CAPE-Based Robert Shiller Bought Italy and Spain Indexes in 2015

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letsgobobby
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Re: CAPE-Based Robert Shiller Bought Italy and Spain Indexes in 2015

Post by letsgobobby » Sun Sep 30, 2018 2:46 pm

marcopolo wrote:
Sun Sep 30, 2018 2:34 pm

1996 + 10 = 2006. Are you sure Homer was not correct?
If your point is that markets can drop 50% at any random time in the future, I agree with you, Homer J says so all the time as well.
But, that does not make the 1996 call any more correct.
1996 was very correct. I can't believe you can't agree to facts as they are.

AlphaLess
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Re: CAPE-Based Robert Shiller Bought Italy and Spain Indexes in 2015

Post by AlphaLess » Sun Sep 30, 2018 3:00 pm

duffer wrote:
Sat Sep 29, 2018 8:29 pm
In March 2015, Robert Shiller said publicly that he was buying indexes in Italy and Spain. He also said he wanted to get out of U.S. equities. He was basing his investment decision in significant part on the CAPE ratios for those countries.

More specifically, he told CNBC "I'm thinking about getting out of the United States somewhat. Europe is so much cheaper....What I have done is I've invested in Italy indexes, Spain index." (Source: https://seekingalpha.com/article/303137 ... make-sense)

Using the iShares Italy and Spain etfs (EWI and EWP) as measures of how these countries indexes have done, Shiller's investment would be down 7.16% in Italy and 15.33% in Spain (source: Morningstar, EWI and EWP from March 1, 2015 to September 28, 2018).

On the other hand, the IVV, representing the U.S. equities that he wanted to get out of, is up 38% over the same period.
Well, not even a Nobel prize qualifies someone to make predictions on the market.

In the world of investing, Robert Shiller qualifies as just one (uninformed) investor.
"A Republic, if you can keep it". Benjamin Franklin. 1787. | Party affiliation: Vanguard. Religion: low-cost investing.

Park
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Re: CAPE-Based Robert Shiller Bought Italy and Spain Indexes in 2015

Post by Park » Sun Sep 30, 2018 3:04 pm

letsgobobby wrote:
Sun Sep 30, 2018 2:04 pm
He was 4 years early with the dot-com prediction. He predicted ten-year 0% real return in 1996, 4 years before the actual crash.

The market more than doubled, then dropped 40%. It never got as low as it was in 1996.
The average price of the S&P500 in 1996 seems like it was ~675. The price on March 9 2009 was 675. This does ignore dividends. However, those were relatively low for the duration of this episode. During this period of 12.5 years, the investor experienced two massive bear markets of 40-60%. The S&P was simply a terrible investment given its near zero return and extraordinary volatility. An investor in nearly any other asset class - small, international, gold, treasuries, TIPS - did far better with less volatility.

Homer, I think your facts are not correct.
The above doesn't taken into account inflation. 675 in 1996 is not the same as 675 in 2009.

marcopolo
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Re: CAPE-Based Robert Shiller Bought Italy and Spain Indexes in 2015

Post by marcopolo » Sun Sep 30, 2018 3:07 pm

letsgobobby wrote:
Sun Sep 30, 2018 2:46 pm
marcopolo wrote:
Sun Sep 30, 2018 2:34 pm

1996 + 10 = 2006. Are you sure Homer was not correct?
If your point is that markets can drop 50% at any random time in the future, I agree with you, Homer J says so all the time as well.
But, that does not make the 1996 call any more correct.
1996 was very correct. I can't believe you can't agree to facts as they are.
Which facts are you talking about?
Shiller predicted 0% real for the next 10 years in 1996. The 10 year return was quite a bit higher than that. The fact that we then had another recession a few years after that does not change that fact. Are you suggesting Shiller was also predicting the 2008-2009 recession back in 1996, making the 14ish year return something closer to 0% real?

Oh, I guess there was that big drop in the early 2000's, maybe his prediction was about that, but as you admonished others, the race was not over yet at that time. By 2006, the broader market had recovered its losses, such that the inflation adjusted SP500 went from 1003 on 1/1/1996 to 1625 on 1/1/2006 (from multpl.com site), and I am pretty sure that does not include dividends.
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willthrill81
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Re: CAPE-Based Robert Shiller Bought Italy and Spain Indexes in 2015

Post by willthrill81 » Sun Sep 30, 2018 3:15 pm

marcopolo wrote:
Sun Sep 30, 2018 3:07 pm
letsgobobby wrote:
Sun Sep 30, 2018 2:46 pm
marcopolo wrote:
Sun Sep 30, 2018 2:34 pm

1996 + 10 = 2006. Are you sure Homer was not correct?
If your point is that markets can drop 50% at any random time in the future, I agree with you, Homer J says so all the time as well.
But, that does not make the 1996 call any more correct.
1996 was very correct. I can't believe you can't agree to facts as they are.
Which facts are you talking about?
Shiller predicted 0% real for the next 10 years in 1996. The 10 year return was quite a bit higher than that. The fact that we then had another recession a few years after that does not change that fact. Are you suggesting Shiller was also predicting the 2008-2009 recession back in 1996, making the 14ish year return something closer to 0% real?

Oh, I guess there was that big drop in the early 2000's, maybe his prediction was about that, but as you admonished others, the race was not over yet at that time. By 2006, the broader market had recovered its losses, such that the inflation adjusted SP500 went from 1003 on 1/1/1996 to 1625 on 1/1/2006 (from multpl.com site), and I am pretty sure that does not include dividends.
:thumbsup

Changing the end dates of the forecast post hoc seems, at best, like trying to force one's belief on the data.

I don't think that many would disagree with the notion that valuations do have some kind of impact on future returns. I certainly wouldn't. But there's a lot of distance between that and believing that one can reliably forecast precise rates of returns on precise periods of time (i.e. 0% over 10 years) using one valuation metric. No prediction where countless variables are involved can be that reliable on a consistent basis.
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HomerJ
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Re: CAPE-Based Robert Shiller Bought Italy and Spain Indexes in 2015

Post by HomerJ » Sun Sep 30, 2018 3:44 pm

letsgobobby wrote:
Sun Sep 30, 2018 2:04 pm
He was 4 years early with the dot-com prediction. He predicted ten-year 0% real return in 1996, 4 years before the actual crash.

The market more than doubled, then dropped 40%. It never got as low as it was in 1996.
The average price of the S&P500 in 1996 seems like it was ~675. The price on March 9 2009 was 675. This does ignore dividends. However, those were relatively low for the duration of this episode. During this period of 12.5 years, the investor experienced two massive bear markets of 40-60%. The S&P was simply a terrible investment given its near zero return and extraordinary volatility. An investor in nearly any other asset class - small, international, gold, treasuries, TIPS - did far better with less volatility.

Homer, I think your facts are not correct.
No, both our facts are correct.

1996 was the highest valuations, the highest CAPE since the Great Depression. The absolute worst time to invest in 70 years, by valuation experts, at the time. And yet, money invested that year has returned over 9% a year from 1996-2018, close to the historical average.

S&P 500 was around the 650-675 range most of 1996. It did indeed close at 679 on March 10th, 2009. One day. There were four total days in March 2009 it was below 700.

When I say prices have NEVER been lower than they were in 1996, I'm close enough to be considered correct. What's crazy is, again, those were the highest valuations in 70 years, AND it was still a decent time to buy stocks.

You are correct that 1996-2009 returns were not good. So yes, we're both correct.

Easy to do when talking finance, by adjusting the dates.

I just think that the past 22 years was actually EASIER for the buy-and-hold guy, than the valuations guy, and that's with 2 crashes.

Because, so far, the crashes come far later than everyone expects, they don't crash as far as they should (valuations remain high), and recently, the recoveries have been very fast.

The buy and hold person only questioned his commitment to his method twice for a couple of years each time.

The valuations guy has had to question his commitment to his method for most of the past 22 years. He gets out, stocks DOUBLE while he's sitting on the side-lines. Then, even when they crash, valuations stay high, they don't seem to crash far enough to becomes a good buy (by valuations standards), and suddenly they're heading back up again, for YEARS, and you're wondering if you've been sitting on the sidelines too long.
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HomerJ
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Re: CAPE-Based Robert Shiller Bought Italy and Spain Indexes in 2015

Post by HomerJ » Sun Sep 30, 2018 3:48 pm

Park wrote:
Sun Sep 30, 2018 3:04 pm
letsgobobby wrote:
Sun Sep 30, 2018 2:04 pm
He was 4 years early with the dot-com prediction. He predicted ten-year 0% real return in 1996, 4 years before the actual crash.

The market more than doubled, then dropped 40%. It never got as low as it was in 1996.
The average price of the S&P500 in 1996 seems like it was ~675. The price on March 9 2009 was 675. This does ignore dividends. However, those were relatively low for the duration of this episode. During this period of 12.5 years, the investor experienced two massive bear markets of 40-60%. The S&P was simply a terrible investment given its near zero return and extraordinary volatility. An investor in nearly any other asset class - small, international, gold, treasuries, TIPS - did far better with less volatility.

Homer, I think your facts are not correct.
The above doesn't taken into account inflation. 675 in 1996 is not the same as 675 in 2009.
Doesn't include dividends either, let's say they are a wash.

My point about 1996 is that it was, by valuations standards, EXTREMELY over-valued. Highest in 70 years... Never been higher except right before the Great Depression.

And yet, it was a pretty decent time to buy stocks. Prices have never been lower (okay there was a week in 2009) than they were at that extremely overvalued moment.

Is today 1996 or 2000? Or maybe even 1992? No one knows.

(And it should noted that even buying stocks in 2000 has returned a positive long-term real return - pretty nice that our worst case (so far) still gives you a long-term positive return).
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duffer
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Re: CAPE-Based Robert Shiller Bought Italy and Spain Indexes in 2015

Post by duffer » Sun Sep 30, 2018 4:21 pm

Basically, the CAPE is simply a mean reversion tool for earnings. There is nothing scientific about the choice of ten years, and the use of the ten year term actually makes the tool blunter and less precise rather than more prescient. One can (and most active investors do) look at the price-earnings ratio every day, and they can consider the day's P/E ration in comparison to a number of different P/E means, going back 50 days, 200 days, a year behind, a year forecast ahead, or many decades back if they like. I see no reason that using a 10 year average should contain more rather than less relevant information about where stocks are likely to move next. Giving it a capitalized acronym and the aura of a Nobel Prize makes it appear more scientific and special than it is.

In fact, it seems a little bit like making investment decisions by reading the Wall Street Journal from 10 years ago (I know I exaggerate--but it still makes the point).

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Re: CAPE-Based Robert Shiller Bought Italy and Spain Indexes in 2015

Post by Park » Sun Sep 30, 2018 4:39 pm

duffer wrote:
Sun Sep 30, 2018 4:21 pm
Basically, the CAPE is simply a mean reversion tool for earnings. There is nothing scientific about the choice of ten years, and the use of the ten year term actually makes the tool blunter and less precise rather than more prescient. One can (and most active investors do) look at the price-earnings ratio every day, and they can consider the day's P/E ration in comparison to a number of different P/E means, going back 50 days, 200 days, a year behind, a year forecast ahead, or many decades back if they like. I see no reason that using a 10 year average should contain more rather than less relevant information about where stocks are likely to move next. Giving it a capitalized acronym and the aura of a Nobel Prize makes it appear more scientific and special than it is.

In fact, it seems a little bit like making investment decisions by reading the Wall Street Journal from 10 years ago (I know I exaggerate--but it still makes the point).
Duffer, I beg to differ. Now I'm not saying that PE10 is better than PE5. But PE10 is better than using PE based on the last 50 days of data.

https://en.wikipedia.org/wiki/Cyclicall ... _Ratio.png

The above link compares PE10 to regular PE. For the vast majority of time, it doesn't make much difference. But at extremes of valuation it does. Compare PE10 to PE in 1920 or 1929 or 1932 or 1966 or 1999 or 2003 or 2009. PE10 is better than regular PE.

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Re: CAPE-Based Robert Shiller Bought Italy and Spain Indexes in 2015

Post by drk » Sun Sep 30, 2018 4:46 pm

duffer wrote:
Sat Sep 29, 2018 8:29 pm
In March 2015, Robert Shiller said publicly that he was buying indexes in Italy and Spain. He also said he wanted to get out of U.S. equities. He was basing his investment decision in significant part on the CAPE ratios for those countries.

More specifically, he told CNBC "I'm thinking about getting out of the United States somewhat. Europe is so much cheaper....What I have done is I've invested in Italy indexes, Spain index." (Source: https://seekingalpha.com/article/303137 ... make-sense)

Using the iShares Italy and Spain etfs (EWI and EWP) as measures of how these countries indexes have done, Shiller's investment would be down 7.16% in Italy and 15.33% in Spain (source: Morningstar, EWI and EWP from March 1, 2015 to September 28, 2018).

On the other hand, the IVV, representing the U.S. equities that he wanted to get out of, is up 38% over the same period.
I'm having a hard time understanding how this thread is supposed to be actionable. The implication appears to be that Professor Shiller is always wrong because he has been wrong about something in the past.

letsgobobby
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Re: CAPE-Based Robert Shiller Bought Italy and Spain Indexes in 2015

Post by letsgobobby » Sun Sep 30, 2018 5:41 pm

i guess if people interpret valuations so literally, it may explain why there is always someone who will justify higher valuations. the fact that very high CAPEs increase the likelihood of poor returns can be fully discounted because such poor returns did not occur on exactly the 3652nd day after such CAPEs were calculated. good luck to each of you. i’ll happily sell my high valued indices to you (and you will happily buy them), and we can both be satisfied..

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duffer
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Re: CAPE-Based Robert Shiller Bought Italy and Spain Indexes in 2015

Post by duffer » Sun Sep 30, 2018 6:23 pm

drk wrote:
Sun Sep 30, 2018 4:46 pm
duffer wrote:
Sat Sep 29, 2018 8:29 pm
In March 2015, Robert Shiller said publicly that he was buying indexes in Italy and Spain. He also said he wanted to get out of U.S. equities. He was basing his investment decision in significant part on the CAPE ratios for those countries.

More specifically, he told CNBC "I'm thinking about getting out of the United States somewhat. Europe is so much cheaper....What I have done is I've invested in Italy indexes, Spain index." (Source: https://seekingalpha.com/article/303137 ... make-sense)

Using the iShares Italy and Spain etfs (EWI and EWP) as measures of how these countries indexes have done, Shiller's investment would be down 7.16% in Italy and 15.33% in Spain (source: Morningstar, EWI and EWP from March 1, 2015 to September 28, 2018).

On the other hand, the IVV, representing the U.S. equities that he wanted to get out of, is up 38% over the same period.
I think Taylor said it best. See the second posting in the thread.
I'm having a hard time understanding how this thread is supposed to be actionable. The implication appears to be that Professor Shiller is always wrong because he has been wrong about something in the past.

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Re: CAPE-Based Robert Shiller Bought Italy and Spain Indexes in 2015

Post by LadyGeek » Sun Sep 30, 2018 6:44 pm

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