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Old 04-05-2017, 04:17 PM   #21
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Originally Posted by ERD50 View Post
It would be interesting do do a search on this, but it seems to me some established members of this forum have been calling out the high P/E ratio for 4-5 years now? I'm sure they will be right someday, but what do they miss in the interim?



I'm always reminded that I knew the market was getting way over-valued in the 90's big bull run, and I was right. However, I was fully convinced of that by 1997, and the market still had a big rise left in it, and it didn't drop near that point until March 2009 (look at total return, not just NAV). How would I pick a place to get back in? I'd have to be prescient/lucky to pick March 2009 exactly. Maybe I'd still be out? Maybe I'd get back in at a higher point (sell low - buy high)?



I would have missed:



1997 - 33.36%

1998 - 28.58%

1999 - 21.04%



Nope, I'm staying the course as well.



-ERD50


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Old 04-05-2017, 04:32 PM   #22
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I think it's less effective when "outlier" years are present (such as right now where the outlier "great recession" is still part of it). Given the equivalent market conditions 2 years from now, the PE10 would look a lot more attractive right?
We'll see. I'm interested to see this too.
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Old 04-05-2017, 05:22 PM   #23
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I consider this a collective "Wh***" thread. Tomorrow, I will start selling covered calls more actively.

Selling covered calls is for cowardly bears, which I am one.
I am not feeling too "Wh***"-ish today. I just spent $4800 on dental implants, so my stash has gone down compared with two weeks ago.

On the bright side, it's nice to have the money for quality dental surgery.
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Old 04-05-2017, 09:42 PM   #24
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It feels like greater fool territory now, but I would never sell, I get that I need to stay the course with my existing assets or potentially miss out. But DW and I are not putting anything in the market past maxing the 401ks+company match this year (about 50k) and instead putting our extra money on paying off our rental house. We'll have it paid off in four years and then have a nice income stream from it. Can't bear to put it on the primary house though, at 3.5%
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Old 04-05-2017, 09:59 PM   #25
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I know, I know, market timing is dirty, but at this point isn't the P/E ratio getting scary? I'm happy for the returns, but over the last 18 months the market has really been on a tear.
There's something to be said for using P/E10 to adjust allocations. Doing so can leave you on the "wrong" side of the market for a long time (a decade or more) and would probably be career suicide for a funds manager, but it has historically produced better results over the long term and better rewards for the risk taken (higher Sharpe ratios). I would not use P/E10 as a binary in-out signal to sell all stocks/go 100% stocks, but using it to adjust your stock allocation up or down 10-15% from a central value seems to have merit.
We had a good discussion on this here, with links to papers. Of course, it might not work at all in the future.

BTW: When stocks are at very high valuations, historically govt bonds have been a better "counterweight" than corporate bonds. IIRC, the reason why is that when stocks take a big tumble from a height, the markets get spooked and there's a rush to quality with govt bonds getting bid up more than corporate ones.
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Old 04-05-2017, 10:00 PM   #26
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You guys are doing much better than I did. In 2016, I was fully invested with nearly 100% stocks - didn't even notice the >10% correction. Then, the election and inauguration happened, didn't sell. But in the beginning of Feb, I went completely bonkers and devoured every single news article out there. Turned from B&H to market-timing. Now, slowly trying to stay the course!
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Old 04-05-2017, 10:02 PM   #27
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There's something to be said for using P/E10 to adjust allocations. Doing so can leave you on the "wrong" side of the market for a long time (a decade or more), but it has historically produced better results and better rewards for the risk taken (higher Sharpe ratios). I would not use P/E10 as a binary in-out signal to sell all stocks/go 100% stocks, but using it to adjust your stock allocation up or down 10-15% from a central value seems to have merit.
We had a good discussion on this here, with links to papers. Of course, it might not work at all in the future.
I may end up doing this. But honestly, I would probably only swing between 50% and 60% equities. And I calculated after a big drop that would maybe save me 2%. Still - that's half a year's income! And I would probably feel a little less anxious as the market climbs like it is doing right now.
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Old 04-05-2017, 10:13 PM   #28
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I may end up doing this. But honestly, I would probably only swing between 50% and 60% equities. And I calculated after a big drop that would maybe save me 2%. Still - that's half a year's income! And I would probably feel a little less anxious as the market climbs like it is doing right now.
2% on the way down, but also the benefit of buying cheaper shares if the PE10 dips below the trigger to prompt a purchase up to the higher end of the "window," right? That's worth something.
The papers (by Kitces, Pfau, others) indicated the need to do any additional buying or selling would be fairly infrequent--usually more than 10 years apart, IIRC, and it seemed to work well. As mentioned in the linked discussion, one attractive thing is that it is "wrong" for so long that it wouldn't be an attractive tool for most money managers. But it might be attractive for those of us who have to answer to no one but ourselves.
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Old 04-05-2017, 10:36 PM   #29
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2% on the way down, but also the benefit of buying cheaper shares if the PE10 dips below the trigger to prompt a purchase up to the higher end of the "window," right? That's worth something.
The papers (by Kitces, Pfau, others) indicted the need to do any additional buying or selling would be fairly infrequent--usually more than 10 years apart, IIRC, and it seemed to work well. As mentioned in the linked discussion, one attractive thing is that it is "wrong" for so long that it wouldn't be an attractive tool for most money managers. But it might be attractive for those of us who have to answer to no one but ourselves.
Good point.

I picked 60% equities if PE10 got down to 18 or lower, and 50% if PE10 reached 25 or higher, with a sliding scale in between. I would normally apply it in January when I usually rebalance after taking my withdrawal.

I created a spreadsheet to see how my allocation would vary each year.
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Old 04-06-2017, 02:59 AM   #30
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I wouldn't touch it with a 10 foot pole, but look! I found these on sale:


Well done!
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Old 04-06-2017, 03:36 AM   #31
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So with all the press about the pending doom of the US economy that was certain to follow the election you didn't cash out and stock up on gold and ammo. Me too.
I'm still buying gold (and ammo, if you call cash reserves ammo). 💸💩😂
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Old 04-06-2017, 04:02 AM   #32
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I'm still buying and rebalancing according to our AA.
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Old 04-06-2017, 06:25 AM   #33
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If you hate money then go ahead and sell, lol. If you love money ignore the chatter and stay the course.
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Old 04-06-2017, 06:45 AM   #34
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We are not in the accumulation phase but rather safeguarding our retirement since the older we get there is a limit to our ability to recover over time. As long as we are ahead of inflation then we will stay in great shape. About 55% stock, 30% bond, 15% cash. Wellesley, Wellington, individual stocks, and cash with dividends going to MM accounts. As I see it as an unsophisticated bear of little brain the stock market appears to have been on an uphill climb for about 7 years so I'm taking some earnings now while I have them. Just trying to buy low and sell high. I may not realize as many gains as we go forward but as I have frequently read here - nobody has a crystal ball to know when the market wind changes but what we do know is that at some point it will. 7+ years is getting to be a long time for the Bull. If the market does change course then we have the option to buy low again if we choose.

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Old 04-06-2017, 06:50 AM   #35
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I think it's less effective when "outlier" years are present (such as right now where the outlier "great recession" is still part of it). Given the equivalent market conditions 2 years from now, the PE10 would look a lot more attractive right?
I don't believe so, but am not going to try and make a case either way. Anyone interested can see the summary data here http://www.multpl.com/shiller-pe/table
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Old 04-06-2017, 06:59 AM   #36
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It didn't matter what the outcome of the November election was because the election removed all uncertainty of the outcome. Stock markets do not like Uncertainty and do not go up during times of Uncertainty. So when Uncertainty was removed, the only direction was Up since the Economy had been doing well.
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Old 04-06-2017, 07:07 AM   #37
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I don't believe so, but am not going to try and make a case either way. Anyone interested can see the summary data here Shiller PE Ratio by Year
That is a good link. I notice PE10 (by year) has not been below 20 since 1993, except once during the Great Recession.
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Old 04-06-2017, 07:54 AM   #38
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That is a good link. I notice PE10 (by year) has not been below 20 since 1993, except once during the Great Recession.
That 2009 "exception" lasted for about a year and has proven to be a darn good point to have bought into the market (or to have increased stock allocations).
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Old 04-06-2017, 08:08 AM   #39
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Took a snapshot on November 9th and just looked a my personal performance through April 4th 2017. Up 7.9%. Not making a political statement but I'm sure glad I stayed the course vs. a panic attack. I was expecting a downturn of sorts. Asset Allocation is 70/30. Cheers.
Sounds nice, but plenty of time left in the year for a correction.

But not that I'm timing. Not my approach. Just saying .
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Old 04-06-2017, 08:20 AM   #40
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I'm up a similar amount. Amazing. But I think a correction is on its way- and I would have felt the same regardless of who won the election.
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