasts over time.

I happen to think he is correct, but process matters. How has the process held up over time?

[1] https://www.gmo.com/




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