Willers
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I know this is what I should do too but I just can't keep myself from tinkering. Have you always been this resolute or did you have to train yourself to ignore it?
What would you buy if another 2008 happened?
- Thread starter tmm99
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I know this is what I should do too but I just can't keep myself from tinkering. Have you always been this resolute or did you have to train yourself to ignore it?
OrcasIslandBound
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I meant to say I won't buy any ADDITIONAL stocks unless the cape ratio moves back towards it's long term avg.
The fact that it has only been below it's avg once since 1991 seems like some kind of a sign to me. Have stocks been living in an overvalued world all this time?
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The fact that it has only been below it's avg once since 1991 seems like some kind of a sign to me. Have stocks been living in an overvalued world all this time?
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Greg V
Recycles dryer sheets
Rebalance as needed and my planned AA will dictate where the money flows.
Hence, why dollar cost averaging or value averaging works psychology-wise.
Oh no, I had extensive tinkering training in my early investing career (started seriously in 1987 right before the crash of 87 - before it had been all CD's ,savings accounts and really stupidly gold and silver). At that time I subscribed to money magazine, fortune magazine and such. Every bright idea they presented I was convinced was the holy grail of investing. Every shinning new fund star I had to have. I think at one time I had about 35-40 mutual funds in a horrendous hodgepodge with the only common thread being that they were recommended as the latest best by one of the aforementioned media. (Of course, by the time I bought a lot of them they were already starting to revert to mean)
At least in my hodgepodge I had bought Wellesley and Wellington and Index 500 so got exposed to the Vanguard philosophy. Over time, slowly I started to realize that this provided a measure of sanity. I stopped paying attention to the magazines, tv commentators etc. Discovered that Bogle was worth listening to, started cutting back drastically on the number of funds, thought long and hard about the asset allocation I felt comfortable with. Low and behold funds accumulated and ER became possible by 2002.
By then I had my 50/50 philosophy with wide bands rebalance bands firmly in place but lordy, many tumbles to get there.
Sorry for the lengthy rambling response to your simple question.
Willers
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Thanks ejman. Interesting info. I hope I can learn to tune out the noise. I've been a fund collector also at times. I'm trying to simplify and keep hearing the whispers of Wellington in my head. I should probably listen to those whispers.
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pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
My guess is that higher demand for stocks caused by the general population being more interested in investing in stocks and the advent of 401ks caused a shift in CAPE ratios seen on that table. It could have been that stocks were undervalued all the other time. For me, 25 years seems to signal some sort of shift.
We are in a different reality in terms of economic growth due to technology.
http://theemergingfuture.com/docs/Speed-Technological-Advancement.pdf
I believe this has a significant effect on future performance. In the 70's before fax machines, I used carbon paper and a Selectric IBM typewriter. I learned to do my work several times more efficiently over the past 40 some years. Living proof which may correlate to the increase in CAPE ratio in my mind. We just keep getting more advanced and better in execution of new technology. According the the link, we should see this grow, not diminish. Production of Goods and Services should be at an ever expanding lower cost over time making companies more efficient, profitable, and realizing higher valuations based on future earnings. Comments?
http://theemergingfuture.com/docs/Speed-Technological-Advancement.pdf
I believe this has a significant effect on future performance. In the 70's before fax machines, I used carbon paper and a Selectric IBM typewriter. I learned to do my work several times more efficiently over the past 40 some years. Living proof which may correlate to the increase in CAPE ratio in my mind. We just keep getting more advanced and better in execution of new technology. According the the link, we should see this grow, not diminish. Production of Goods and Services should be at an ever expanding lower cost over time making companies more efficient, profitable, and realizing higher valuations based on future earnings. Comments?
This is always hard, catching falling knives. I kept buying on the way down in 2008 and will do the same here. It looks like after today we've dropped about 5%. It seems like a good place to buy some more. This puts me back in the upper range of my equity allocation. If we drop some more, then I'll be tempted to up my equity allocation by 5% and keep buying.
I have a big advantage though. I'm still working and saving. These are shares that I can hold on to for 5-10 years easily. So buying at lower prices now is a no brainer.
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In this thread
http://www.early-retirement.org/for...time-the-market-73166.html?highlight=scissors the idea of altering behavior based on shiller PE. At first I was not convinced I could act on this, but a few months ago, when it triggered one of the few sell signals of the past century, I did find a way to take action...one that I could live with. The action was to adjust from an age appropriate asset allocation (actually one for a slightly younger person) to one of an 80 year old. If I live to see the buy trigger, I'll shift back to an age appropriate allocation again. This way, I can say at least I did something in response to the historically high PE. And if it never drops and "this time it's different", then, well, I'll justify it as insurance. That's nowhere near as drastic as saying " I've won" and taking all my assets off the table.
photoguy
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I'm not an accountant nor an auditor but there are significant changes in how the E is computed in CAPE so that historical values aren't directly equivalent to today. For example, goodwill is now tested for impairment every year instead of amortized over multiple years. I can imagine that other changes in auditing standards might make a huge difference as well.
There are also many other structural reasons to think a historical CAPE value is not directly comparable to today:
Swedroe: Key Market Value Metric Outdated | ETF.com
The author (Swedroe) thinks that the cumulative effect of all these changes might make the historical CAPE of 16 roughly equivalent to a CAPE of 20 today. I've seen other experts also talk about these same issues but don't recall seeing anyone else put a real number on the size of the effect (e.g. 20/16 = 25% inflation in CAPE).
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
There probably is some merit to that line of thought. Goodwill amortization is no longer. Pension expenses and retiree health insurance benefits are recognized (vs not). Stock compensation expense is drastically different. Many others.
NW-Bound
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I don't know, but hope that Swedroe is right. Else, the portfolio shrinkage will not bankrupt me, but surely will cramp my style or what is left of it.
OrcasIslandBound
Recycles dryer sheets
If we revert back to the cape 10 average ratio, S&P 500 will be 1310. A sobering prospect.
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As long as earnings hold up I'm fine with that. Dividend yields will increase to >5%, some solid companies paying out 10%+. Not bad if inflation stays within fed target of 2%.
Guess that's why it won't happen ..
Dividend stocks. Good and steady payers. Got a big surprise with fund distributions kicking me into a bad tax situation, I.e. AMT.
Only by individual stocks now am building a portfolio with 4% or higher yields. Taking advantage of the market downturn to do so.
Tom C
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Only by individual stocks now am building a portfolio with 4% or higher yields. Taking advantage of the market downturn to do so.
Tom C
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Depends if it happens before July I'd buy more equities with earnings if it happens after I'd do some rebalancing and buy more equities. I suspect it rill work out just fine
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Why, are you selling? It is a buying opportunity.
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I agree with Rayinpenn : I am buying S&P 500 index fund. It is a No Brainer, because it is practically guaranteed to go back up eventually if you do not sell. Although if you buy a single stock, or a single concentrated active mutual fund-they could go to zero and never come back. Remember in 00'-02' some tech stocks and Van Waggoner tech funds were completely wiped out, and never came back! S&P 500 will always come back up eventually.
OrcasIslandBound
Recycles dryer sheets
Who said anything about selling? I wouldn't dream of it.
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pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
S&P 1310 is more likely than me winning Powerball tonight, but still quite unlikely IMO.
bmcgonig
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Well if you assume that eventually we will get a bear market, I.e., we have to, and if it was coming soon (we are due) then according to these guys' stats (not opinions ) :
http://blog.gavekalcapital.com/hist...-bull-market-within-a-structural-bear-market/
"The average performance of a cyclical bear market is -37.5%. Even if we exclude the largest outlier, the 89% drop of the 1929 high, the average performance is still -35%. "
That would put us right at 1300ish. It's really not that unlikely.
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audreyh1
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My T/A (technical analysis) buddies over M* are discussing several models that predict S&P sell off to around 1570 in 2016. Different gurus giving numbers including ranges like 1525-1615. The posters seem to think this likely. They are a somewhat pessimistic bunch.
1570 would be about an 18% drop from Friday's level of 1922, and a 26% drop from the closing high of 2131 on 5/21/15.
1705 is enough to get the S&P500 into official bear market territory (20% down) from the closing high on 5/21/15.
26% down is not nearly as bad of a bear market as 2008, but still a full bear, and sobering.
If this happened, I would be rebalancing from my bond funds to stocks, as well as tax loss harvesting where I could and buying similar funds.
1570 would be about an 18% drop from Friday's level of 1922, and a 26% drop from the closing high of 2131 on 5/21/15.
1705 is enough to get the S&P500 into official bear market territory (20% down) from the closing high on 5/21/15.
26% down is not nearly as bad of a bear market as 2008, but still a full bear, and sobering.
If this happened, I would be rebalancing from my bond funds to stocks, as well as tax loss harvesting where I could and buying similar funds.
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