Stocks are expensive?

[COcheesehead]

After a 26%+ gain in 2021? Or the 28%+ gain in 2019?

Idk about you, but I’m up nicely compared to where I was a few years ago, even after 2022, with an equity allocation of 85%+.

Down years happen. There are more up years than down years and the last decade has been phenomenal.

What’s your point? 2020’s gains evaporated in ‘22. That’s what I said. Stay on topic.

 

[tulak]

What’s your point? 2020’s gains evaporated in ‘22. That’s what I said. Stay on topic.

No, they did not. But believe what you want.

https://www.portfoliovisualizer.com...me3=Portfolio+3&symbol1=VTI&allocation1_1=100

 

[TickTock]

Shiller CAPE 10 ratio is a reasonably good predictor of future stock returns over long periods of time (20-30 years).

Carefully note the two caveats in the above sentence.

This is why, while I have some sympathy for using it as an AA ratio adjustment mechanism, our own portfolio has not used it. Even though it has additional attraction when SORR is high (as we are now).

 

[FREE866]

Shiller CAPE 10 ratio is a reasonably good predictor of future stock returns over long periods of time (20-30 years).

Do you have a source that confirms that?

 

[TickTock]

What’s your point? 2020’s gains evaporated in ‘22. That’s what I said. Stay on topic.

No, they did not. But believe what you want.

https://www.portfoliovisualizer.com...me3=Portfolio+3&symbol1=VTI&allocation1_1=100

I think you two are talking past each other. From tulak's link above:

• 12/31/2019 $10,000
• 12/31/2020 $12,103
• 12/31/2021 $15,209
• 12/31/2022 $12,242

So yes, the $2,103 2020 gain was erased by the 2022 $2,967 loss. And the 2020 plus 2021 gains were almost erased by the 2022 loss ($139 difference).

What's the point? That stocks are more volatile that bonds? That over long periods of time, stocks tend to outperform bonds? [Both of those statements are demonstratably true.] Something else?

 

[TickTock]

Do you you a source that confirms that?

I'll need to get access to the primary source (I'm working away from home right now), but memory says Burton Malkiel's A Random Walk Down Wall Street has that data. But it could be somewhere else.

[Edit] If anyone else on the forums can assist with confirming or denying/identifying the primary source, I'd be grateful. Still juggling a lot of items as I'm not (yet!) retired[/Edit]

 

[target2019]

Even though I am in the market over two decades, I am still not a sophisticated investor. I look at simple overall measure of the market: Shiller PE ratio and S&P 500.

S&P 500 reached highest ever in late 2021/ early 2022. Shiller PE ratio reached second highest about the same time. They both kept going down until Fall 2022. Then, S&P 500 kept going up fast until July 2023, however Shiller PE ratio not so much.

Looks like the market is very optimistic about interest rate will go down soon.

Any thought?

The P/E 10 ratio is calculated as follows:*take the annual EPS of an equity index, such as the S&P 500, for the past 10 years. Adjust these earnings for inflation using the consumer price index (CPI)—that is, adjust past earnings to today's dollars. Take the average of these real EPS figures over the 10 years. Divide the current level of the S&P 500 by the 10-year average EPS number to get the P/E 10 ratio or CAPE ratio.

https://www.investopedia.com/terms/...valuation measure for,or the Shiller PE ratio.

I think your takeway might be that interest rates went up, so now the media is filled with guessing about when rates will be trimmed.

 

[DrRoy]

From Fed comments, I don’t think interest rates will go down soon.

 

[Koolau]

https://www.investopedia.com/terms/...valuation measure for,or the Shiller PE ratio.

I think your takeway might be that interest rates went up, so now the media is filled with guessing about when rates will be trimmed.

Doing what they do best. Speculating.

 

[PatrickA5]

I don't know if they're currently overpriced or not, but I think there's a decent chance they will be higher 5, 10, 15 years from now.

I'm "trying" not to be a market timer. I did that in 2020 and failed miserably.

 

[Koolau]

I don't know if they're currently overpriced or not, but I think there's a decent chance they will be higher 5, 10, 15 years from now.

I'm "trying" not to be a market timer. I did that in 2020 and failed miserably.

Heh, heh, haven't we all?


None of us knows our future, but "actuarially" some of us may not have 5, 10 or 15 years. (I'd be 91 at 15 years.) Ghaaaacckkkk!



I hope you have many years to see if you chose wisely. Of course, YMMV.

 

[target2019]

From Fed comments, I don’t think interest rates will go down soon.

Ran across this article. Perhaps it has meaning, perhaps not.

https://www.morningstar.com/economy/fed-signals-higher-rates-longer-we-expect-them-come-down-sharply

Despite Powell’s hawkish tilt, we see growth slowing and inflation falling enough to merit sharply lower rates.

So, they predict a more agressive rate-cutting than recent hawkish Fed comments.

 

[Koolau]

Ran across this article. Perhaps it has meaning, perhaps not.

https://www.morningstar.com/economy/fed-signals-higher-rates-longer-we-expect-them-come-down-sharply



So, they predict a more agressive rate-cutting than recent hawkish Fed comments.

IOW we really don't know - as usual. Being "inscrutable" has some advantages. YMMV of course.

 

[target2019]

IOW we really don't know - as usual. Being "inscrutable" has some advantages. YMMV of course.

We do know some things. We can take into account past lessons and data, and believe we know about tomorrow. In the strict sense, anything can happen, but we don't really live that way. Hell, you'd stay in the basement all day!

 

[TickTock]

Do you have a source that confirms that?

Still don't have Malkiel's book in front of me, but here's an article by Larry Swedroe (who I hold in high esteem):

https://www.evidenceinvestor.com/the-shiller-cape-10-how-to-use-it-not-abuse-it/

It provides valuable information, but not market-timing information.

 

[SunGuy]

Buying good companies near their 52 week low is a great way to get a discount, and lower your cost basis.

 

[RetiredAt49]

Buying good companies near their 52 week low is a great way to get a discount, and lower your cost basis.

I have backtested thousands of swing trading strategies and “buying a good company’s 52 week low” doesn’t generate/yield great returns (compared to many other strategies). You are better off purchasing a ticker whose price is approaching a 52 week high and buying dips (e.g. using various technical indicators like RSI, MFI, etc.) but YMMV. My algorithms have mostly focused on intraday but
I’ve recently broadened into swing trading too.

 

[GhostofTomJoad]

I figured I'd throw this in here, from David Sherman.
Crossing Bridge Advisors.
https://blog.crossingbridgefunds.com/blog/q3-2023-commentary-no-fat-pitches

 

[Montecfo]

I figured I'd throw this in here, from David Sherman.
Crossing Bridge Advisors.
https://blog.crossingbridgefunds.com/blog/q3-2023-commentary-no-fat-pitches

Interesting read. This is the advantage professional management of bond portfolios has over indexing.

David K. Sherman manages River Park Short Term High yield which I owned with great success during the low rate years.

I have a lot of respect for him.

 

[jurgs01]

I have backtested thousands of swing trading strategies and “buying a good company’s 52 week low” doesn’t generate/yield great returns (compared to many other strategies). You are better off purchasing a ticker whose price is approaching a 52 week high and buying dips (e.g. using various technical indicators like RSI, MFI, etc.) but YMMV. My algorithms have mostly focused on intraday but
I’ve recently broadened into swing trading too.

His strategy is not a swing trading strategy. Apples and Oranges.

 

[Montecfo]

Even though I am in the market over two decades, I am still not a sophisticated investor. I look at simple overall measure of the market: Shiller PE ratio and S&P 500.



S&P 500 reached highest ever in late 2021/ early 2022. Shiller PE ratio reached second highest about the same time. They both kept going down until Fall 2022. Then, S&P 500 kept going up fast until July 2023, however Shiller PE ratio not so much.



Looks like the market is very optimistic about interest rate will go down soon.



Any thought?

Well Shiller PE is not valuable for timing the market.

2nd, I do see stocks as expensive but they are likely to rally if earnings begin to grow and more when the rate top is understood to be in. Probably soon.

 

[Montecfo]

I guess it depends on your definition of "soon". (Sort of like what is the definition of "IS".) [emoji23] Okay, I won't go there.

Listening to the Fed this week it sounded to me like rates may stay this high or higher, for longer than they anticipated. So if "soon" is late 2024 or even 2025, then probably yes. If soon is this year, then NO.

The Fed has no idea what rates will do beyond the next meeting.

If unemployment begins a sustained rise they will be cutting despite what they say.

 

[RetiredAt49]

Piper Sandler and BOA analysts believe the S&P 500 will close 14% higher than it is today by year’s end because 30% of the S&P 500 companies are “oversold” (meaning their RSI is less than 30).

If I were home, I’d run this analysis through a backtest to see if it has historical merit.

Here’s the article: https://fortune.com/2023/10/20/sp-5...ks-are-extremely-oversold-piper-sandler-says/

 

[EvrClrx311]

From Fed comments, I don’t think interest rates will go down soon.

True, but the Fed has a habit of getting it very very wrong in both directions. They are usually chasing the market, not driving it in any reasonable way. Their job is just to make us think they are in control... so we don't all jump out the passengers side window.

 

[Koolau]

True, but the Fed has a habit of getting it very very wrong in both directions. They are usually chasing the market, not driving it in any reasonable way. Their job is just to make us think they are in control... so we don't all jump out the passengers side window.

If their j*b is to make us think they are in control, it ain't w*rking.

I'll stay in my seat, all the same. Road rash along with inflation is just adding injury to insult.