Friday, June 3, 2016

Short Takes: Predicting Doom, Loving Lower Stock Prices, and more

Here are my posts for the past two weeks:

Dangers of Using the Rich as Role Models

Pensionize Your Nest Egg

Here are some short takes and some weekend reading:

Larry Swedroe explains why the Shiller cyclically adjusted price-to-earnings ratio (called CAPE 10) is not a good indicator of whether stocks are over- or under-valued. Other commentators use the CAPE 10 to predict imminent doom in the stock market.

Tom Bradley explains why we need to overcome our emotional reactions and learn to love market sell-offs. It’s amazing how our instinctive reactions to falling stock prices can be so incredibly wrong.

Preet Banerjee explains what he would tell his younger self about how to start off investing (video).

Dan Hallett points out how some fund advertisers are misleading investors with returns from F-series funds.

Boomer and Echo explain what’s behind car dealership offers to buy back your 3- to 5-year old car.

Canadian Couch Potato explains why he removed real-return bonds from his model portfolios.

My Own Advisor takes a run at comparing his investment returns to that of a benchmark. This is an important part of finding out whether a stock-picker’s hard work is producing any value.

Big Cajun Man says that people with some experience at failing to manage their own money well can help financial planners identify where their clients will run into trouble trying to follow a plan.

7 comments:

  1. It is always important to remember that all plans are "living entities" in that they will change and evolve with time (or die from neglect). Even if you start with a crappy plan, you may be able to fix it as you use it. Thanks for the inclusion and have a great weekend.

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  2. The big problem with financial plans (or any other type of plan) is that it most often is manipulated or "fixed" to suit the planee. In other words, it much easier to fix a "broken" plan rather than fix/evolve a broken investor. Better to blame a plan than yourself for failure, right? ;)

    Most people would benefit greatly on leaving the plan alone and focus on adjusting their behaviour instead.

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    1. @SST: There's a certain logic to tailoring a plan so that a given person is capable of following it. But I agree that the greatest gains come from modifying your behaviour. In my case, a spreadsheet decides all my investment moves (at least until I retire when I'll have to automate withdrawals). Now that I have the spreadsheet going, my only behavioural requirement is to not choose to overrule it.

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  3. The Shiller ratio is not enough on its own. You also need to use the Shiller-Bear Signal (aka S-BS). That is, when the CAPE can be used to claim that the market is going to crash then it is the most important indicator. At any other time it can be ignored.

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    1. @Richard: I've heard that these indicators have to be combined with the Peak Ostrich Signal (POS) and Capital Reflation Accrual Parity.

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    2. Exactly, when you want your results to give you the Lowest Observable Signal for Extreme Risk this is among the very best strategies.

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  4. Good article and reminder by Tom.

    Thanks for the mention - enjoy your weekend!
    Mark

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