HomerJ wrote: ↑
Sat May 11, 2019 4:34 pm
alex_686 wrote: ↑
Sat May 11, 2019 3:22 pm
Second, my last post kind of hung of the your use of "rebalance". Every single rebalance strategy that I know of requires you to input expected market returns.
You'll have to explain that.
Rebalancing requires zero prediction of expected returns.
If I want to be 50/50, and I creep up to 55/45, I sell stocks, and buy bonds until I'm back to 50/50. There's zero looking at expected returns there. I'm just reacting to what's already happened, not what I think is going to happen.
Are you talking about CHANGING one's Asset Allocation, like the OP is suggesting? That's not rebalancing. Maybe we're misunderstanding terms.
I don't think it is about misunderstanding terms, I think it is because I rely more on theory while you rely more on heuristics. My guess.
How do you come up with your AA? Why rebalance?
Every formal method and model that I know of to generate a AA or to reblance requires you to have a estimated market return. I mean, why do you say that reblanicng does not require you to have expected market returns? If you have no opinion of the market, then why rebalance?
At the core it comes down to min/max problem where you try to minimize risk while maximizing return, and the 2 are firmly linked - you can't talk about risk without talking about returns.
Which is why I think you are kind of flying by the seat of your pants.
Now, to extend this a bit, I do think that if your opinions change on market expectations then you should update your AA. I mean, if you are basing you AA and rebalance logic on the past 100 years of returns, obviously 1 years worth of data is not going to change anything. But what if you think the past 10 years has more weight than the past 100?
And to tie this back to the OP, you have to have a opinion on market expectations to form a AA. And I like CAPE. But it is for strategic long term planning, not tactical and short term.
Glamdring56 wrote: ↑
Sat May 11, 2019 10:36 am
I have not found an updated fair value CAPE source on the internet. Where can I find “this weeks” value of the fair market CAPE if I was so inclined?
I know that premium data sources can provide it, but why? CAPE 10 works off stale data. The last data point for most companies' earnings averages about 9 months. And CAPE 10 has a huge error margin built into its results. CAPE 10 is a cargo ship, not a speed boat. It does not handle fast turns in either earning or price well. What it does well is ignore the noise of the manic depressive market and focuses on long term trends.