Long Term Investing Valuation and Timing Strategies

BEWARE BUYING HIGH SELLING LOW … AND HITTING REPEAT OVER AND OVER

The average investor underperforms virtually all other traditional asset classes, even when inflation increases are included. J.P. Morgan, comparing 20-year annualized returns by asset class, found the average investor rings in at 2.1% compared to the S&P 500 Index at 8.2%. This underperformance is largely attributed to behavioral finance, when emotions influence investment decisions. Fortunately, a disciplined approach to investing can help avoid that effect.

Vanguards Target Retirement funds are a good example of what to do (ignore the noise), here's an example:

Vanguard Target Retirement 2035 Fund Investor Shares

Over the past decade the fund averaged 5.07% yet its investors averaged 7.13% by staying the course and investing throughout.

 

the last line touches on time weighted vs money weighted returns....this is an interesting subject and a future discussion point!

 

The market doesn't distort itself, human interference does. The last sentence is powerful (across any investing/endeavour).

 

Is it time to head for the exits?

 

Or..

Stock market will rise 50 percent, esteemed economist says

 

r = Roll a dice
c = Flip a coin (tails = -1; heads = +1)

Tomorrow's percentage market change may be in the order of O(0.0001 x 10^r x c)

 

Just updating this, the US CAPE is now at 28

The US Historical Average since 1979 is 21.4

 

Then there's this:
Swedroe: This Metric In Dire Need Of Context | ETF.com

 

@austing

Good article, everything needs context i.e. Japan's Markets had such a high at their peak that the Japanese Historical Average since 1979 is around 43, whilst today's CAPE is around 26

Robert Shiller’s CAPE ratio averages inflation-adjusted earnings for markets over a ten-year period.

The below was a good read

Predicting Stock Market Returns Using the Shiller-CAPE:​

Also

Robert Shiller warns against dumping stocks because of the high 'CAPE' ratio

But Shiller himself is the first person to tell you to be wary of what CAPE may be signaling.

There is no clear message from all of this,” Shiller wrote in the New York Times in a lengthy piece warning about CAPE’s elevated level. “Long-term investors shouldn’t be alarmed and shouldn’t avoid stocks altogether.

To be clear, Shiller’s Times piece is about the many signs of an overheated market he sees. However, he has always gone out of his way to clarify that CAPE is only decent at predicting long-term returns, not short-term swings. (CAPE is bad at predicting 12-month returns, and it’s bad a predicting 3-year returns.)
​

 

Based on the analysis Australian stock market has an expected return for the next 10 to 15 years of 7.6% (incl. dividends).

Great to hear as this is inline with what I used in my modelling

 

Shiller CAPE Stock Market Expectations | StarCapital AG

 

I don't hold it myself, but the kids funds do

I recently read elsewhere the below:

Vanguard Australian Shares Index ETF (VAS) the average over the last seven years is 4.65% distributions and 2.36% capital growth. Assuming an average franking of 80%, the distributions are 6.24% unfranked

Vanguard Australian Shares High Yield ETF (VHY) the average over the last five years is 6.29% distributions and 6.19% capital growth. It's franking is all over the place, 70% is assumed as the average, the distributions are 8.17% unfranked

Vanguard U.S. Total Market Shares Index ETF (VTS) the average over the last seven years is 2.29% distributions and 15.28% capital growth. No franking​

 

Australia - Review

Figure 1 shows that, over the last 116 years, the real value of equities, with income reinvested, grew by a factor of 1948 compared to 6.8 for bonds and 2.2 for bills.



Figure 2 displays the long-term real index levels as annualized returns, with equities giving 6.7%, bonds 1.7%, and bills 0.7%.



Figure 3 expresses the annualized long-term real returns as premia. Since 1900, the annualized equity risk premium relative to bills has been 6.0%



Credit Suisse Global Investment Returns Yearbook 2016

 

Ok looking at this topic, and as this is a property forum and ....... TIMING STRATEGIES .....so why would savvy investors not be leveraging big time into property markets in Sydney and Melbourne in 2013 and still going strong??? Greater returns than shares and power of lvr ....
Not saying shares are bad but which will make more money during this period

 

That peculiar thing called peace of mind, which is a personal thing. Hard to define, assuming it's actually possible in a global sense. All depends on attitudes maybe, such as, deciding what is important in your life.

I continually invest and will always intend to but using property, the level of funds required for that, dealing with renters and their problems, legal aspects, etc, just isn't attractive for some people, me included.

Not always just about the method of making money in my opinion. Again, it's a personal thing and I'm always reticent about assuming attitudes or approaches to investing, including which asset class, should automatically be that of others. As always, ask 100 people and it's highly likely you'll get 100 different opinions. People are strange in that way. Maybe that's the only constant in all of this bizarre activity called investing.

 

shares also have the power of LVR. They don't attract stamp duty when purchasing, no marketing, insta buy/sell etc. Investing is personal and as satay put it, you also have to be happy with your choices - I have been a landlord and did not enjoy the "feel" of it.

 

The "feel" of it, more like the "pain in the arse" of it. My definition of "passive" investing is just that! Property comes with just way too much baggage to be considered passive. I've got better things to do in retirement than have to deal with such issues.

We've got just one more IP to be sold and that's it, no more investment property. Woohoo.

Personal view of course, others love the stuff.

 

Then there's

Can the ASX get out of the slow lane as global markets leave it in their dust?



The gap narrows markedly if you look at total returns when corporate Australia's generous distribution of dividends is thrown into the mix.

 

Your right you will definitely get 100 different opinions and I did not want to go down the road of which asset is better, its what works for the individual at the end of the day.

However, nothing wrong with burning and churning property, in other words buying in boom time and offloading prior to peak, taking the profits off the table never hurts.

Interesting point, many investing in shares have started with property and are accessing equity from property, once they go down this road it may be difficult to offload their properties??

MTR