tag:blogger.com,1999:blog-5465015914589377788.post3867924688268978659..comments2024-03-20T09:32:16.592-04:00Comments on Michael James on Money: Short Takes: Dynamic Asset Allocation, Canadian Bank Profits, and moreMichael Jameshttp://www.blogger.com/profile/10362529610470788243noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-5465015914589377788.post-51980822557882797362021-12-19T18:59:36.168-05:002021-12-19T18:59:36.168-05:00Anonymous,
I guess that depends on the what the n...Anonymous,<br /><br />I guess that depends on the what the new measure predicts. I know people try to use CAPE to predict future stock returns. However, I'm using it more to predict the likelihood and severity of a stock market crash. For example, at the time I retired in mid-2017, I decided that it would be sensible to consider a 25-30% stock crash the day after I retired as a possibility for planning whether I had saved enough. If I were retiring today, I'd assume 40% or larger stock decline.<br /><br />The Excess CAPE Yield (ECY) is an interesting way to compare stocks to 10-year bonds. Because long-term bonds are such an unbelievably bad deal right now, I'm not surprised they make stocks look good. In my case, I don't invest in long-term bonds. My portfolio consists of stocks and essentially cash. As the CAPE gets high, I shift slowly towards cash. But this shift is quite subtle -- no sudden "high conviction" moves. I'd be open to using a different measure than the CAPE for this, but it would have to have a very good story. There is too little independent return data in the world's history to rely much on statistics.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-58185472912149732332021-12-19T18:15:50.877-05:002021-12-19T18:15:50.877-05:00Hi Michael,
Would you change CAPE in your VAA cal...Hi Michael,<br /><br />Would you change CAPE in your VAA calculation if a more predictive metric came along? For example, Shiller himself has recently developed something called ECY (Excess CAPE Yield) which corrects for interest rates. He claims that this makes stock look attractive in the current environment.<br /><br />https://www.forbes.com/sites/danrunkevicius/2021/12/28/the-stock-market-is-the-cheapest-since-1980/?sh=1c0bd7c552beAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-19415497472382656142021-12-18T09:07:38.787-05:002021-12-18T09:07:38.787-05:00Hi Leo,
High stock prices are less serious for so...Hi Leo,<br /><br />High stock prices are less serious for someone who is still working and contributing to a portfolio than they are for someone who is retired. If I were still working, I'm not sure whether I would have tried to adjust for the high CAPE, and even if I did, I'm not sure what that adjustment would have looked like.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-73351653052856070142021-12-18T08:32:51.799-05:002021-12-18T08:32:51.799-05:00But I can see your point and once I am out of the ...But I can see your point and once I am out of the building phase, adjusting my ratios of fixed income/stocks based on CAPE will likely be integrated into my strategy.Leohttps://www.blogger.com/profile/03658565995484477330noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-25126139237631317652021-12-18T08:29:39.813-05:002021-12-18T08:29:39.813-05:00Right now I am in my building phase of my portfoli...Right now I am in my building phase of my portfolio. Two things: 1) I do have some preferred ETFs for fixed income, but no bonds at the moment. 2) My ratios to keep my portfolio balanced and diversified is maintained as part of my spreadsheet.<br />So every month when I buy, the spreadsheet has calculated how much and what I should buy to bring my portfolio back to the ratios I have set.<br />So I don't look at CAPE really, but my spreadsheet does make me buy less of the things where price has gone up... kinda factoring that in, without actually looking at CAPE. But I am really just looking at the raitos and moving the portfolio steadily towards what I have set.Leohttps://www.blogger.com/profile/03658565995484477330noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-36941842376555572192021-12-17T14:43:09.176-05:002021-12-17T14:43:09.176-05:00The question I'd like to hear answers for is &...The question I'd like to hear answers for is "Is there a CAPE level where you would reduce your allocation to stocks?"Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-10450534466454400252021-12-17T14:41:30.807-05:002021-12-17T14:41:30.807-05:00Hi Leo,
That's certainly a possibility. If s...Hi Leo,<br /><br />That's certainly a possibility. If stocks trade sideways for a while as corporate profits rise, this will lower the CAPE, and my strategy will offer no advantage. It's if stocks decline significantly that my VAA protects my current gains.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-70817681067033298022021-12-17T14:11:05.050-05:002021-12-17T14:11:05.050-05:00My thoughts are while there have been some jumps i...My thoughts are while there have been some jumps in the CAPE, there have also been jumps in inflation. And I wonder if once the dust settles, that inflation will raise the profits of companies which will lower the CAPE. <br /><br />Obviously this may take a little time, but I still feel like it will help balance things out. Leohttps://www.blogger.com/profile/03658565995484477330noreply@blogger.com