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Valuation informed indexing
Old 12-27-2013, 02:59 PM   #1
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Valuation informed indexing

How to Invest Using Valuation Informed Indexing: Interview with Rob Bennett

Interesting way to look at something beyond buy and hold. I had been looking for a good metric judge how over valued the market is. They still advise you hold index funds, but, how much you put in stocks should vary with long term market trends.

The article is a week old or so, and the PE 10 is now 26.30, so they advise not holding more than 30% stocks (if your were rebalancing your portfolio)

Here is a chart of where the PE 10 is at now:
Shiller PE Ratio
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Old 12-27-2013, 03:16 PM   #2
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AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAArrrrrrrrr rrrrrrrrrggggggggggggggghhhhhhhhhhhhhhhhh!!!!!!!!! !!!

Everyone to the emergency shelters, NOW!!!!
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Old 12-27-2013, 03:18 PM   #3
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Quote:
Originally Posted by jetpack View Post
The article is a week old or so, ...
...but the information is "timeless".

For your reading pleasure, one old thread about the author of the article, who posted here and other discussion boards under the name of H-o-c-u-s (if you type his name without the - all you'll see is *****) and was banned from E-R.org many years ago: Hoco-mania in Wikipedia
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Old 12-27-2013, 03:23 PM   #4
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Looking back 10 years, talk about rear view mirror, but OK. And what would you invest the other 70% in right now?

PE10 seems like it might help predict what kind of long term returns one could expect but Ferri, Bernstein and others regularly provide guidance for same. And knowing what PE10 is when you're considering retiring, might impact when you retire (ie, influence on SWR). But I wouldn't use if for market timing, YMMV. There's plenty of back testing available.

BTW Morningstar exposes Passion Saving author Rob Bennett as a fraud.
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Old 12-27-2013, 03:32 PM   #5
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Reducing equities at this time, setting up bond or cd ladders, and DCA back into equities is an idea that I believe holds merit. It would be no different than if someone received a large lump sum right now and decided to DCA rather than go all in at present AA.
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Old 12-27-2013, 03:43 PM   #6
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Quote:
Originally Posted by Midpack View Post
Looking back 10 years, talk about rear view mirror, but OK. And what would you invest the other 70% in right now?

PE10 seems like it might help predict what kind of long term returns one could expect but Ferri, Bernstein and others regularly provide guidance for same. And knowing what PE10 is when you're considering retiring, might impact when you retire (ie, influence on SWR). But I wouldn't use if for market timing, YMMV. There's plenty of back testing available.
Yep, as Midpack's chart shows, PE10 is currently predicting positive inflation adjusted returns. That means that stocks are currently as good or better an investment than practically every other alternative. Use PE10 if you like, but don't expect it to (on average) improve your long term investment returns. Rather, regard it as a way of reducing volatility at the cost of a (hopefully) small reduction in expected returns.

I have seen similar charts before. As I recall, the regression line of PE10 vs. ten year stock market performance shows positive returns for PE10 <= 35 (approximately) and returns that beat bonds below a PE10 of around 30. In other words, PE10 is too imprecise a valuation to guide investment decisions except at extreme valuations. We are, admittedly, getting uncomfortably close to the high end extremes right now, but based on historical performance we're not there yet.
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Old 12-27-2013, 04:35 PM   #7
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Quote:
Originally Posted by REWahoo View Post
...but the information is "timeless".

For your reading pleasure, one old thread about the author of the article, who posted here and other discussion boards under the name of H-o-c-u-s (if you type his name without the - all you'll see is *****) and was banned from E-R.org many years ago: Hoco-mania in Wikipedia

I wonder how Pfau liked seeing his name associated with this clown (*******) like it was in the article. I'd be pissed if I were him.
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Old 12-27-2013, 05:08 PM   #8
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OMG! Hoco-mania is back! Somebody call intercst ASAP! This place needs an exorcism.
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AA = 60/35/5. Expected CAGR = 5.7%. GSD (5y) = 7.8%. USD inflation (10 y) = 1.8%. AWR = 3.0%. TER = 0.5%. Net Port Yield = 1.7%. Term = 36 yr. FI Duration = 4.9 yr. Portfolio survival probability = 86%.
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Old 12-27-2013, 08:02 PM   #9
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Wow, OP, you managed to find one of the all-time biggest bullshit artists on the interwebs completely by accident!

For more fun and a view into how ER can be ruined by mental illness, I direct you to the Hoco-Playpen: Rob Bennett's Best of Hocomania Discussion Forum - The Best of Hoco-mania
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