I am willing to risk Buffett’s 50% warning, but not your 90%. Your optimism seems misplaced, as I think a 50% drop is about the minimum I'd expect in real terms from valuations as high as today.(the market would then be cheaper than usual, but that's true half the time).But in any case, even assuming that a 50% drop is the worst you shouldreasonably expect, it probably doesn't change the investment strategy.If you are relying on getting a good price for your equities in theshort term (less than a market cycle), you have too many equities.It's likely that prices 50% lower than today's represent prices at which you would not want to sell. That's what cash is for.And no, IMO dividends don't count. They can be cut at will by management for any or no reason at any time, and across the broad US market they have dropped by a lot with alarming regularity.Since 1930 they've dropped by 25-30% six times, by 40-50% three times, and over half once.Charlie Munger has stated that an investor should have the temperament to see holdings go down by 50% three times every hundred years. I'm surprised he'd have said such a thing. It happens a lot more often than that!Not counting the many overlapping intervals, the real S&P droppedmore than 50% five times just since 1930 including more than 60% twice.Clearly a big drop is more of a risk when valuations are high as today:given that the US market has in the past dropped far enough to give a trend earnings yield over 13% on six separate occasions since the late 1800s, one should pencil a quite reasonable chance of a drop of the S&P to around the 520 level in today's dollars.The trend earnings yield surpassed 16% twice, which would be S&P ~420 now.That's a drop of over 70% from here to a valuation level still higher than what has been seen twice.The plunge frequency per century isn't all that important, of course, since onealways has to be prepared for a big multi-year drop starting immediately.Jim
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