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07-17-2015, 02:45 PM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2012
Location: Seattle
Posts: 6,023
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Looks like they could go up another 50% and still not break the record set in 2000.
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07-17-2015, 02:48 PM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2003
Location: Hooverville
Posts: 22,983
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Quote:
Originally Posted by kevink
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I love it. It's the long feared vindication of *****.
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
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07-17-2015, 02:55 PM
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#4
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Moderator Emeritus
Join Date: May 2007
Posts: 12,901
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As I have said before, my neutral asset allocation is 50/50 and but I let it float between 30/70 and 70/30 based on valuation. I have done that since 2009 IIRC and see no reason to do anything different.
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07-17-2015, 03:15 PM
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#5
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Full time employment: Posting here.
Join Date: Apr 2005
Posts: 807
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I somehow missed it earlier, but there's already a great thread on Pfau's piece over on Bogleheads:
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07-17-2015, 03:38 PM
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#6
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2003
Posts: 18,085
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Quote:
Originally Posted by haha
I love it. It's the long feared vindication of *****.
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I assume that ***** is frothing over with mean-spirited glee.
__________________
"All animals are equal, but some animals are more equal than others."
- George Orwell
Ezekiel 23:20
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07-17-2015, 03:42 PM
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#7
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Thinks s/he gets paid by the post
Join Date: May 2014
Location: Utrecht
Posts: 2,650
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Shown this graph before.
CAPE-10 S&P 500 inverted (x-axis) vs. real return next 10 years. Data for late 1929 up to late 2012.
I personally check CAPE & inflation rates. Specifically I look for when yield minus inflation drops below zero. Sign to head for the exits usually.
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07-17-2015, 03:44 PM
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#8
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Full time employment: Posting here.
Join Date: Dec 2006
Location: chicago burbs
Posts: 806
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Quote:
Originally Posted by FIREd
As I have said before, my neutral asset allocation is 50/50 and but I let it float between 30/70 and 70/30 based on valuation. I have done that since 2009 IIRC and see no reason to do anything different.
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Curious how this works - what valuation level triggers you use to both increase or decrease equities?
Thanks
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07-17-2015, 03:49 PM
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#9
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Thinks s/he gets paid by the post
Join Date: Jul 2009
Location: Miraflores,Peru
Posts: 1,992
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Anybody who can get 4/3 of anything is simply using "smoke and mirrors" in my book.
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07-17-2015, 04:37 PM
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#10
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Moderator Emeritus
Join Date: May 2007
Posts: 12,901
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Quote:
Originally Posted by golfnut
Curious how this works - what valuation level triggers you use to both increase or decrease equities?
Thanks
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There are no levels or triggers, it is a continuous process. I have a formula taking into account a number of factors and it spits out a valuation number. A valuation of 1 means the market is fairly valued so my target equity allocation is neutral at 50%. If the number is >1, say 1.1, then the market is overvalued by 10% (in my humble estimation), and my target equity allocation falls to 50% / 1.1 = ~45%. If the number is <1, say 0.9, then the market is undervalued and my target equity allocation goes up to 50% / 0.9 = ~56%. But I never let my equity allocation get lower than 30% or higher than 70%.
I don't do that every day. Up until recently, I ran my spreadsheet whenever I had new money to invest. Now that we are not adding more to the pot, I will probably run the spreadsheet once or twice a year before rebalancing to the target AA (although tax considerations may now limit how much rebalancing I can do in any one year).
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07-17-2015, 04:40 PM
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#11
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Full time employment: Posting here.
Join Date: Dec 2006
Location: chicago burbs
Posts: 806
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Quote:
Originally Posted by FIREd
There are no levels or triggers, it is a continuous process. I have a formula taking into account a number of factors and it spits out a valuation number. A valuation of 1 means the market is fairly valued so my target equity allocation is neutral at 50%. If the number is >1, say 1.1, then the market is overvalued by 10% (in my humble estimation), and my target equity allocation falls to 50% / 1.1 = ~45%. If the number is <1, say 0.9, then the market is undervalued and my target equity allocation goes up to 50% / 0.9 = ~56%. But I never let my equity allocation get lower than 30% or higher than 70%.
I don't do that every day. Up until recently, I ran my spreadsheet whenever I had new money to invest. Now that we are not adding more to the pot, I will probably run the spreadsheet once or twice a year before rebalancing to the target AA (although tax considerations may now limit how much rebalancing I can do in any one year).
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Thanks, wonder how your performance would have been in 2007 and 2008.
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07-17-2015, 05:07 PM
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#12
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Moderator Emeritus
Join Date: May 2007
Posts: 12,901
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Quote:
Originally Posted by golfnut
Thanks, wonder how your performance would have been in 2007 and 2008.
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I do not have handy the value for all the parameters needed to run my formula for 2007/2008. But if I remember well, PE10 was around 25 back then, so based on that alone (and PE10 is by far the parameter with the largest weighing factor in my formula), my target asset allocation would have been 32% equity. Much better than the 65% I had at the time (I had a fixed 65/35 AA).
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07-17-2015, 05:44 PM
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#13
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2008
Posts: 35,712
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It makes sense to be cautious when P/E is high, whether the current value or a sliding average over past years like PE10.
But for portfolio allocation, should we not also consider the prospect of alternative investments, such as bonds, precious metals, cash, etc...? Right now, the other asset classes do not look appealing either.
__________________
"Old age is the most unexpected of all things that happen to a man" -- Leon Trotsky (1879-1940)
"Those Who Can Make You Believe Absurdities Can Make You Commit Atrocities" - Voltaire (1694-1778)
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07-17-2015, 05:54 PM
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#14
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 17,912
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Quote:
Originally Posted by haha
I love it. It's the long feared vindication of *****.
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Wonder how many folks here recall *****. Those who do not, please do not ask.
DW is after me to lower our stock percent to below our current roughly 30%. At least she has no particular reason for this except a feeling. Probably good as any reason when it comes to out guessing the markets. YMMV
__________________
Ko'olau's Law -
Anything which can be used can be misused. Anything which can be misused will be.
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07-17-2015, 07:22 PM
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#15
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Thinks s/he gets paid by the post
Join Date: Jul 2006
Posts: 1,901
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*****. He who must not be named.
__________________
“I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said” Alan Greenspan
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07-17-2015, 07:26 PM
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#16
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Recycles dryer sheets
Join Date: Nov 2014
Posts: 150
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It's Voldemort, right?!
__________________
The kids used to call me Captain Slow; now they also use Captain Cheap. I tell them, "Talk to the portfolio!"
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07-17-2015, 07:29 PM
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#17
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Thinks s/he gets paid by the post
Join Date: Jul 2006
Posts: 1,901
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Quote:
Originally Posted by growerVon
It's Voldemort, right?!
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Close.
__________________
“I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said” Alan Greenspan
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07-17-2015, 08:34 PM
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#18
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2003
Posts: 18,085
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Worse than voldemort.
__________________
"All animals are equal, but some animals are more equal than others."
- George Orwell
Ezekiel 23:20
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07-18-2015, 08:57 AM
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#19
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Thinks s/he gets paid by the post
Join Date: Apr 2013
Location: Ormond Beach
Posts: 1,407
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Quote:
Originally Posted by Totoro
Shown this graph before.
CAPE-10 S&P 500 inverted (x-axis) vs. real return next 10 years. Data for late 1929 up to late 2012.
I personally check CAPE & inflation rates. Specifically I look for when yield minus inflation drops below zero. Sign to head for the exits usually.
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Maybe it's just me but I can't make heads or tails of what you're trying to show with that graph since everything is blue and there is no legend, time horizon etc.
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07-18-2015, 09:55 AM
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#20
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Thinks s/he gets paid by the post
Join Date: May 2014
Location: Utrecht
Posts: 2,650
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It's a scatter plot, not a time series.
X-axis is CAEP-10 (inverted CAPE-10). So a CAPE-10 of 25 is 4%.
Y-Axis is the subsequent 10-year annual real return of the S&P 500 (as per Shiller's data), excluding dividends. Also in %
Every blue dot is one data point of a given month. So for a given month, what was the 1/(CAPE-10) and what happened in the subsequent 10 years with the S&P 500 (real annual return ex. dividends). All months starting from end 1929 up to 2012 are included.
I hope this clarifies a bit?
If not, let me know. Maybe the graphics format is messed up (it works ok here, but you may use a different browser), I can repost in a different format then.
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