And right on cue, the market is up big time two days in a row.
Prof, the CAPE ratio isn’t even your original idea. Benjamin Graham came up with the concept. You simply used an inflation adjustment.
But stick to the concept, please. Don’t get shaken off the well tested principles just because the market goes the other way for a while. You are supposed to put on the long term hat. And not explain “irrational exuberance” with cop outs such as permanently high plateau.
We had to let go of a staff member today. As you know, last week we starting rebalancing into Europe. Over the last 2 days, Europe has exploded upwards.
The staff member in question wrote an article stating we called the V bottom. As our readers know, we are bottom - shape agnostic; a round bottom means as much to as as a V or a W. Our focus is two fold:
Asset allocation
rebalancing
We rebalance across.asset classes. And also within an asset class. Last week Europe was at 52 week low. Hence we felt some of the cash raised by selling us market could he moved to Europe. If Europe had dropped further, we would simply have added to the European fund. We are not in the business of bottoms and tops.
We did give the staff member a good recommendation for a Wall Street assignment. The staff member has been picked up by the firm Cramer vs. Cramer.
What’s his name in post 74 talked about some TA whiz call a V bottom. Cue up Ron Insana. After market skyrocketed from 1840 to 2023. Or 183. Or 10 pct. In 3 weeks.
The market cap to GNP has hit 1.57 or 157 pct. Per Warren Buffett mkt is cheap when this is 75. And expensive above 100 I think. For reference this hit 200 in the 2000 tech bubble.
Note that this website called the mkt overvalued a year ago when it was at 1790. Doesn’t mean they were wrong
Assuming average rebalancing price of 1940, mkt at 1994. 2.8 pct higher. In other words, you didn’t get killed rebalancing. You just got ur asset allocation back in line.
When thread opened, mkt at 1850. Reached 2010. Then 1820. Then 2090. Now 1994.
Or 8 pct higher. With 2 pct yld.
We had stated around 1550 as fair value back when thread opened Feb 20 2014. So yes that hasn’t panned out. If that was fair value mkt should be abt 1675 now - assuming 8 pct increase from year ago level. Mkt needs to drop by 11 pct to reach our estimated fair value. Time will tell.
Key is Rebalance couple times a year. And u r good to go.
Had forgotten about this. Interesting to see. How that affects fy15 earnings. With mkt selling at high forward earnings if the E drops, that would be bad news. Thanks for pointing this out
Yes. This is overlooked by pundits till after the fact. Balance sheet matters. So does determining which companies wasted money on buybacks at high price
This chart of German DAX shows it bottomed right at the time your staff starting rebalancing INTO Europe. Up circa 13.pct.
Of course had europe gone down further u simpky would have continued rebalancing steadily into it. Since it was undervaluued. And hence getting cheaper as it went down.
This is the essence of long term investing. Don’t worry abt next minute or day or week or months or even year. If something is undervalued, keep putting little bit at a time.
The market has been crazy on the up side and on the down side. But no matter. When it approaches 2060 plus I take some off table. And make no move on the downside. Of course if it goes to 1600 to 1700 time to nibble. Simple rebalancing is key.
Either in this thread or elsewhere when europe got beaten up abt 6 months ago , picked up some europe. Did same in Oct 2011.
If it goes up tomorrow might rebalance. No idea what it would do. But if it gives a Chan e to rebalance I take it. Not too concerned. Have done rebalancing already.
Pakistan market is growing rapidly, there will be downs and ups but eventually it will go up as the potential is very good. Being an investment advisor i will advice to park your money in funds rather than banks and if your risk apetite is high then invest in stocks for the long haul. returns are sure to be positive
^ I understand investing in stocks for the long haul. But confused abt why someone who is risk averse would “park” money in funds. Also the last sentence - use of “sure” is unfortunate
Market at 2100. Took some off at 2099 2 days ago. Some more today. Glad to accept the gift. Rebalancing doesn’t hurt. Though what I have done is more than that. Stock allocation at abt 60 pct. Cash or cash equivalent 40 pct.
Originally was at around 80 stocks 20 cash.
Clearly conventional wisdom to just rebalance. I am not recommending what I did to others. Time will tell.
I don’t much care for “financial researchers” and advisors who try to sucks in investors AFTER a huge run up. I recommend Asset Allocation and rebalancing. Like RESPONSIBLE advisors should.
What I have done went beyond that. I REDUCED my exposure to stocks as the market went to nose bleed levels. And clearly stated this approach is probably not for everyone.
Buy low and rebalance at 3.5 times higher level never left anyone broke. Enticing NEW investors AFTER HUGE run is on the other hand is NOT in their best interests. But in that of the advisors! And that sir is my opinion.