Down goes the Dow

Sorry Igy, the part about ignoring fundamentals is true. That's the point of a naïve analysis: working without assumptions, just fiddling with the data. I didn't make any assumptions at record high valuations... that's the bit that caught my eye...

I think you need to do more reading on CAPE and fundamental analysis. You have only a limited view based on your experience, same as the other posters above. That is typical at a market top, flip side of the conclusions most would have assumed March 9, 2009. Hey but that makes a market.

Ghost of Igloi wrote:You have only a limited view based on your experience, same as the other posters above.

Well, now you're getting personal. I'm not quite as old as you, but not that far behind. I don't work in your field, but I know stuff...

Kindly explain (in small words if you think it will help me) what it is I obviously don't understand. Please and thank you.

Pretty much standard that CAPE is not a short term indicator but a good predictor of 10-12 year returns. Furthermore, if you drill down to an individual secuirity level it is all about cash flow and an adequate cushion for return. Most elementary your return is inversely correlated to the price you pay. Therefore seems naive on a variety of levels to expect positive equity returns on a ten year horizon at current prices.

old idiot wrote:

Ghost of Igloi wrote:You have only a limited view based on your experience, same as the other posters above.

Well, now you're getting personal. I'm not quite as old as you, but not that far behind. I don't work in your field, but I know stuff...

Kindly explain (in small words if you think it will help me) what it is I obviously don't understand. Please and thank you.

idiot,

No personal affront intended. As someone who has done this for 22 years and has seen this movie before I just find the delusion stunning. So I apologize. You can look at a variety of securities and see that they are supported by very weak metrics. Pull an annual report for MSFT or CAT. Look at the balance sheet, sales, stock buy backs and rising debt levels. The new age thinking (not really) can be garnered by doing the same with AMZN or NFLX. Interesting to see how this stocks perform when the narrative is challenged.

Igy

Ghost of Igloi wrote:As someone who has done this for 22 years and has seen this movie before I just find the delusion stunning. So I apologize.

Igy

Igy,

maybe I need to work on my writing skills, or else you need to work on your reading comprehension. What delusion did I convey, pray tell?

damn idiot wrote:

I really think there's very little we can "predict" about financial markets' behaviour; at least that's the main conclusion I've drawn from all this. Although it is surely tempting to make more of it all than that... :-)

Ghost of Igloi wrote:

damn idiot wrote:

I really think there's very little we can "predict" about financial markets' behaviour; at least that's the main conclusion I've drawn from all this. Although it is surely tempting to make more of it all than that... :-)

Hmmmm.... you sure you wanted to call me out for suggesting that predicting the future behaviour of the markets is very difficult (i.e. "very little we can predict")? That's MY delusion? Well, ok then... again, with a nod to the BEST CHARACTER EVER in the history of film, maybe I'm not sure "delusion" means what you think it means...

Ghost of Igloi wrote:

Therefore seems naive on a variety of levels to expect positive equity returns on a ten year horizon at current prices.

Obviously, this thinking has been spot on for 3 years. Why would we not buy in to it going forward?

Ghost of Igloi wrote:

I think you need to do more reading on CAPE and fundamental analysis. You have only a limited view based on your experience, same as the other posters above. That is typical at a market top, flip side of the conclusions most would have assumed March 9, 2009. Hey but that makes a market.

It’s important for everyone here to remember that Igy is smarter than you. We are lucky to have him here and should never challenge anything he writes.

idiot,

I did not really intend to say you are delusional, rather the spirit of the era. So my apologies. My point was I don’t believe that fundamental analysis such as CAPE is meaningless and price movements are random. Both reflect the period they are analyzed. “Fundamentals haven’t matter the last five years so that is your future.” I disagree with that view. It all matters and is often colored by context of the period. Central banks have created the belief that equities are a one direction trade. Just look at the popularity of index ETFs and most of the commentary on this thread. We’ll see if my comment on the general delusion of investors is justified or I am the delusional one. Of course the later is a possibility.

Igy

Hail Igy! wrote:

Ghost of Igloi wrote:

I think you need to do more reading on CAPE and fundamental analysis. You have only a limited view based on your experience, same as the other posters above. That is typical at a market top, flip side of the conclusions most would have assumed March 9, 2009. Hey but that makes a market.

It’s important for everyone here to remember that Igy is smarter than you. We are lucky to have him here and should never challenge anything he writes.

Make sure you bow at the waist and curtsy.

mellon wrote:

Ghost of Igloi wrote:

Therefore seems naive on a variety of levels to expect positive equity returns on a ten year horizon at current prices.

Obviously, this thinking has been spot on for 3 years. Why would we not buy in to it going forward?

How are your buy on the dips working?

Ghost of Igloi wrote:

mellon wrote:

Obviously, this thinking has been spot on for 3 years. Why would we not buy in to it going forward?

How are your buy on the dips working?

I know you didn’t ask me, but my FB buy is up over 3% in less than a week. Thanks for the “tip.”

Big Dog Investments wrote:

Ghost of Igloi wrote:

How are your buy on the dips working?

I know you didn’t ask me, but my FB buy is up over 3% in less than a week. Thanks for the “tip.”

Sure, let’s keep an eye on it over the next month and report back.

Sometimes it takes me a while staring at graphs to find trends, patterns or meaning. I took the 10-year forward predictions from the I-E-S-CAPE and grouped the data into bins, then made a whisker and box plot to visualize the data in a different way:

[IMG]

http://i64.tinypic.com/286tx08.jpg[/IMG

]

When we look at this plot, a more obvious trend appears with lower 10-year forward expectations with higher CAPE. Where it's sitting right now in April 2018 (just a hair shy under 1.3; look at the orange box, fourth from the left), the middle half of the expectations range between about 20% gain and 130% gain over the next 10 years.

The plots for 2-year and 5-year are not quite as compelling, but still suggestive of some kind of forward predictive power:

[IMG]

http://i68.tinypic.com/1zy7ryv.jpg[/IMG

]

[IMG]

http://i68.tinypic.com/1zy7ryv.jpg[/IMG

]

Can't seem to post right today... here's the right 5-yr plot.

[IMG]

http://i67.tinypic.com/2wfv12c.jpg[/IMG

]

Big Dog Investments wrote:

Ghost of Igloi wrote:

How are your buy on the dips working?

I know you didn’t ask me, but my FB buy is up over 3% in less than a week. Thanks for the “tip.”

A better measurement:

https://www.hussmanfunds.com/wmc/wmc170904c.png