Long Term Investing Valuation and Timing Strategies

accumulate cash
and buy when market forward PE is below long term average - ie times of (preferably extreme) gloom.

Without doubt this is what works.
This is what most have to work on; accumulating cash instead of buying smashed avo sandwiches (did I say that out loud)
To be able to buy with ears pinned backed when chicken little is squealing at the top of his/ her lungs.

Just keep DOING at a ratio that is comfortable for your circumstances and as the confidence grows so too will the emotional intelligence.

 

Great Post again.

Every indicator has its flaws. If you can believe the research in the case of PE (historical or forward) there are many. Even professionals differ wildly in the tools they use and their views. What chance have us amateurs got if the experts can't agree. In other words pick the indicator of your choice if you wish to use one. You will note however the one thing that is being said in all my posts is "EXTREME"! Extreme gloom, extreme boom. Why is this the most important one in my view? Because it's so damn easy to identify! Experience from DOING as stated by @Pier1 will teach you the rest.

 

Let's just say I'm a slow learner. If there's a mistake to be made with investing it's likely I've made it. Emotional intelligence which Thornhill writes about and mentioned here by @Pier1 was damn slow in coming in my case. So what I write here now is mostly how I've invested somewhat later in life. I started well on Daryl Dixon's advice in my 20's but did a lot of stupid stuff in between. I'm still far from perfect but keep improving over time especially in the emotional intelligence area.

So although it would be nice to say I was disciplined and patient right from the start I'm afraid I can't. Let's just say the word "PERSISTENT" best describes how I got to where I am now.

 

Nice response yes i was thinking that if an investor just kept pumping available funds in their allocated lic's over a 20 year time frame without being totally obsessed with sp and discount/premium up to a point i.e 5% premium im still positively surely that they will have a pretty successful outcome in obtaining a passive dividend income stream down the track in utilising all the drp's, spp's, and rights offers!

Or maybe not?!

 

Of course they will be successful. As @Pier1 pointed out all this optimisation is not the main game. It's tinkering around the edges and in no way mandatory for success.

Forums cater for all sorts. Beginners, advanced, enthusiasts, those who want to keep it simple and nutters (proabably me) etc. There's only so much you can keep saying about the old LICs. So at times topics venture into strange territory for some variety. Don't let yourself be drawn into it if you don't have the time or interest. Take Thornhill who has said at times "those silly people like himself who buy direct shares when they could just own LICs ..." Hence some us do these things because we like to, not because we have to.

Honestly if all I did was DCA over my lifetime ignoring timing instead of playing silly buggers earlier on no doubt I would be a lot better off now. But I'm an enthusiast at times and so I like to include unnecessary optimising. And sometimes one is just lucky.

Plus we're retired now with more income than we ever thought we'd have (ie way exceeded our goal) so investing further in shares could be considered optional for us. Hence if I choose to sit on the sidelines for years waiting for a crash it's of little consequence to our lifestyle. Accumulation is a different story, you have to invest!

Keep it simple. Follow a great plan like the one beautifully summaried by @Pier1 which appears to be heavily influenced by Thornhill. Start DOING, gain experience and emotional intellegence as Peter describes. Then and only then if you're silly enough to want to buy direct share and / or start trying to get smart by optimising then perhaps consider it?

Just be aware though that once you venture away from simple proven strategies such as DCA you may end up doing more harm to your investing than good! Mistakes can be made and ah the urge to fiddle, an investor's worst enemy.

Just remember this chart. The cash was invested at the start, dividends reinvested then left alone. No optimising, no fiddling just time in the market. As you can see the more reliable dividend area of the market (yellow line Industrials NOT resources) is where the best gains are to be had:

 

A Value Averaging or Dollar Value Averaging (DVA) approach then, buying more stocks at lower prices and fewer at higher?

i.e Michael E Edleson though he also advocated selling when profits exceeded their expected growth rate

Instead of investing the same monthly amount as with dollar cost averaging you invest more during bear markets and less during bull markets.

Simon Hayley published a critical study of Value Averaging in 2012. He pointed out that comparing value averaging with dollar cost averaging ignored the cash that investors must carry on the sidelines to utilize such an approach

The basic idea

Basically, the idea behind dollar-cost averaging is that instead of investing a sum of money all at once, you dole it out a bit at a time over a specific period. So, for example, if at the beginning of the year you had $12,000 you wanted to invest in stocks, you might invest $1,000 each month over the course of a year instead of investing it all at once.

The idea is that you reduce risk because you're buying stocks at a variety of prices throughout the year instead of buying all the shares at a single price.

Value averaging works a bit differently. With value averaging, you first figure out how much money you will need to accumulate for a goal such as retirement. Then, based on the annualized return you expect to earn on your investments, you figure out how much you must invest each month to achieve that goal.

So let's say you have a goal of accumulating $500,000 over the next 20 years. If you figure you can earn an annualized 8 percent, then you would need to put away about $875 a month. You can then chart your progress month by month towards that goal.

Here's where the "value" part of value averaging comes in. Let's say that, at the end of the first year, instead of having the $10,950 you should have to be on track toward your goal, a downturn in the markets leaves you with just $10,000.

That would mean that the next month, instead of investing your usual $875, you would invest an additional $950 to bring your portfolio's value to where it should have been to remain on track toward your goal. In fact, you would go through this process each month. In months where you fall behind, you would add to the amount you invest each month. And in months where your returns are higher than expected and your portfolio's value gets beyond where it needs to be, you would scale back your monthly investment, or even possibly end up selling some shares.

There are various ways to carry out this strategy. Instead of adjusting your investment amount each month, you could recalculate it every six months or every year. But that's the gist of how value averaging works

 

Not timing per se but with historical CAPE levels for U.S. stocks at around 16 x earnings and current CAPE levels at around 26.4 x earnings at the end of Dec 2016 its looking exxy

Unless it pulls back and with recent USand ASX runs, my next lot of funds will likely be going into International

Global Stock Market Valuation Ratios

 

So GFC is on the way hummmmm

 

Of course another GFC type event is on its way. They always are. We just don't know when. Expect the unexpected and always be prepared.

 

Who knows when it will come maybe in a few more years, maybe sooner ?

 

Hi gang,

A favour please?

It's well and good to discuss valuation and timing but very difficult to do without DATA. Therefore can forum members please post any "FREE" SOURCES OF DATA (current and historical) you're aware of for the ASX200 and ALL ORDS at a minimum. Fundamental and other useful data such as PE (including Foward), PB, CAPE10, dividend yield etc.

I've posted a couple above repeated here:
Market Statistics

Global Stock Market Valuation Ratios (Shiller PE, CAPE, PB...) (But AU PE = 26.2?)

Another useful source for charts (inc forward PE) but lacking detail:
Chart Pack-Share Markets | RBA

http://www.rba.gov.au/statistics/tables/pdf/f07.pdf

CPI:
http://www.rba.gov.au/statistics/tables/xls/g01hist.xls

So please add anything you think might be useful.

Cheers

 

www.google.com/finance has a fair bit of free information like that

 

Started to read these news letters. This is really really great stuff written by Ashley Ormond.

 

Sure is. However as discussed in the other thread, where I've asked for the posts to be transferred to here, the moving average doesn't appear to fit the current environment well. Or perhaps it does??? Reposted below (ignore the outer bands they're MAvg Bands not Std Deviation Bands):



The above suggests that fair value for the All Ords is 5037? PE (including forward) and CAPE10 also suggest the market is overvalued. Dividend yield however appears ok but may be distorted by high payout ratios given shareholder demand for income in a low interest rate environment? So anyone's guess and only time will tell!

Interesting times ahead in these unprecedented times given historically low yield and central bank intervention which is causing all sorts of distortion. Fortunately as a retiree with sufficient income I can sit on the sidelines as all this plays out. I'm not selling anything however. A major correction / crash combined with extreme gloom will be my trigger to enter the market with vigor again.

In the meantime I entertain myself having fun seeing if any of these tools will have been of any use whilst the credit bubble unwinds. As in the past I doubt I'll need any tool to tell me when the market has crashed and fear is everywhere. The only tool needed then is psychological.

The above said I do like Owen / Ormond's writings especially his earlier stuff which isn't biased by his now involvement in funds management.

 

When you say international, would that be something like VEU?

 

Yes,

Ignoring short term fluctuations on the premise that they revert to the mean over the long term.

Or what was it a wise man said about voting and weighing machines

 

This article in conjunction with the "you can't time the market" catchphrase implies that money can't be made in the sharemarket without luck or time (lots of it). In summary, it says that buying in boom periods, even using dollar cost averaging, will mean that you can't get your money for 20+ years. So if you can't time the market, how can you know the boom periods?

Based on this article, and this great link Global Stock Market Valuation Ratios (Shiller PE, CAPE, PB...) it doesn't really seem like a time to buy at the moment, unless you can focus on specific markets.

Right now, emerging Europe, Russia or China look the most undervalued. VGE? Even BRIC contains India which is expensive. Any emerging Europe LICs? Seems a rather speculative market to me.

 

From the PDF Buy & Hold or Buy & Hope

 

Relying on stock market averages

 

In relation to the Philo article here's my response to it for what it's worth:

1. Peter Thornhill
And this
2. Peter Thornhill