Hopefully next time the exuberance of the market will make me take notice and I'll take a chunk off the table and hold it in cash . If I have three or four years in expenses I'll let the market play out. I also have a pension and that makes the bumps somewhat easier to take .
Are you doing that now? Is a Shiller PE10 of 23.26 irrationally exuberant? In Feb 2011 it reached 23.78, is that irrationally exuberant?
Many of us have spent most of our investing lives with PE10s that by earlier standards would be considered to be bounded between normal and irrationally exuberant. October 2007, which was just prior to le deluge, reached PE10 of 27.31, or approx 15% ahead of where we are now. Was Oct 2007 irrationally exuberant? It was much lower than the prior peak in 1999. Is today, at 15% short of the Oct 2007 peak, not yet irrationally exuberant?
That is the rub with metrics like this. If you follow an AA algorithm incorporating PE10, it always wants to make you stop playing just when it is really getting to be fun.
It's like low-carb dieting. When it really cuts is when you are at a wedding or big feast of some kind and everybody is having cake and Champagne. I remember back in the lean years following the 2002 bottom someone was talking about PE 10 and irrational exuberance as a guide to when to be out of the market. Bunny-man pointed out that if one had exited the market when PE10 became higher than ever before, she would have missed most of the late 90s run-up. True enough, and that is just reality. You can't have everything, and it is always hard to know when something is too high to last, especially when it has lasted for years.
I think there is little doubt that one would be safer to be mostly out of market averages now, but we can always believe that better asset choices might spare us, and it could be true though for me it not tended to work out that way. And safer is not all we want; we also want higher returns. Nothing will goose returns quite like a bubble!
One good thing about being invested mostly in dividend paying quality companies is that they do tend to keep chugging along, and their payouts will tend to persist, even if quoted prices should suffer.
Ha