Using Shiller PE to Time the Market

[REWahoo]

Quote:

Originally Posted by dallas27 Taking it further, i ask myself is firecalc even valid since it focuses on us data only, the most successful country in the last century. Theres no reason to assume the USA will be the most successful in the future, or that the average of global stocks will match what the US did the last hundred. People will scoff at that. Doesn't make it wrong, or right.

Doesn't matter. There's an asteroid out there with our name on it...

[dallas27]

Quote:

Originally Posted by REWahoo Doesn't matter. There's an asteroid out there with our name on it...

I don't think thats exactly the same thing, not even probabilistically.




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[REWahoo]

Quote:

Originally Posted by dallas27 I don't think thats exactly the same thing, not even probabilistically.

You absolutely certain of that?

[Texas Proud]

Quote:

Originally Posted by dallas27 Taking it further, i ask myself is firecalc even valid since it focuses on us data only, the most successful country in the last century. Theres no reason to assume the USA will be the most successful in the future, or that the average of global stocks will match what the US did the last hundred. People will scoff at that. Doesn't make it wrong, or right. Sent from my iPhone using Early Retirement Forum

The US might not be the most successful country if measured by stock returns... but I think that it will be a huge force in the world economy as long as you and I are alive....

We are so much larger than a lot of other countries... it would take many many years of decline on our part added to unbelievable gains on theirs... this might happen over a couple of hundred years.... but not the next 30 to 50...

Of course an asteroid can come crashing down in the middle of the country and speed up the decline... but I am not going to worry about that one...

[Htown Harry]

Here's an interesting chart on the US economy relative to other countries. The total area for each slice represents the country's GDP. The U.S. is indeed the world's largest economy on both an aggregate and per capita basis, with China following as second largest in aggregate.

Hard to say if it proves or disproves Texas Proud's hypothesis...

The World Bank summed up the entire global economy in one chart - Vox

[Texas Proud]

That is per capita... here is total.. China will pass us by in total sometime, but I do not think they will come close to per capita...

Also,

Gross domestic product 2013
(millions of
Ranking
Economy
US dollars)
1
United States
16,800,000
2
China
9,240,270
3
Japan
4,901,530
4
Germany
3,634,823
5
France
2,734,949
6
United Kingdom
2,522,261
7
Brazil
2,245,673
8
Russian Federation
2,096,777
9
Italy
2,071,307
10
India
1,876,797
11
Canada
1,825,096
12
Australia
1,560,597
13
Spain
1,358,263
14
Korea, Rep.
1,304,554
15
Mexico
1,260,915
16
Indonesia
868,346
17
Turkey
820,207
18
Netherlands
800,173
19
Saudi Arabia
745,273
20
Switzerland
650,782
21
Argentina
611,755
22
Sweden
557,938
23
Nigeria
522,638
24
Poland
517,543
25
Norway
512,580
California would rank 10th

Texas would rank 16th

[CaliforniaMan]

A couple of books I have read recently which get to the heart of the question of the American decline, "The Upside of Down" Charles Kenny talks about why the rise of the rest of the world does not equate to any required fall in the growth or standard of living in t he U.S. As an example look at the standard of living for the masses in the U.K. now vs. when they were masters of the world.

Another is Kurtzman's "Unleashing the Second American Century." His four points of why America will likely remain on top: 1) Soaring levels of creativity, 2) Massive new energy reserves, 3) Gigantic amounts of capital, 4) Unrivaled manufacturing depth.

Lots more in both of those books, good reads that I would recommend.

Since the beginning of the republic there have been predictions of America's eminent decline. My bet is that there is still a lot of life left in the old gal, it is not even certain that we have seen the best yet. And given the degree of risk in investing elsewhere, investing in the U.S. still seems to be a pretty good bet to me.

And as Texas Proud points out, worst case, our size and inertia should keep things going for the next few decades at least.

[inquisitive]

I would use the PE10 to decide where in the world to invest, as a comparison, but there is not accurate publicly available data on companies outside the US, thus making it very difficult to come up with PE10 numbers. Even if you look at websites like Yahoo and Morningstar, you get different numbers when look at such data on different countries. Plus there is some strange calculations by some data providers in which negative earnings are treated as positive earnings, which really skews the results.

[nm796]

For your reference, CAPE Ratio this website provides shiller PE for individual US stocks and the newsletter gives list of best 25 stocks, as in with the lowest Shiller PE.

[target2019]

I meant to post this link earlier. It lists CAPE for various countries. Food for thought, I suppose.
http://www.starcapital.de/research/stockmarketvaluation

[dallas27]

Does the cape ratio hold water in non-us markets?


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[sengsational]

Quote:

Originally Posted by target2019 I meant to post this link earlier. It lists CAPE for various countries. Food for thought, I suppose. Global Stock Market Valuation Ratios (Shiller PE, CAPE, PB...)

Excellent addition to the non-US angle in this thread. Thanks!

[Texas Proud]

I think that the biggest problem I have with this method is that it is using the last 10 years of profits to 'predict' the next 10 or more... I just do not see how they are correlated....


Using the work CAPE ratio.... the best country to invest in now is Russia.... how many people are going to take THAT advice


Edit... opps... missed Greece which has the lowest number... but still same question

[dallas27]

Quote:

Originally Posted by Texas Proud I think that the biggest problem I have with this method is that it is using the last 10 years of profits to 'predict' the next 10 or more... I just do not see how they are correlated.... Using the work CAPE ratio.... the best country to invest in now is Russia.... how many people are going to take THAT advice Edit... opps... missed Greece which has the lowest number... but still same question

Greece, (and italy) have terrible markets right now. I would absolutely invest in them. I am exposed through broad ETF's already, but I would place a extra bet if the right, low cost ETF were available. High unemployment, many friends in the EU, and access the Med see and EU markets. Rebound is inevitable.

Russia is a different story, as you have a political uncertainty that is highly volatile and makes a long term bet much more risky than greece. That said, I am exposed to russia as well.

[karluk]

Quote:

Originally Posted by target2019 I meant to post this link earlier. It lists CAPE for various countries. Food for thought, I suppose.

Thanks for the link. I have seen similar country by country comparisons before. They were one of the factors that convinced me to increase my international exposure, especially to emerging markets, earlier this year. It's not at all clear that this is the right move, but it's my attempt to find relative bargains at a time when there are so many warnings about extremely high prices in both U.S. equity and bond markets.

[target2019]

If you look at CAPE for foreign markets, or even PE, keep in mind the wide disparity in how companies report earnings.

[Lsbcal]

Quote:

Originally Posted by target2019 If you look at CAPE for foreign markets, or even PE, keep in mind the wide disparity in how companies report earnings.

Right! Single data points in time are not enough. What about country inflation? Unemployment? Relative interest rates, etc.

[gcgang]

https://www.gmo.com/America/CMSAttac...8UAGtIt6BuU%3d

Above is a Feb 2014 article from GMO, basically concluding that CAPE has been a way to determine valuations, and that the US markets are in overvalued territory, European and especially Emerging offer better value.

While CAPE doesn't predict what the market will do in the near term, it has had a pretty good record at helping figure out the probabilities of what my biggest concern is at this point in my life, suffering a significant "drawdown". Low CAPE, very low chance of a big decline, high CAPE...




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[target2019]

Quote:

Originally Posted by gcgang https://www.gmo.com/America/CMSAttac...8UAGtIt6BuU%3d Above is a Feb 2014 article from GMO, basically concluding that CAPE has been a way to determine valuations, and that the US markets are in overvalued territory, European and especially Emerging offer better value. While CAPE doesn't predict what the market will do in the near term, it has had a pretty good record at helping figure out the probabilities of what my biggest concern is at this point in my life, suffering a significant "drawdown". Low CAPE, very low chance of a big decline, high CAPE... Sent from my iPad using Early Retirement Forum

Is that the article, "A CAPE Crusader?"

[gcgang]

Yes, that's the title, A Cape Crusader a Defence Against the Dark Arts.


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