'Diversification, Adaptation, and Stock Market Valuation'

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MotoTrojan
Posts: 643
Joined: Wed Feb 01, 2017 8:39 pm

'Diversification, Adaptation, and Stock Market Valuation'

Post by MotoTrojan » Fri May 19, 2017 6:59 pm

http://www.philosophicaleconomics.com/2017/04/diversification-adaptation-and-stock-market-valuation/

I found this articles method of looking at the risk-premium of stocks to bonds, and small-caps to total-market, pretty interesting. Uses a lotto-share approach to explain how indexing increases your likelihood of getting the market return, since the majority of stocks fail, and a select few have massive returns. This is all fairly intuitive, but I thought it was explained in a nice concise way.

It goes on to show a plot of the % of funds in index funds relative to Cape-Shiller PE10, and claims this justifies the higher valuations of the 21st century.

Thoughts? :sharebeer

AlohaJoe
Posts: 2338
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: 'Diversification, Adaptation, and Stock Market Valuation'

Post by AlohaJoe » Fri May 19, 2017 9:32 pm

Previously discussed here viewtopic.php?t=216084 (Though not much of a discussion. Remember the bike shed principle!)

It also gets mentioned occasionally in threads about valuations and "are things overpriced".

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