Long Term Investing Valuation and Timing Strategies

Thank you @Il Falco . Very interesting reseach, in summary PB and CAPE are good indicators to see if the market is overvalued or not. This report is as of Dec 2015, and the US market is already high in valuation, so it would be a lot higher now compared to 2015.

 

@Il Falco says:

I think the following example might be an instance of this albeit I wouldn't have known at the time. I was too busy buying to look.

Take AFI which is generally the most expensive of the LICs. And here's me with ears pinned back buying where the arrows are. I went too hard too early during the initial GFC crash (NTA also at a premium) but cashed up again I caught most of the subsequent bear market buying opportunities. Other LICs less popular and smaller with greater discounts to NTA (huge in some instances) offered substatially better buying opportunities. I went even more crazy buying a number of them. These are the times us Contrarian investors dream of.

Match the timeline of the green arrows (where I went on a LIC buying spree ) on AFI's price chart with It's NTA discount for the same date range:

AFI's Price Chart:


AFI's NTA Chart:


Believe me when these situations arise you won't need any indicators to know these are incredible buying opportunities. Indicators and tools as discussed previously may however reduce the probability of exhausting one's cash / LOCs too soon. Watching great opportunities from the sidelines because you've run out of funds to invest is a bit depressing.

And of course this is an extreme example and not what @Il Falco was specifically meaning. One needs a guide for the rest of the time as well.

Given the heat wave coming through I expect to be inside again entertaining myself playing around with these things. Thanks all for your ideas.

A deep bear market AND LICs at a discount to NTA, doesn't get any better than that. Please, please Mr Market can we do this again.

 

Yes, another excellent point thanks. One could try to apply these criteria at the index level as you suggest.

I was reading the other day that Smart Beta is gaining more support so I expect there to be some very interesting developments in this area going forward:

Smart beta to top 2017 ETF trends

 

Other thing I was wondering is if payout ratios have gone up in recent years. That would certainly distort the yield but otherwise I think it's a decent guide.

 

Yes, great point. However throughout history I don't think it's been uncommon for companies to try to support dividends through higher payout ratios at certain times. Historians might like to comment. That's why I said I don't apply the rules rigidly. You still need to consider the current environment. Some involvement of the little grey cells is recommended otherwise we have no edge over a simple computer algorythm. Ummmm, perhaps that's not a bad thing for some investors. Maybe even for me.

 

I've only recently started getting interested in shares (just happened to stumble across the LIC's thread) and now I'm hooked on learning everything there is to know about it all, seems like a great investment tool, one that I never gave much thought to previously. I'm up to date with this thread (albeit didn't understand everything lol) and now need to get through the LIC's one. Look forward to contributing when I can, will mostly be asking questions. Now off to buy Peter Thornhill's book

 

Further to @Il Falco (the CAPE'd Crusader) raising Shiller's CAPE/PE10 as a valuation tool here's a useful link providing CAPE and other useful Fundamental data for international markets including Australia:

Global Stock Market Valuation Ratios (Shiller PE, CAPE, PB...)

Also useful:

Shiller CAPE Stock Market Expectations | StarCapital AG

 

Vanguard’s Total Stock Market Index (VTSMX) is up nearly 100% over the last 5 years and a lot more looking back further, there's always new highs being reached



Looking at some of Vanguards funds on the ASX the last 3 months have had a good run and over the year VAS (ASX300) is up 15% with VTS, VGS, VEU all below that

I'll be adding some funds to laggards over the coming week

 

Here is the rub with optimizing:
"I am not buying, it is above my fandangle indictors it is over valued, have a look at the chart it shows how much it has grown already"


"Wow, see I told you so, way over valued look at the fall on the chart, I am glad my fandangle indicators kept me out of it"

"Wow, those people who are buying that are idiots, look how over valued it is now"

"Wow they are idiots"

"Wow, what a bunch of idiots"

"Wow, I told you so"

"Poor bustards, look how much money they would have lost"

"No one in there right Mind should be investing in that, it could go all the way to zero, that is just a dead cat bounce"



Anyway, I am sure you get the picture.
I am not saying don't use your common sense when to buy and how much you buy. Just saying no one has any idea, all the charts in the world with all the indicators by there very nature are all backwards looking............

 

I've created this new thread as the discussion was taking the Thornhill thread off topic. I'll see if the existing posts can be moved to here. So please post any further discussion related to this topic here.

Thanks

 

Some interesting material for enthusiasts of this subject:

https://www.propertychat.com.au/community/attachments/newsl_oct08_fear_and_greed4-pdf.11968/

https://www.propertychat.com.au/community/attachments/newsl_feb09_divyields_andrecessions-pdf.11927/

https://www.propertychat.com.au/com...ly09_multiyear_risk_and_returns2-1-pdf.11940/

https://www.propertychat.com.au/com...ly09_multiyear_risk_and_returns2-1-pdf.11940/

https://www.propertychat.com.au/community/attachments/fear_and_greed-report_-oct_09-1-pdf.12013/

https://www.propertychat.com.au/community/attachments/fear_and_greed_sep09-1-pdf.12014/

High dividend yields support equity returns - Cuffelinks

Investing against the herd, Part 3, Testing the theory - Cuffelinks

Market Statistics

http://www.marketindex.com.au/sites/default/files/statistics/asx-fundamentals.xlsx

http://www.starcapital.de/files/pub...tock_Market_Returns_Shiller_CAPE_Keimling.pdf

Global Stock Market Valuation Ratios (Shiller PE, CAPE, PB...)

Incredible Charts: Free Download - Stock Market Charting Software

Be warned that there is no silver bullet. But interesting to discuss for some. As long as there are markets there will be those who continue to try to solve the unsolvable!

 

You should be paid for doing the work on this forum, not that you need the money.

Your effort is much appreciated @austing

 

Ditto! Appreciate spreading the knowledge. Better find a vino and a comfy chair... reading to come

 

He he, I don't think so. It gives me something to do in retirement when it's too hot / wet to get outside. As pointed out many times I'm just an amateur investor. If it helps others in some small way I'm genuinely thrilled.

PS: How's your ear after the recent phone call?

 

Never had enough of investment talks @austing

I am patiently waiting for the next GFC

 

Perhaps these pair could create some timing opportunities:



Why the market's optimism doesn't wash

 

Forgot the scary one:

http://www.philocapital.com.au/images/researchreports/BuyHoldorBuyHopeAug2012.pdf?phpMyAdmin=0n6odT3,EGip9lBgzXdLgnIEe9f

Don't panic, It was discussed in existing posts I've asked the forum administrators to move from the Thornhill thread to here.

PS: Also I forgot to give credit to @Intrigued_again for some of the material at the start of this thread. Thanks again mate.

 

In response to my post elsewhere:

DCA is of course an excellent strategy for many investors. A different interpretation of what I meant however. In our case I'm convinced beyond all doubt that backing off from buying in extreme boom and buying with ears pinned back in extreme gloom has fast tracked our wealth creation significantly.

A very early retiree @keithj has a similar but little more extreme view to me as mentioned here:

So I suppose you could say that there is at times an element of timing with @keithj and myself. No complicated charts or indicators though, just some very simple guides along with common sense. And no of course we don't ever expect to pick the bottom of the market or predict the future. But we are sensible enough to know those times when caution is needed and when great buying opportunities arise. We can only say what works for us regardless of all the theories out there for and against timing.

Importantly in my case it doesn't mean I don't buy in between these extremes (eg dips, NTA opportunities, discounted SPPs etc) but I certainly do take a different path once we enter extreme market conditions.

 

Was this always your approach @austing since you began accumulating lic's ie, waiting for dips etc etc or were you in a different frame of mind in the early accumlation of shares phase where you were more focused on getting a certain amount of holdings in your chosen lic's and didnt totalled ignore prices but kept buying regardless?

Or was there a best of both worlds exercised with discipline and patience?!