No problem. I'm not making a value judgment about someone using Shiller PE or any other market factor as a prognostic indicator of where they believe markets are heading in the near or the distant future. I was just perplexed by the conflict between the original statement about not using CAPE to time the market but using it to change AA. As a definitional matter, that just struck me as timing the market.Well even if it is market timing, is that necessarily bad? Is allocating based on what the market landscapes present “market timing”?But if you change your asset allocation in response to a market factor, rather than in response to a personal change in need or circumstance, isn't that the very definition of market timing? Does it make a difference whether you believe the market factor will effect stock prices in coming years/decades versus coming days/weeks/months? I'm not offering an opinion on whether shifting one's stock allocation in response to the Shiller PE is a good idea or not, I'm just curious as to how this isn't market timing even if it's based on "long term expectations."No, because on short horizons PE is not very useful, but it’s one of the better indicators for setting long term expectationsAren't these two statements contradictory?Shiller PE should not be used to time the stock market...I am much more conservative today given the high Shiller PE.
If my investment statement says I expect 4-6% real returns on stocks, and a CAPE metric used in an overall model (like Vanguard’s) expects 1% for US TSM, why can’t I aggressively shift into assets with higher expected returns (like value or international) and patiently wait for over a decade?
If the market corrects and valuations come down, you can rebalance back into the new market reality.
It’s not like you’re going all into cash; you’re still in equity, just a gradual shift to riskier equities with higher discount rates
For my part, I'll continue to base my AA solely on my own personal needs and circumstances primarily because I'm convinced that I'll never have the insight, time, confidence, or depth of knowledge to do otherwise. Even if I fully understood the prognostic nuances of CAPE, there's probably myriad other important variables that I'd miss. Many people on this forum, however, have much greater expertise than me, and their more reactive market timing approaches and other strategies may very well outperform me. They should, of course, follow their own informed judgment.
Statistics: Posted by Rocinante Rider — Sun Oct 06, 2024 8:15 pm — Replies 85 — Views 5978