K55 wrote:
This is just more investment advisor BS, a belief in some magical system that works for a reason that cannot be mathematically explained. Real low brow thinking
Says the guy who sold on a panic thinking the US was going to war over Syria. Talk about low brow thinking.
Pointing Out the Obvious wrote:
K55 wrote:This is just more investment advisor BS, a belief in some magical system that works for a reason that cannot be mathematically explained. Real low brow thinking
Says the guy who sold on a panic thinking the US was going to war over Syria. Talk about low brow thinking.
Can't mathematically support your assertion, change the topic.
K55 wrote:
Can't mathematically support your assertion, change the topic.
I really have no idea what you want to see as "mathematical proof". The evidence for the 200 day strategy is as follows: For the period of time for which the S&P500 has existed, the 200 day strategy slightly increases returns and decreases volatility compared to a simple buy and hold strategy and other trigger-based buy/sell strategies.
dumb wrote:
K55 wrote:Can't mathematically support your assertion, change the topic.
I really have no idea what you want to see as "mathematical proof". The evidence for the 200 day strategy is as follows: For the period of time for which the S&P500 has existed, the 200 day strategy slightly increases returns and decreases volatility compared to a simple buy and hold strategy and other trigger-based buy/sell strategies.
You don't understand the difference between mathematical proof and historical results?
The first question is why does it work? If you cannot answer that, you have nothing.
Does following a 100 day average have the same result historically? How about 300 days? 202 days?
there is no mathematical proof possible - investing is not a hard science.
Like bigfoot says -- there is a strong historical evidence that supports some strategies. Such as value investing, overweighting small caps and buy and hold. Will these always work? no way to know, but I'm willing to bet that for the most part what has worked in the past will usually work in the future.
the wsj had a short piece on CAPE today:
http://online.wsj.com/news/articles/SB10001424052702304026304579453841970603008
Asked to define a bubble, some Wall Street wags say it is a bull market that an investor has missed.
WSJ's Spencer Jakab discusses why Robert Shiller's technique for deriving P/E ratios should get a second look. Photo: Getty Images.
But with the period between earnings seasons now under way and the S&P 500 back near its record high, investors may turn more attention to the stock market's overall health rather than just that of its components.
Many have quibbled with Yale professor Robert Shiller's use of a cyclically adjusted price/earnings ratio. Few can fault his timing in calling out perhaps the greatest stock mania of all time with the publication of "Irrational Exuberance" in the spring of 2000, though.
Mr. Shiller's technique uses a decade of inflation-adjusted earnings to derive a P/E ratio. That is in contrast to the more common practice of basing it on a year of analyst forecasts. By his measure, stocks now trade at 25.5 times earnings, 54% above the average going back to 1881.
Peaks in this measure have come before downturns in 1929, 2000 and 2007, but also many times in between. The Shiller P/E is thus no market-timing tool. Still, a look at the big picture should give pause.
The ratio is now in the top tenth of historical observations. Previously, at such levels, real compound annual changes in the S&P 500 have averaged negative 1.4% over the next 10 years. At the other extreme, the change has been a positive 6.4% when P/E ratios were in the cheapest tenth of observations.
Until recently, critics complained that the 10-year sweep of the Shiller P/E covered two market washouts, early and late last decade, which was unusual. That argument has expired now. But some still insist write-downs during the financial crisis skewed even a 10-year average P/E.
Furthermore, some Wall Street strategists argue that historically high profit margins at the moment are sustainable. Don't get complacent, though. Since profit margins also were inflated during the housing boom, the Shiller P/E actually might be understated.
Perhaps investment firms that were caught out by recent debacles are right this time and not the man who identified the housing and tech bubbles. Not just 14 but 140 years of market history say otherwise.
agip wrote:
the wsj had a short piece on CAPE today:
http://online.wsj.com/news/articles/SB10001424052702304026304579453841970603008Asked to define a bubble, some Wall Street wags say it is a bull market that an investor has missed.
WSJ's Spencer Jakab discusses why Robert Shiller's technique for deriving P/E ratios should get a second look. Photo: Getty Images.
But with the period between earnings seasons now under way and the S&P 500 back near its record high, investors may turn more attention to the stock market's overall health rather than just that of its components.
Many have quibbled with Yale professor Robert Shiller's use of a cyclically adjusted price/earnings ratio. Few can fault his timing in calling out perhaps the greatest stock mania of all time with the publication of "Irrational Exuberance" in the spring of 2000, though.
Mr. Shiller's technique uses a decade of inflation-adjusted earnings to derive a P/E ratio. That is in contrast to the more common practice of basing it on a year of analyst forecasts. By his measure, stocks now trade at 25.5 times earnings, 54% above the average going back to 1881.
Peaks in this measure have come before downturns in 1929, 2000 and 2007, but also many times in between. The Shiller P/E is thus no market-timing tool. Still, a look at the big picture should give pause.
The ratio is now in the top tenth of historical observations. Previously, at such levels, real compound annual changes in the S&P 500 have averaged negative 1.4% over the next 10 years. At the other extreme, the change has been a positive 6.4% when P/E ratios were in the cheapest tenth of observations.
Until recently, critics complained that the 10-year sweep of the Shiller P/E covered two market washouts, early and late last decade, which was unusual. That argument has expired now. But some still insist write-downs during the financial crisis skewed even a 10-year average P/E.
Furthermore, some Wall Street strategists argue that historically high profit margins at the moment are sustainable. Don't get complacent, though. Since profit margins also were inflated during the housing boom, the Shiller P/E actually might be understated.
Perhaps investment firms that were caught out by recent debacles are right this time and not the man who identified the housing and tech bubbles. Not just 14 but 140 years of market history say otherwise.
Where are you getting your 140 year history? And where are you getting your negative 1.4% and positive 6.4% 10-year returns?
Pointing Out the Obvious wrote:
agip wrote:the wsj had a short piece on CAPE today:
http://online.wsj.com/news/articles/SB10001424052702304026304579453841970603008Asked to define a bubble, some Wall Street wags say it is a bull market that an investor has missed.
WSJ's Spencer Jakab discusses why Robert Shiller's technique for deriving P/E ratios should get a second look. Photo: Getty Images.
But with the period between earnings seasons now under way and the S&P 500 back near its record high, investors may turn more attention to the stock market's overall health rather than just that of its components.
Many have quibbled with Yale professor Robert Shiller's use of a cyclically adjusted price/earnings ratio. Few can fault his timing in calling out perhaps the greatest stock mania of all time with the publication of "Irrational Exuberance" in the spring of 2000, though.
Mr. Shiller's technique uses a decade of inflation-adjusted earnings to derive a P/E ratio. That is in contrast to the more common practice of basing it on a year of analyst forecasts. By his measure, stocks now trade at 25.5 times earnings, 54% above the average going back to 1881.
Peaks in this measure have come before downturns in 1929, 2000 and 2007, but also many times in between. The Shiller P/E is thus no market-timing tool. Still, a look at the big picture should give pause.
The ratio is now in the top tenth of historical observations. Previously, at such levels, real compound annual changes in the S&P 500 have averaged negative 1.4% over the next 10 years. At the other extreme, the change has been a positive 6.4% when P/E ratios were in the cheapest tenth of observations.
Until recently, critics complained that the 10-year sweep of the Shiller P/E covered two market washouts, early and late last decade, which was unusual. That argument has expired now. But some still insist write-downs during the financial crisis skewed even a 10-year average P/E.
Furthermore, some Wall Street strategists argue that historically high profit margins at the moment are sustainable. Don't get complacent, though. Since profit margins also were inflated during the housing boom, the Shiller P/E actually might be understated.
Perhaps investment firms that were caught out by recent debacles are right this time and not the man who identified the housing and tech bubbles. Not just 14 but 140 years of market history say otherwise.
Where are you getting your 140 year history? And where are you getting your negative 1.4% and positive 6.4% 10-year returns?
if you look above you'll see a reference to 1881 I suppose you go badk to 1871 when the first 10 year period began - 1870 + 140 = 2011.
the 1.4 and 6.4 are also in the text.
For a interesting take on Schiller's CAPE check out Philosophical Economics.
http://philosophicaleconomics.wordpress.com/2013/12/13/shiller/
"For most of history, the Shiller Cyclically-Adjusted Price-Earnings ratio (CAPE) oscillated in a pseudo sine wave around a long-term (130 year) average of 15.30. It spent 55% percent of the time above the average, and 45% of the time below–a reasonable result for a metric that allegedly mean reverts. Since 1990, however, the metric has only spent 2% of the time below its historical average–98% of the time above.
The metric’s failure to mean-revert over the last 23 years hasn’t been for a lack of reasons. The period covered three recessions, two stock market crashes, and one bonafide financial panic–the likes of which hadn’t been seen since the Great Depression. Even in the worst parts of the 2008-2009 crash–at levels that we now look back on with nostalgia as the “buying opportunity” of our generation–the metric failed to provide an accurate valuation signal. In an inexcusable blunder, it basically called the market “slightly below fair value” (see the black circle).
If we’re being honest, there are only two possibilities. Either the “normal” levels of the metric have shifted significantly upwards over the last few decades, or the metric is broken. There is no other way to coherently explain why the metric has consistently failed to migrate towards its long-term average, or spend any amount of time below it, as it should do every so often in bear markets.
Which possibility is it? In my view, both. The Shiller CAPE, as constructed by its proponents, utilizes inconsistent data. In this piece, I’m going to explain the inconsistency in rigorous accounting detail, and then share the results of a modified version of CAPE that eliminates it. I’m also going to illustrate the distortion that changes in dividend payout ratios create for CAPE. Finally, I’m going to taunt the bears (slightly facetiously) and argue that valuations have probably reached a “permanently high plateau”, to borrow the famously fatal words of Irving Fisher in October 1929.
There is no question that the current stock market is more expensive than the averages of certain past eras–the 1910s, 1930s, 1940s, 1970s, 1980s, etc. Looking forward, long-term equity returns will obviously be lower than they were in those eras. But the market is not as expensive as the Shiller CAPE suggests. Moreover, there’s no reason to think that the valuations of those eras–distorted by world wars (1914-1918, 1939-1945, 1950-1953), gross economic mismanagement (1929-1938), and painfully high inflation and interest rates (1970-1982)–were somehow more “appropriate” than current valuations. The valuations in those eras were “appropriate” to the circumstances of those eras; we live in different circumstances".
la gente está muy loca wrote:
For a interesting take on Schiller's CAPE check out Philosophical Economics.
http://philosophicaleconomics.wordpress.com/2013/12/13/shiller/"For most of history, the Shiller Cyclically-Adjusted Price-Earnings ratio (CAPE) oscillated in a pseudo sine wave around a long-term (130 year) average of 15.30. It spent 55% percent of the time above the average, and 45% of the time below–a reasonable result for a metric that allegedly mean reverts. Since 1990, however, the metric has only spent 2% of the time below its historical average–98% of the time above.
The metric’s failure to mean-revert over the last 23 years hasn’t been for a lack of reasons. The period covered three recessions, two stock market crashes, and one bonafide financial panic–the likes of which hadn’t been seen since the Great Depression. Even in the worst parts of the 2008-2009 crash–at levels that we now look back on with nostalgia as the “buying opportunity” of our generation–the metric failed to provide an accurate valuation signal. In an inexcusable blunder, it basically called the market “slightly below fair value” (see the black circle).
If we’re being honest, there are only two possibilities. Either the “normal” levels of the metric have shifted significantly upwards over the last few decades, or the metric is broken. There is no other way to coherently explain why the metric has consistently failed to migrate towards its long-term average, or spend any amount of time below it, as it should do every so often in bear markets.
Which possibility is it? In my view, both. The Shiller CAPE, as constructed by its proponents, utilizes inconsistent data. In this piece, I’m going to explain the inconsistency in rigorous accounting detail, and then share the results of a modified version of CAPE that eliminates it. I’m also going to illustrate the distortion that changes in dividend payout ratios create for CAPE. Finally, I’m going to taunt the bears (slightly facetiously) and argue that valuations have probably reached a “permanently high plateau”, to borrow the famously fatal words of Irving Fisher in October 1929.
There is no question that the current stock market is more expensive than the averages of certain past eras–the 1910s, 1930s, 1940s, 1970s, 1980s, etc. Looking forward, long-term equity returns will obviously be lower than they were in those eras. But the market is not as expensive as the Shiller CAPE suggests. Moreover, there’s no reason to think that the valuations of those eras–distorted by world wars (1914-1918, 1939-1945, 1950-1953), gross economic mismanagement (1929-1938), and painfully high inflation and interest rates (1970-1982)–were somehow more “appropriate” than current valuations. The valuations in those eras were “appropriate” to the circumstances of those eras; we live in different circumstances".
just give me a flipping clue - what is your profession? You are the smartest person in the room.
the lack of mean reversion since 1990 is reassuring. But of course not completely - 25 years is a long time but the market can remain irrational longer than you can remain solvent. Or something like that.
agip wrote:
I subscribe to Meb Faber's newsletter - he puts out updates on all the countries of the world's capes.
Here are the 12 cheapest - all with CAPES 10.3 or lower. The US is the 2nd most expensive, at 25. That is a huge difference and worth exploiting, I think.
Greece
Russia
Ireland
Argentina
Italy
Hungary
Jordan
Austria
Lebanon
Czech
Portugal
Israel
obvi a few aren't investable - but the others you can buy an etf for. Lord I love etfs - before them you couldn't really do this strategy.
I'm not answering the OP's questions - but if anyone with a familiar name wants to have a discussion I'll be happy to participate.
Are the "cheap" countries deemed so on a straight comparison (absolute basis) to other countries? Or, is there some factoring in of each country's historical range & mean CAPE?
For example, let's say Lebanon's historical CAPE has ranged between a low of 5.0, and a high of 11.0, with a mean of 8.0. If it is currently at 11.0, that looks cheap on an absolute basis compared to a US CAPE of 15.0 (if the US was currently at 15.0). But, looking at each country's historical range, it doesn't look cheap.
So many words. So little intelligence
K55 wrote:
So many words. So little intelligence
No one expected you to understand.
Pointing Out the Obvious wrote:
K55 wrote:So many words. So little intelligence
No one expected you to understand.
Gibberish and psychobabble is not to be understood. It is meant to say nothing while conveying knowledge the speaker does not have.
How does one convey knowledge that they don't have?
Pointing Out the Obvious wrote:
How does one convey knowledge that they don't have?
Exactly.
On a site filled with dumb people, you still manage to stand-out in your sheer stupidity
K55 wrote:
Pointing Out the Obvious wrote:How does one convey knowledge that they don't have?
Exactly.
On a site filled with dumb people, you still manage to stand-out in your sheer stupidity
I appreciate that you included yourself in the "dumb people" assessment, though my guess is you don't realize that you did. Talk about stupid stand-outs.
Pointing Out the Obvious wrote:
K55 wrote:Exactly.
On a site filled with dumb people, you still manage to stand-out in your sheer stupidity
I appreciate that you included yourself in the "dumb people" assessment, though my guess is you don't realize that you did. Talk about stupid stand-outs.
Overly sensitive and whiny are not complementary attributes to stupidity my gray matter challenged inferior
K55 wrote:
Pointing Out the Obvious wrote:I appreciate that you included yourself in the "dumb people" assessment, though my guess is you don't realize that you did. Talk about stupid stand-outs.
I did not say you are overly sensitive or whiny. Nor did I say you are stupid....well, at least not before you called yourself stupid.
Overly sensitive and whiny are not complementary attributes to stupidity my gray matter challenged inferior
Pointing Out the Obvious wrote:
K55 wrote:So many words. So little intelligence
No one expected you to understand.
Actually, I did. K5 (or K55) is clearly the brightest person on this thread. A bit unbalanced perhaps, but far sharper than those who try to argue with him.