Using PE/10

[donheff]

Am am confused at the volatility of Schiller's daily PE/10 ratio. I read a good article about it a few years ago that talked about using it to ballpark the effect of current valuations on SWR. I can't find the article but the gist of it was that you divide 1 by PE/10 to get the SWR. The article recommended using .83 by PE/10 for a more conservative estimate. I do not use this approach for my own withdrawals (I am way under the rates predicted by this method) but I do keep a line in my spreadsheet for .83/PE10 x portfolio to maintain a data point tracking the predicted number. I last updated it before the recent slump and it was 20.5 or something. Today I updated it and it was 15.25. 1/15.25 = 6.5%. .83/15.25 = 5.4%. .83/20.5 (a few months ago) = 4%. These numbers seem to jump around too much to have value. The idea of PE/10 is to smooth things out by averaging in a ten year period. It just doesn't seem like the last month should have effected it by 20-25% as would be indicated by these numbers.

Any one else track this data? Does anyone know the URL for my missing article so I can re-read and see what I am missing?

 

[ronocnikral]

I don't track it. I was researching it and that is how I first got introduced to *****. My head exploded.

What I don't understand is, How does a lagging indicator help with the future? It seems what PE 10 advocates is backwards looking, but it certainly has no guarantees of the future. I also don't like that it is deterministic. Perhaps using it as a forecast is helpful, but I like my ranges and probabilities...

Here is a Boglehead thread which may be of interest. Reader's digest version, the site Don links to changed the way they calculated the P/E.

Bogleheads • View topic - What has moved PE10 so much.. at 15

 

[ronocnikral]

And if I would have read the pg Don originally linked to more carefully, I would have seen the following....

For the Shiller PE10 Ratio, see Shiller PE.

Current Shiller PE is 21.27

 

[Midpack]

Any of the several links on this thread by any chance? http://www.early-retirement.org/forums/f28/schiller-data-upbeat-on-swr-57356.html

 

[marko]

I"m new to this chart and would never use it as gospel, but does this imply that on 'year X' you could WD X% and the other year WD Y% based on where things are on the curve?

Just not sure what this chart is saying.

Am I answering my own question to state: it wouldn't be wise to start WD ~22% back in 1999 and keep WD that amount steadily.

 

[Animorph]

Certainly the start of the 10 year period is hitting near the bottom of the ".com" bust and 2003 will have a steep up slope to keep thing interesting for a while. Lots of volatility at that end as well as right now. I would think it would be getting a little more reasonable now without two big market crashes within its time frame.

 

[donheff]

Yeah, I was using an outdated link.

 

[donheff]

Any of the several links on this thread by any chance? http://www.early-retirement.org/forums/f28/schiller-data-upbeat-on-swr-57356.html

I forgot about that post. But, no, I had already lost URL to the original article I read. But thanks to comments about I now have the correct page for the current Schiller PE/10.