Long Term Investing Valuation and Timing Strategies

Austini

The fear and greed index attached, I hope you others enjoy.

 

Thanks @Intrigued_again.

Yes, now that sounds better. The message seems to be:
1. Buy in gloom when fear is high and dividend yield is well above average.
2. Make damn sure you never buy in boom.
3. Obviously never sell in gloom. In fact never sell quality assets at all unless they're no longer quality (it would seem from his earlier writings)?

Can't disagree with that.

Couldn't agree more. As stated in other posts I've never used a DRP in my life. Heavily discounted SPPs and Rights / Bonus issues will get my attention though.

Agree also. In our case we wouldn't own any in the first place.

Yes this is an increasing concern for many investors especially those investing in direct stocks. It almost seems to be happening at an exponential rate. This is an area requiring expertise to keep abreast of. All too hard for my little grey cells I'm afraid so I leave it to others that are more knowledgible than me to do this for us. And that knowledge applied to a widely diversified portfolio with a focus on dividends held for the long term lets us sleep well at night.

Investors in plain vanilla index products can rest well knowing structural change is automatically reflected in the constituents of the index. However they can't rest so easily when an index also automatically captures speculative excess when fads become bubbles.

Investors in the older LICs might be concerned at times that they are a bit slow to act on paradigm / structural change. But this reduces the risk of them getting caught up in speculative bubbles. But change they do. They've been doing it for 60, 70, 80 plus years. This is where our money is, not the index. They're not perfect (I don't like the Resource holdings for instance) but for this know-nothing investor it's a good enough plan to achieve our goals.

Not advice.

 

I note in the report he suggested the following in relation to Value Investors (direct shares as opposed to Index / passive):

The impression is this as being optional.

And great advice for "buy and hold" passive / index investors:

Excellent report reinforcing some common sense rules. Thanks again.

 

So to potentially sum up what Owen's is saying, the quote from the following article says it all:

PS: Should probably have started a separate thread as we have gotten off the subject of Thornhill.

 

Austini
Found another one you may like

 

Thanks @Intrigued_again.

However it seems you must like home brew as much as me as you posted that one last week:
Peter Thornhill (@Intrigued_again prior to w/e's home brew session)

Another great read it was thank you.

 

Reading $ 1 million for life by ashley Ormond, highly recommend it!

 

Sorry Austini

Not concentrating

 

Thank you Intrigued_again, very interesting analysis. I wonder how to get the updated ones for now or he no longer writes the newsletters?

 

Even better would be the ability to create the charts ourselves. One can then do their own analysis albeit not to the same professional level of Owens.

I've had a crack at it as it should be relatively easy. Unfortunately the free version of Incredible charts that I use isn't able to do it fully particuarly the SDev bands. I've used moving average envelopes (also tried Bollinger Bands) instead set at specific percentages as an inferior substitute. Setting up the long term moving average to estimate current fair value of XAO (all ords) is easy although the charts I'm using don't quite match those in the F&G reports. The data available in Incredible Charts only goes back to 1981 as opposed to 1875 in Owen's charts.

It is an excellent charting package however. There's a free version with some restrictions (some indicators unavailable and data delayed etc) but for longer term investors there's minimal impact.

Incredible Charts: Free Download - Stock Market Charting Software

 

Tried tradingview?

 

No, I'll check it out thanks.

 

Id check it out myself but I'm currently on my phone and don't want to touch the laptop till tomorrow.
I remember it having a broad selection of indicators - standard deviation bands may be one of them.

 

I'm very rusty on charting as it's been over 20 years since I used it frequently when trading. Just having a quick refresher now it seems Bollinger Bands should do the job. The indicator uses a simple moving average with standard deviation channel (upper and lower bands from the moving average). I can get 1, 2, 3, 4 SD's by adding the indicator four times with the different SD parameters. So Incredible Charts can do this.

So in theory the F&G index could be created using a weekly line chart (log) with multiple Bollinger band indicators. Parameters would be set to Periods: 120 months and Std Deviation: 1/2/3/4.

Not in front of the desktop now so will fiddle with this tomorrow.

@Intrigued_again, the expert on Owens, will hopefully jump in to let us know if I'm on the right track or not?

 

Quite the service you are providing austing, you'll need to charge subscription to your market timing service to cover the malt, hops and yeast.

I'm yet to complete looking at the different market valuation models, it's an interesting area. Owens model and CAPE/PE10 are trying to do the same thing really. You could also come up with your own around PE / PB / Div yield, Just want to get the the simplest solution that does the job.

Any will be superior to nothing, as what stands behind them is data rather than hype and emotion. Just reading about these models and their rationale puts the average punter in a better place to deal with market volatility. Owens historical Oz market commentary in itself is very helpful for Australian investors.

Well done

 

Who is this @Il Falco that sounds like someone we know

 

Decided to take a look at where the asx 200 is trading at in terms of NTM p/e div yield.
I can pull this easily for other indices/stocks/valuation metrics so let me know

source: FactSet

 

Excellent and common sense response thanks @Il Falco. Of course I'd expect nothing less from someone like yourself.

First up Incredible Charts must have a bug in it's Bollinger Band's code. It went crazy trying to plot such as long time period. I'm probably the only person on the planet who's tried to use 10 years (120 months) for this indicator . A similar indicator Moving Average Envelope works fine. These are very similar except MAE uses static percentages whereas the more sophisticated Bollinger Bands uses Standard Deviation to plot the channel.

In the trading world these indicators are from memory used to indentify overbought and oversold conditions and potential reversal points. In conjunction with momentum indicators like Relative Strength and other indicators they have the potential for the makings of a decent trading system. Technical Analysts and chartists please correct me if I'm incorrect as I'm damn rusty on all this stuff from my trading days.

But for investors reading this who think we've lost the plot let's just remember that all we're trying to do to start with is roughly identify current fair value for the market. There are countless ways to do this as @Il Falco pointed out such as CAPE/PE10, P/E, PB and dividend yield.

With fair value roughly known one can then make a judgement whether the market is expensive or cheap. Things like Standard Deviation bands provide greater guidance as to just how overbought and oversold the market has become.

Then a knowledge of history including the value of such things as PE, PB, Dividend yield at the bottom of crashes can signal rare buying opportunities and potential for reversal.

Importantly at the heart of all this is reversion to the mean. And of course due to fear and greed the more the market stretches in one direction the more likely it is to snap back in the other.

But obviously there's no magic system that can pick the precise tops and bottoms in the market. It's all a probabilities game.

I think it's useful to have some simple guide to fair value to help one know when the market has gone crazy in booms. The investor can then make a decision to be cautious and choose to lighten up on buying or stand aside.

In summary, buy regularly when the market is within a sensible range of fair value, stand aside during the the stronger stages of a boom and buy aggressively in busts (but don't rush, average in).

One could do their head in trying to fine tune timing systems but if all we amateur investors achieved is the following stated by Owen's himself the result ain't too bad at all:

And a reminder of my favourite quote:
"The enemy of a good plan is the dream of a perfect plan".

Usual warning of Not Advice, just the ramblings of an amateur investor.

PS: I must get all this stuff unrelated to Thornhill moved to a separate thread. If Thornhill sees this he'll be sending me a letter bomb.

 

No, no. Don't say that @Anne11. If you knew who he was he'd have to kill you. Remember this is no ordinary man you're dealing with. Be afraid, very afraid!

 

Just had a quick glance thanks @mc123. That looks excellent and very useful in the context of this discussion. Thank you.