A note of caution from Robert Shiller

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garlandwhizzer
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A note of caution from Robert Shiller

Post by garlandwhizzer »

Amidst the optimism demonstrated by multiple new highs in US equity markets, Robert Shiller sounds a message of caution. Comments?
The Dow is up only 19% in real (inflation-adjusted) terms since 2000. A 19% increase in 17 years is underwhelming, and the national home price index that Case and I created is still 16% below its 2006 peak in real terms. But hardly anyone focuses on these inflation-corrected numbers.

In the US, the combination of Trump and a succession of new asset-price records – call it Trump-squared – has been sustaining the illusion underpinning current market optimism. For those who are not too stressed from having taken extreme positions in the markets, it will be interesting (if not profitable) to observe how the illusion morphs into a new perception – one that implies very different levels for speculative markets.
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beardsworth
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Re: A note of caution from Robert Shiller

Post by beardsworth »

garlandwhizzer wrote:Robert Shiller sounds a message of caution.
I'm assuming the quoted passage in your opening post may be part of some longer commentary. Are you able to furnish a link?
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ray.james
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Re: A note of caution from Robert Shiller

Post by ray.james »

Link to the original article? would love to read it.

My View- Extreme positions in the market is what starts a bubble! I am cautiously optimist rather than careful pessimist at this point. If the tax laws do change, the P/E has to be adjusted and the current runup would be as if never happened due to change in corporate tax laws.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939
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nedsaid
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Re: A note of caution from Robert Shiller

Post by nedsaid »

garlandwhizzer wrote:Amidst the optimism demonstrated by multiple new highs in US equity markets, Robert Shiller sounds a message of caution. Comments?
The Dow is up only 19% in real (inflation-adjusted) terms since 2000. A 19% increase in 17 years is underwhelming, and the national home price index that Case and I created is still 16% below its 2006 peak in real terms. But hardly anyone focuses on these inflation-corrected numbers.

In the US, the combination of Trump and a succession of new asset-price records – call it Trump-squared – has been sustaining the illusion underpinning current market optimism. For those who are not too stressed from having taken extreme positions in the markets, it will be interesting (if not profitable) to observe how the illusion morphs into a new perception – one that implies very different levels for speculative markets.
Garland Whizzer
What we are seeing is a reversion to the mean. In early 2000, forward P/E's based on future estimated earning were about 32 and P/E's based on trailing earnings were about 45. Today, the numbers are about 20 and 25-27.

We are seeing optimism but not euphoria. My perception is that valuations are "stretched" but not irrationally so. It is probably a good time to rebalance if you haven't done so.
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irish17
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Re: A note of caution from Robert Shiller

Post by irish17 »

so would this be a bad time to start investment?
thanks for your considerations.
irish
Caduceus
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Re: A note of caution from Robert Shiller

Post by Caduceus »

The extracted passages sound rather schizophrenic. The first paragraph states that the stock market has had an underwhelming performance in real terms (which suggests it is poised for better long-term growth, no?) But then the second paragraph says investors are now overly optimistic about the future.

What exactly does this mean: "For those who are not too stressed from having taken extreme positions in the markets, it will be interesting (if not profitable) to observe how the illusion morphs into a new perception – one that implies very different levels for speculative markets." The article needs an editor.
rockonhumblepie
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Re: A note of caution from Robert Shiller

Post by rockonhumblepie »

Rebalance indeed! This from a MarketWatch article last month.
Schiller Ratio is around mid-20's right now.

I've road the market out for last 30yrs with stay the course,but being acouple years from drawing on my tIRA I went to Target Income there and Balanced Index in my Roth.No taxable account.In affect moved up my IPS a couple years.

I don't spook easy... but I'm very uneasy these days. :shock:
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CULater
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Re: A note of caution from Robert Shiller

Post by CULater »

rockonhumblepie wrote: I don't spook easy... but I'm very uneasy these days. :shock:
Me too, so I bought some gold. Helps me to hang on a little while longer. But if CAPE hits 30, I'm outta here! (currently 28.34)
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Fundhunter
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Re: A note of caution from Robert Shiller

Post by Fundhunter »

irish17 wrote:so would this be a bad time to start investment?
thanks for your considerations.
irish

No such thing!
jb100
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Re: A note of caution from Robert Shiller

Post by jb100 »

"A 19% increase in 17 years is underwhelming": where does Prof. Schiller get that number?

Dow closed at 11357 on Jan 3, 2000. From 2000 to 2016, inflation multiplier is 1.39. Assume Dow index Prof Schiller used at the time of his article is 20000,

20000/(11357*1.39) = 1.127

So I get 12.7%. But: this ignores dividend! If a 2% dividend is included, the increase is a more respectful 74%

20000*(1.02)^16/(11357*1.39) = 1.74
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greg24
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Re: A note of caution from Robert Shiller

Post by greg24 »

The numbers he cites says more about the conditions in 2000 and 2006 than they do 2017.

Though I do agree that the equity markets are richly valued.
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CULater
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Re: A note of caution from Robert Shiller

Post by CULater »

Best I can figure is that Shiller is referring to the total price return over the last 17 years (inflation adjusted), which is actually about 23.7% from Jan, 2000 to Jan 2017, which is an annualized real return of 1.26% . Total real return with dividends reinvested is about 85.9%. However, the reinvested dividends would have to be counted as invested capital to figure your ROI.
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Re: A note of caution from Robert Shiller

Post by AlohaJoe »

CULater wrote:Best I can figure is that Shiller is referring to the total price return over the last 17 years (inflation adjusted), which is actually about 23.7% from Jan, 2000 to Jan 2017, which is an annualized real return of 1.26% . Total real return with dividends reinvested is about 85.9%. However, the reinvested dividends would have to be counted as invested capital to figure your ROI.
I posted this is another thread yesterday; some variant of it is what Shiller seems to be talking about.

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Re: A note of caution from Robert Shiller

Post by selftalk »

Haven`t we been taught from "the master" J. Bogle to invest no matter what and "stay the course? " Why all this caution now ? Markets go up and markets go down so this is nothing new. Because the Shiller CAPE is high do we jump ship in other words MARKET TIME which we were taught on this very website can`t be done on any regular basis. If you have many asset classes then rebalance but remember that rebalancing works sometimes but not always. Look at the utube video of Wall Street Week when Philip Carret was on a number of years ago in the year 1995. Today`s bull market has been climbing a wall of worry for quite some time now. Why not go along with it and let compounding work in your favor instead of questioning the imponderables. Mr. Bogle said he cannot time the market with all of his experience and he doesn`t know anyone who knows anyone who can time the market."DON`T PEEK" may be the order of today now.
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jmndu99
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Re: A note of caution from Robert Shiller

Post by jmndu99 »

Is this piece written for someone who invests exclusively in the Dow (30) stocks?
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Re: A note of caution from Robert Shiller

Post by triceratop »

jmndu99 wrote:Is this piece written for someone who invests exclusively in the Dow (30) stocks?
Note: the DIA ETF (SPDR Dow Jones Industrial Average ETF) has outperformed both the total stock market and the S&P 500 since 1/1/2000.
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Re: A note of caution from Robert Shiller

Post by Boglegrappler »

I'll take Buffett's view over Shiller's any day.

Shiller doesn't seem to grasp that P/E ratios are reflecting both growth, and the ambient rates of return. For quite some time there has been precious little GDP growth, and that is why interest rates are so low. (Even larger growth companies have top line growth in the low single digits.)

His "cyclically" adjusted PE concept should be modified to reflect a more secular decline in growth, and longer economic cycles in an age where rather stupendous "safety" nets spread depressions over many decades instead of one or two. With rates where they are, P/E's are quite understandable. If your benchmark were the 10 year rate at 2.5% plus a 50% premium for equity risks, (3.75%), the right PE for a no growth stock would be 25+. Something with a little real growth would be far above that. And the market is far below that now. I'm not saying it will go lots higher, but its not in an irrational exuberance category as a whole.
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FIREchief
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Re: A note of caution from Robert Shiller

Post by FIREchief »

Cherry picking a (rotten cherry) start date and ignoring dividends quickly leaves me with little interest in whatever else he has to say.... :annoyed
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Re: A note of caution from Robert Shiller

Post by AlohaJoe »

jmndu99 wrote:Is this piece written for someone who invests exclusively in the Dow (30) stocks?
Boglegrappler wrote:I'll take Buffett's view over Shiller's any day.

Shiller doesn't seem to grasp that P/E ratios are reflecting both growth, and the ambient rates of return. For quite some time there has been precious little GDP growth, and that is why interest rates are so low. (Even larger growth companies have top line growth in the low single digits.)
FIREchief wrote:Cherry picking a (rotten cherry) start date and ignoring dividends quickly leaves me with little interest in whatever else he has to say.... :annoyed
It's clear none of these posters read the article because they've missed Shiller's entire point.

Shiller's point isn't to cherry pick dates or say that CAPE10 is too high.

His only point is: "Hey, don't make a big deal out of nominal price records like the DOW breaking 20,000. Inflation is a thing. You have to take it into account."

The reason he talks about the DOW being up 19% isn't because he thinks you should invest in the DOW. It's because the news was talking about the DOW breaking 20,000. He doesn't say a single thing about CAPE10 or valuations. He choses 2000 as the high water mark because that was the last nominal high water mark and the media is talking about DOW 20,000. He ignores dividends because the media was talking about the price index breaking 20,000.
From the actual article that clearly few actually read wrote:The US has a national policy of overall inflation. The US Federal Reserve has set an inflation “objective” of 2% in terms of the personal consumption expenditure deflator. This means that all prices should tend to go up by about 2% per year, or 22% per decade.
His only point is that we shouldn't be surprised when nominal price indexes go up by 22% per decade. Hence the "illusion" in the title of the article.
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Re: A note of caution from Robert Shiller

Post by Portfolio7 »

Not worried. If I bought and sold when the experts said, I'd be a poor man. Better to hold a diversified portfolio dialed in at your comfort level for risk.
"An investment in knowledge pays the best interest" - Benjamin Franklin
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Re: A note of caution from Robert Shiller

Post by FIREchief »

AlohaJoe wrote:
FIREchief wrote:Cherry picking a (rotten cherry) start date and ignoring dividends quickly leaves me with little interest in whatever else he has to say.... :annoyed
It's clear none of these posters read the article because they've missed Shiller's entire point.

He choses 2000 as the high water mark because that was the last nominal high water mark and the media is talking about DOW 20,000. He ignores dividends because the media was talking about the price index breaking 20,000.
So rather than helping to clear the media "smoke," he chose to build upon it?? I did read the entire article, but found more irrelevant political commentary than any meaningful (actionable?) financial information.
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Re: A note of caution from Robert Shiller

Post by anoop »

At the bottom of this page here:
http://www.zvibodie.com/marketindicatorsview

we have:
http://www.multpl.com/

It's not as bad as the dot com bubble.

Also dshort.com has said that periods of under- and over-valuation can persist for many years.

If you are a true boglehead, you pick an asset allocation and stay invested no matter what.

Otherwise, you can try timing the market. The most effective approach I have found so far appears to the Ivy portfolio. It just works off moving averages.

I too am a bit spooked about the markets.
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Re: A note of caution from Robert Shiller

Post by malabargold »

Didn't he issue one last year, the year before that,
etc?
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Re: A note of caution from Robert Shiller

Post by sperry8 »

triceratop wrote:
jmndu99 wrote:Is this piece written for someone who invests exclusively in the Dow (30) stocks?
Note: the DIA ETF (SPDR Dow Jones Industrial Average ETF) has outperformed both the total stock market and the S&P 500 since 1/1/2000.
Didn't check to see if that is true - nevertheless I don't find the Dow to be representative of the market. How can 30 US stocks be? Weird that he quotes the Dow as though it is. The Total World Market including emerging equities would be more representative of the market and it's value would be more appropriate.

Further, most people are also invested in cash/bonds which mitigate their risk/returns to stocks anyway.

As for Shillers point re inflation - I find it differs by household. For example, I have actually found deflation to hit mine. I have very little in the way of healthcare use (and thus costs) and have found my rental costs quite stable over the past 15 years. Re everything else, food, clothes, travel, electronics, etc. - I have found deflation. Now of course this is personal but one cannot just look at "inflation" adjusted returns. Those are generic and not personal. In many cases your inflation may be worse than 2% or in some like mine you may see it flat. Perhaps in some it is even negative.
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Re: A note of caution from Robert Shiller

Post by Valuethinker »

sperry8 wrote:
triceratop wrote:
jmndu99 wrote:Is this piece written for someone who invests exclusively in the Dow (30) stocks?
Note: the DIA ETF (SPDR Dow Jones Industrial Average ETF) has outperformed both the total stock market and the S&P 500 since 1/1/2000.
Didn't check to see if that is true - nevertheless I don't find the Dow to be representative of the market. How can 30 US stocks be? Weird that he quotes the Dow as though it is. The Total World Market including emerging equities would be more representative of the market and it's value would be more appropriate.
1. you have to look at total return, not just price return

2. the Dow changes in composition, and empirically it tracks the S&P 500 in the long run. A silly index, but not as silly as the raw facts of its composition would indicate.

If you look at what is in the Dow, you do get "representativeness" pretty well. Main problem was it didn't have Apple, when Apple was doing the vertical takeoff thing.

Further, most people are also invested in cash/bonds which mitigate their risk/returns to stocks anyway.

As for Shillers point re inflation - I find it differs by household. For example, I have actually found deflation to hit mine. I have very little in the way of healthcare use (and thus costs) and have found my rental costs quite stable over the past 15 years. Re everything else, food, clothes, travel, electronics, etc. - I have found deflation. Now of course this is personal but one cannot just look at "inflation" adjusted returns. Those are generic and not personal. In many cases your inflation may be worse than 2% or in some like mine you may see it flat. Perhaps in some it is even negative.
Inevitably it does (diverge from individual experience). However most of us wind up using healthcare at some stage in our lives-- at which point one may find an inflation index way above CPI U (Epipen! Insulin! ;-)).

Or we replace our car. Even if you are my father, and you only do so every 13 years, say, then at that point you will crystalize the change in price. Cars are a perfect example: they cost more every year BUT hedonic improvements in safety, comfort, handling, performance mean that the underlying thing is probably still deflating. You probably cannot buy a car now technologically equivalent to a new car 13 years ago-- they *all* have antilock brakes, passenger airbags, higher fuel economy, etc.

If you own your own home, rising purchase or rental costs of housing are fairly irrelevant BUT you have rising property taxes, utilities etc. And repairs & maintenance which certainly rise (at least) with inflation. And when you sell, the level of modernity on the house has a big impact on sale value-- a house which has not been renovated in 25 years will sell for a lot less than a newly renovated house. So, again, inflation creeps in there somewhere.

FWIW the Billion Price Index (based on internet prices scraped from websites) seems to track CPI U fairly well.
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Re: A note of caution from Robert Shiller

Post by Call_Me_Op »

Unless you are trying to time the market, this (or other opinions on asset prices) should not matter.
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Re: A note of caution from Robert Shiller

Post by selftalk »

I`d be willing say that Robert Schiller cannot time the market any better than anyone else except by sheer luck once in a while. He tell us it`s high. Ok it`s higher than it was before but what`s next ? No one knows but these "experts" keep sounding alarms of warning on a regular basis. I wonder what they do with their own investments. Most likely no changes if they`re smart. The 3 fund portfolio beat the multi million dollar and multi billion dollar endowment funds over the last 1, 3 and 5 years. What does that say about the "experts" warnings of both euphoria and doom forecasts all the while viewing the most costly financial software created. Keep the faith and keep adding to your well thought out allocation no matter what and find something else to do with your time as you refuse to listen to the Wall Street propaganda.
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Re: A note of caution from Robert Shiller

Post by willthrill81 »

selftalk wrote:I`d be willing say that Robert Schiller cannot time the market any better than anyone else except by sheer luck once in a while. He tell us it`s high. Ok it`s higher than it was before but what`s next ? No one knows but these "experts" keep sounding alarms of warning on a regular basis. I wonder what they do with their own investments. Most likely no changes if they`re smart. The 3 fund portfolio beat the multi million dollar and multi billion dollar endowment funds over the last 1, 3 and 5 years. What does that say about the "experts" warnings of both euphoria and doom forecasts all the while viewing the most costly financial software created. Keep the faith and keep adding to your well thought out allocation no matter what and find something else to do with your time as you refuse to listen to the Wall Street propaganda.
I'll be the first to admit that Schiller's CAPE ratio has some predictive validity of market returns in certain asset classes. But does it have enough predictive validity to justify trying to time the market? I've not seen adequate evidence in support of that strategy (Note: Todd Tresidder from http://www.financialmentor.com claims that it does, but he has not yet provided details on his analysis and/or model). Schiller claims that after the 2000 evaluations were so high that the following decade should merely languish. While the S&P 500 had a CAGR of about .35% from 2000 to 2010, small cap value equities had a CAGR of 9.14%. So even if CAPE can predict large cap performance, it certainly doesn't seem to be very good at other asset classes.
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Re: A note of caution from Robert Shiller

Post by cherijoh »

Fundhunter wrote:
irish17 wrote:so would this be a bad time to start investment?
thanks for your considerations.
irish

No such thing!
But it might not be the best time to lump sum a large amount of money into the market.
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Re: A note of caution from Robert Shiller

Post by willthrill81 »

cherijoh wrote:
Fundhunter wrote:
irish17 wrote:so would this be a bad time to start investment?
thanks for your considerations.
irish
No such thing!
But it might not be the best time to lump sum a large amount of money into the market.
It might or might not. Vanguard did a big analysis of lump sum vs. dollar cost averaging and found lump sum investing to be superior in terms of returns about 2/3 of the time.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: A note of caution from Robert Shiller

Post by cherijoh »

willthrill81 wrote:
cherijoh wrote:
Fundhunter wrote:
irish17 wrote:so would this be a bad time to start investment?
thanks for your considerations.
irish
No such thing!
But it might not be the best time to lump sum a large amount of money into the market.
It might or might not. Vanguard did a big analysis of lump sum vs. dollar cost averaging and found lump sum investing to be superior in terms of returns about 2/3 of the time.
But I'd being willing to bet that it's less likely to be superior when the market indices have hit all time highs and we haven't had a significant correction in over a year.
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Re: A note of caution from Robert Shiller

Post by willthrill81 »

cherijoh wrote:
willthrill81 wrote:
cherijoh wrote:
Fundhunter wrote:
irish17 wrote:so would this be a bad time to start investment?
thanks for your considerations.
irish
No such thing!
But it might not be the best time to lump sum a large amount of money into the market.
It might or might not. Vanguard did a big analysis of lump sum vs. dollar cost averaging and found lump sum investing to be superior in terms of returns about 2/3 of the time.
But I'd being willing to bet that it's less likely to be superior when the market indices have hit all time highs and we haven't had a significant correction in over a year.
Market timing?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: A note of caution from Robert Shiller

Post by MnD »

The CAPE ratio has signaled that equities were overvalued in no fewer than 416 of 422 months between 1981 and 2015 in no small part due to accounting changes that systematically affected the computation of S&P 500 earnings. I've been investing since 1986 and had I paid any attention to Shiller/CAPE in any decisional sense, I'd be much a much poorer man.

http://dx.doi.org/10.2469/faj.v72.n3.1

The Shiller CAPE Ratio: A New Look
Jeremy J. Siegel
Financial Analysts Journal, May/June 2016, Vol. 72, No. 3:41-50.
The CAPE ratio is a very powerful predictor of longterm real stock returns. But because of changes in the way GAAP earnings are calculated, particularly with respect to mark-to-market mandates, the use of S&P 500 reported earnings in CAPE calculations biases CAPE ratios upward and forecasts of real stock returns downward. In this research, I take no position on whether the recent changes in accounting conventions are “right” or whether current earnings are too high or too low relative to some “true” value. Accurate evaluation of the CAPE model requires that the earnings series used observe consistent and uniform conventions across time, and the reported earnings series computed by Standard & Poor’s does not conform to this requirement. The CAPE model estimated with corporate NIPA profits instead of the Standard & Poor’s reported earnings series exhibited higher explanatory power and forecast significantly higher stock returns.
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Re: A note of caution from Robert Shiller

Post by slowmoney »

Garland,

It seems that Robert Shiller is cherry picking. Picking the most outrageous dates (the data points 2000 and 2006) to merely bolster his argument. It is easy to throw bombs but then offer no alternatives. What are we suppose to invest in, cash? Then cherry pick our entry and exit of the stock market?

MnD wrote:
The CAPE ratio has signaled that equities were overvalued in no fewer than 416 of 422 months between 1981 and 2015
:oops:
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FIREchief
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Re: A note of caution from Robert Shiller

Post by FIREchief »

slowmoney wrote:Garland,

It seems that Robert Shiller is cherry picking. Picking the most outrageous dates (the data points 2000 and 2006) to merely bolster his argument. It is easy to throw bombs but then offer no alternatives. What are we suppose to invest in, cash? Then cherry pick our entry and exit of the stock market?
Exactly! It seems that once one of these clowns experts sees their name in published materials, it becomes some kind of addictive drug that "forces" them to go to more outlandish extremes to feel more of that magic elixir. Not sure who's interests are being served here, but I doubt it is the working stiff trying to figure out how to save enough for retirement. :annoyed
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Re: A note of caution from Robert Shiller

Post by selftalk »

I second that FIREchief.
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Re: A note of caution from Robert Shiller

Post by ignition »

cherijoh wrote:
willthrill81 wrote:
cherijoh wrote:
Fundhunter wrote:
irish17 wrote:so would this be a bad time to start investment?
thanks for your considerations.
irish
No such thing!
But it might not be the best time to lump sum a large amount of money into the market.
It might or might not. Vanguard did a big analysis of lump sum vs. dollar cost averaging and found lump sum investing to be superior in terms of returns about 2/3 of the time.
But I'd being willing to bet that it's less likely to be superior when the market indices have hit all time highs and we haven't had a significant correction in over a year.
If that is the case, why don't you sell your stocks and dollar cost average back in? In essence there isn't any difference between having a sum of money invested in stocks now, or having the same sum in cash and doing a lump sum investment.
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Re: A note of caution from Robert Shiller

Post by cherijoh »

ignition wrote:
cherijoh wrote:
willthrill81 wrote:
cherijoh wrote:
Fundhunter wrote: No such thing!
But it might not be the best time to lump sum a large amount of money into the market.
It might or might not. Vanguard did a big analysis of lump sum vs. dollar cost averaging and found lump sum investing to be superior in terms of returns about 2/3 of the time.
But I'd being willing to bet that it's less likely to be superior when the market indices have hit all time highs and we haven't had a significant correction in over a year.
If that is the case, why don't you sell your stocks and dollar cost average back in? In essence there isn't any difference between having a sum of money invested in stocks now, or having the same sum in cash and doing a lump sum investment.
Not the same at all - I have quite a bit of embedded capital gains in my taxable accounts.

I would definitely recommend DCA to a new investor with a lump sum in this market environment, since they are the most likely to panic and sell low. It isn't just the math, there is the behavioral psychology.
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Re: A note of caution from Robert Shiller

Post by Valuethinker »

slowmoney wrote:Garland,

It seems that Robert Shiller is cherry picking. Picking the most outrageous dates (the data points 2000 and 2006) to merely bolster his argument. It is easy to throw bombs but then offer no alternatives. What are we suppose to invest in, cash? Then cherry pick our entry and exit of the stock market?

MnD wrote:
The CAPE ratio has signaled that equities were overvalued in no fewer than 416 of 422 months between 1981 and 2015
:oops:
Be careful.

Siegel and Shiller have a long running debate. Just because Siegel says it is so, re Shiller, does not mean that he is right.
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Re: A note of caution from Robert Shiller

Post by ignition »

cherijoh wrote: Not the same at all - I have quite a bit of embedded capital gains in my taxable accounts.

I would definitely recommend DCA to a new investor with a lump sum in this market environment, since they are the most likely to panic and sell low. It isn't just the math, there is the behavioral psychology.
What if you DCA and the market tanks a year later just after you invested your last sum? Better to adapt your psychology and pick an asset allocation you can stick to imo. If stocks tank, great! Just rebalance and buy them cheaply (especially if you're still in the "accumulation phase" which is were most new investors are probably)
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Re: A note of caution from Robert Shiller

Post by Toons »

It all sounds like reasons to keep investing as much as you can as often as you can.
:happy
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Re: A note of caution from Robert Shiller

Post by azanon »

CULater wrote:
rockonhumblepie wrote: I don't spook easy... but I'm very uneasy these days. :shock:
Me too, so I bought some gold. Helps me to hang on a little while longer. But if CAPE hits 30, I'm outta here! (currently 28.34)
The potentially lucrative thing about today is, P/E 10s for US stock is sky-high, future returns of bonds are bleak (per yields), yet by virtually any valuation metric you can pick, international stocks are at worst, at historical average valuations, and many countries are well below average valuation. I noticed just yesterday looking at EFA (an EAFE index) has 0.64% 10-yr nominal return, and that return would include dividends so you can essentially get EFA for 10 years ago prices.

As for the immediate condemnation, that's timing talk, or market timing, the automatic condemnation confuses me because I'm aware that J. Bogle himself moved a significant portion out of stocks in the late 90s. Valuations do matter, and J. Bogle speaks of them all the time, in many interviews and even uses valuations to estimate future return.
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Re: A note of caution from Robert Shiller

Post by willthrill81 »

Toons wrote:It all sounds like reasons to keep investing as much as you can as often as you can.
:happy
I concur. Those who have a lump sump and choose to not invest it all at once are likely simply trying to time the market. And most of us know the likelihood of that strategy succeeding. There could be emotional motivations at work here as well, but those should be secondary to real data.

Remember, Vanguard found that lump sum investing beat dollar cost averaging 2/3 of the time across a wide variety of conditions. It wasn't even close.

"In this paper, we compare the historical performance of dollar-cost averaging (DCA) with lump-sum investing (LSI) across three markets: the United States, the United Kingdom, and Australia. On average, we find that an LSI approach has outperformed a DCA approach approximately two-thirds of the time, even when results are adjusted for the higher volatility of a stock/bond portfolio versus cash investments. This finding is consistent with the fact that the returns of stocks and bonds exceeded that of cash over our study period in each of these markets."
https://pressroom.vanguard.com/nonindex ... raging.pdf
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Re: A note of caution from Robert Shiller

Post by ignition »

azanon wrote:
CULater wrote:
rockonhumblepie wrote: I don't spook easy... but I'm very uneasy these days. :shock:
Me too, so I bought some gold. Helps me to hang on a little while longer. But if CAPE hits 30, I'm outta here! (currently 28.34)
The potentially lucrative thing about today is, P/E 10s for US stock is sky-high, future returns of bonds are bleak (per yields), yet by virtually any valuation metric you can pick, international stocks are at worst, at historical average valuations, and many countries are well below average valuation. I noticed just yesterday looking at EFA (an EAFE index) has 0.64% 10-yr nominal return, and that return would include dividends so you can essentially get EFA for 10 years ago prices.

As for the immediate condemnation, that's timing talk, or market timing, the automatic condemnation confuses me because I'm aware that J. Bogle himself moved a significant portion out of stocks in the late 90s. Valuations do matter, and J. Bogle speaks of them all the time, in many interviews and even uses valuations to estimate future return.
The late 90's were special. Stock valuations were much higher than today (PE of about 40 at the max?) and bonds were yielding a very decent return (6.5% on long term treasuries IIRC). It was very probable at that time that bonds would perform better over the coming decade.
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Re: A note of caution from Robert Shiller

Post by azanon »

ignition wrote:
azanon wrote:
CULater wrote:
rockonhumblepie wrote: I don't spook easy... but I'm very uneasy these days. :shock:
Me too, so I bought some gold. Helps me to hang on a little while longer. But if CAPE hits 30, I'm outta here! (currently 28.34)
The potentially lucrative thing about today is, P/E 10s for US stock is sky-high, future returns of bonds are bleak (per yields), yet by virtually any valuation metric you can pick, international stocks are at worst, at historical average valuations, and many countries are well below average valuation. I noticed just yesterday looking at EFA (an EAFE index) has 0.64% 10-yr nominal return, and that return would include dividends so you can essentially get EFA for 10 years ago prices.

As for the immediate condemnation, that's timing talk, or market timing, the automatic condemnation confuses me because I'm aware that J. Bogle himself moved a significant portion out of stocks in the late 90s. Valuations do matter, and J. Bogle speaks of them all the time, in many interviews and even uses valuations to estimate future return.
The late 90's were special. Stock valuations were much higher than today (PE of about 40 at the max?) and bonds were yielding a very decent return (6.5% on long term treasuries IIRC). It was very probable at that time that bonds would perform better over the coming decade.
So right, bonds was the obvious alternative move (from US stocks) in the late 90s. I briefly mentioned the obvious move now.

CAPE was certainly higher in late 99 for US stocks, but once you're at about 30, it's really high. To give you some idea of how high today's CAPE is, it was about 30 on Black Tuesday (1929), only 17.5 on Black Monday (1987), and was also slightly lower at the US peak in 2007 (I want to say it was about 27 or so peak).

Who knows, the US market might just continue to tear on for another decade, ala Japan's 20 year run-up. But I'm not going to bet heavy on that!
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Re: A note of caution from Robert Shiller

Post by selftalk »

This is some bull market ! It seems as if almost everyone has one foot out of the door because of valuations. Like Walter Morgan told J. Bogle years ago " nobody knows nutt`in." I have to keep on buying my VTI / VTSAX no matter what. I just close my eyes and fork over the money to Vanguard. What are you doing ? I hope you are following your Investment Policy Statement that was most likely made up when you were unemotional and paying NO attention whatsoever to those with the proverbial crystal ball.
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Re: A note of caution from Robert Shiller

Post by azanon »

I agree that's a good point made about the IPS. If you've had one for years, and it has the traditional heavy allocation to US stock, then you've done outstanding for the past 7 years or so. If I were in that boat, yeah sure just hold it forever and maintain discipline.

But I just drafted my new one since I moved back from Betterment (after they jacked up their prices), so I have the freedom (and sense) to draft one taking into consideration the investing climate as of 2017. I love a catchy phrase as much as anyone, but I think we know at least a little bit more than nothing. Taken to an extreme, if you really didn't know nothing, how would you know how to construct/design your portfolio in the first place?
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Re: A note of caution from Robert Shiller

Post by White Coat Investor »

garlandwhizzer wrote:Amidst the optimism demonstrated by multiple new highs in US equity markets, Robert Shiller sounds a message of caution. Comments?
What? A perma-bear is pessimistic? Weird.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
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Re: A note of caution from Robert Shiller

Post by am »

High valuations don't necessarily mean an impending crash or doom. Isn't low or average returns in the possibilities? I'll keep investing the same way I have for the last decade since it's worked. There are no good alternative for me at this point in my life.
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